What is Investment Banking?

What is Investment Banking
The moment you hear the term Investment Banking, many questions may arise in your mind –

  • What is Investment Banking exactly?
  • I have heard about commercial banks. Are they different from Investment bank?
  • What is Sell Side and Buy Side in an Investment Bank?
  • How much salary one can expect in this field of Investment Banking?
  • Is it true that Investment Bankers earn money in tonnes and their bonus is 3-4 times that of their very handsome salary?
  • How Investment Bankers help in IPOs?
  • Who are the Market Makers?

Lots of questions, i guess. In this article on What is Investment Bank, I answer all your queries one by one.

But before we move on, let us first answer the most important question –

What is Investment Banking?

Investment Banking

Let us first take an analogy of a property broker in order to understand Investment Banking in an easier way.

A property broker’s job is primarily two folds –

  1. Help buyers find clients and interested sellers to buy the flat, negotiate the lowest price, do the supporting paper work, ensure that the title is clear
  2. Help sellers find the clients and interested buyers to sell their flat, negotiate the highest price, do the paper work, get the registration done etc

So how does property broker’s earn – commissions (maybe 1% to 10% of the transaction value).

Now in this context think about Investment Bankers as “Financial brokers”. Investment Bankers help companies raise capital for projects, expansion etc and companies may look at various channels like Initial Public Offerings (IPOs), Follow-on Public Offering (FPO), Private Placements etc. In addition, Investment Banking job also includes Mergers and Acquisition Activities where they play the role of Financial Brokers and help companies find suitable acquisition targets or suitable buyers for their companies.

So how does Investment Bankers earn – obviously commissions (maybe 1% to 10% of the transaction value). Are you thinking how much Investment Bankers may have made in the recent Twitter IPO?

The above analogy is very simplified and in technical terms Investment Banking involves the following

  1. Equity Research
  2. Sales and Trading
  3. Raising Capital through IPO, FPO, Private Placements, Bond Placements
  4. Underwriting and Market Making activities
  5. Mergers and Acquisitions
  6. Pitch Book Preparation
  7. Restructuring and reorganization

Investment Banking Overview Videos

To understand Investment Banking functions and its roles in detail, I have prepared a 9 part video tutorial series to help you jump-start on this topic.

#1 Part 1 – Investment Banking vs Commercial Banking

This part 1 video tutorial on Investment Banking vs Commercial Banking discuss the following important basics of Investment Banking –

  • What is an Investment Bank?
  • What is a Commercial Bank
  • Investment Banking vs Commercial Banking.

# Part 2 – Equity Research in an Investment Bank

This part 2 video tutorial Equity Research in an Investment Bank discusses the following –

  • What is Equity Research?
  • How Equity Research Makes Money
  • What is a typical Equity Research job profile?
  • Who are the clients of Equity Research Department

# Part 3 – What is Asset Management Company

This part 3 video tutorial on What is Asset Management Company discuss the following

  • What is Asset Management Company or AMC?
  • How Asset Management Company Work?
  • What is Sell Side?
  • What is Buy Side?
  • Key differences between Sell Side and Buy Side

# Part 4 – Sales and Trading

In this Part 4 video tutorial on Sales and Trading we discuss

  • What is Sales & Trading ?
  • Sales Function in Investment Banking
  • Trading Function in Investment Banking

# Part 5 – Private Placements, IPOs and FPOs

In this part 5 video tutorial on Private Placements, IPOs and FPOs we discuss the following –

  • How companies raise capital?
  • Role of Investment Bankers in Raising Capital
  • What is Initial public offering (IPO) and Follow-on Public Offering or FPO
  • What are Private Placements

# Part 6 – Underwriters and Market Makers

In this 6th part on Underwriters and Market Makers, we discuss the following –

  1. What is Underwriting
  2. Role of Investment Bankers in Underwriting IPOs
  3. Market Making
  4. Role of Investment Bankers in Market Making Activities

# Part 7 – Mergers and Acquisitions

In this part 7 video tutorial on Mergers and Acquisitions, we discuss the following –

  • What are Mergers and Acquisition or M&A
  • How Investment Bankers help in M&As
  • Investment Banking due diligence for M&A
  • Investment Banking Pitch Book

# Part 8 – Restructuring and Reorganization

In this part 8 video tutorial on Restructuring and Reorganization we discuss

  • What is Restructuring
  • What is Reorganization
  • Investment Bankers role in Restructuring and Reorganization.

# Part 9 –  Investment Banking Roles and Responsibilities

In this last video on Investment Banking Roles and Responsibilities we discuss the key roles and responsibilities of an Investment Banking job.

  • Analyst
  • Associate
  • Vice President
  • Managing Director
  • Differences between Front Office, Middle Office and Back-Office

Investment Banking Resources

Investment Banking Resources

Additional Resources on Investment Banking that you can use to enhance your investment banking knowledge –

  • Free Investment Banking Courses – This free Investment Banking courses is a must for someone who is new to Investment Banking. This free course starts from Excel, then move to teaching Accounting concepts, Valuations concepts and finally, Financial Modeling. Try and make the  most from this Free Investment Banking course.
  • Sell Side vs Buy Side –  This article provides you with frequently asked difference between sell side vs Buy side in Investment Banking
  • Investment Banking Questions & Answers  – This article details the frequently asked interview questions on Investment Banking. As a fresher, you may find these resources useful.
  • Investment Banking Associate Salary – So, what is the salary of an Investment Banking Associate. If you move into investment banking and get promoted to an associate from an analyst position, what is the typical salary that you can expect.
  • Guide to Investment Banking Pitch Books – This guide to Investment Banking pitch book provides you with nuts and bolts of preparing a pitch book. Pitch book is nothing but professional presentations prepared by Investment bankers when they communicate with clients.
  • Free Investment Banking Courses – This free Investment Banking courses is a must for someone who is new to Investment Banking. This free course starts from Excel, then move to teaching Accounting concepts, Valuations concepts and finally, Financial Modeling. Try and make the  most from this Free Investment Banking course.
  • Equity Research Guide – This comprehensive guide on equity research provides a bird’s eye view of What equity research is all about, what to expect, skills required to become an equity research analyst and how to prepare an equity research report.
  • Financial Modeling Training – This financial modeling training is very detailed case study. In this we take a live case study of Colgate, download its annual reports and prepare a full integrated financial model linking the Income Statement, Balance Sheet and Cash Flows. This tutorial is step by step guide to learning Financial Modeling where you will find unsolved excel case study and solve Colgate Case Study.
  • Investment Banker Lifestyle – In this article, we discuss a typical day as an Investment Banker. What are the work timings, job responsibilities, pressure situations etc.
  • Investment Banking Professional Training – If you want to learn Investment Banking professionally, you can also opt for this course. In this course, there are 99 video courses covering range of concepts from Accounting, valuations, financial modeling, pitch book, LBOs, Private Equity etc.
  • Also checkout the Top Boutique Investment BanksTop Bulge Bracket Investment BanksTop Middle Market Investment Banks

What Next?

If you learnt something new or have any comments/questions/suggestions, please drop me a note in the comment section below.

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