Investment banking is a division of financial corporations that deal with the creation of new debt and security instruments, underwriting IPO processes, merge or acquire companies and help high net worth individuals and banks to facilitate high-value investments.
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 the Investment banks?
- 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 do Investment Bankers help in IPOs?
- Who are the Market Makers?
Here we discuss what is Investment Banking, however, if you want to know more about M&A (Mergers and Acquisitions, you can look at Mergers and Acquisitions (M&A) Training.
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?
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 –
- Help buyers find clients and interested sellers to buy the flat, negotiate the lowest price, do the supporting paperwork, ensure that the title is clear
- Help sellers find the clients and interested buyers to sell their flat, negotiate the highest price, do the paperwork, 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, the 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
- Equity Research
- Sales and Trading
- Raising Capital through IPO, FPO, Private Placements, Bond Placements
- Underwriting and Market Making activities
- Mergers and Acquisitions
- PitchBook Preparation
- Restructuring and reorganization
Investment Banking Overview Videos
To understand Investment Banking functions and its roles in detail, I have prepared a 14 part “What is Investment Banking?” video tutorial series to help you jump-start on this topic.
Part 1 – Introduction to Investment Banking
Part 2 – Investment Banking vs Commercial Banking
This part 2 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 3 – Equity Research in an Investment Bank
This part 3 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 the Equity Research Department
Part 4 – What is Asset Management Company
This part 4 video tutorial on What is Asset Management Company discuss the following
- What is the Asset Management Company or AMC?
- How does Asset Management Company work?
Part 5 – Buy Side vs Sell Side in Investment Banking
In this part 5 video tutorial on Buy-Side vs Sell Side, we discuss the following –
- What is Sell Side?
- What is Buy Side?
- Key differences between Sell Side and Buy Side
Part 6 – Sales and Trading
In this Part 6 video tutorial on Sales and Trading we discuss
- What is Sales & Trading?
- Sales Function in Investment Banking
- Trading Function in Investment Banking
Part 7 – Raising Capital – How Investment Bankers help raise capital
In this part 7 video tutorial on Raising Capital – how investment bankers help raise capital through Private Placements, IPOs and FPOs –
- 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 8 – Underwriters
In this 8th part on Underwriters, we discuss the following –
- What is Underwriting
- Role of Investment Bankers in Underwriting IPOs
Part 9 – Market Making by Investment Banks
In this part 9 on Market Making by Investment Banks, we discuss the following –
- Market Making
- Role of Investment Bankers in Market Making Activities
Part 10 – Mergers and Acquisitions
In this part 10 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 PitchBook
Part 11 – Restructuring and Reorganization
In this part 11 video tutorial on Restructuring and Reorganization, we discuss
- What is Restructuring
- What is Reorganization
- Investment Banker’s role in Restructuring and Reorganization.
Part 12 – Investment Banking Roles, Positions and Hierarchy
In this Part 12 video on Investment Banking Roles and Responsibilities, we discuss the key roles and responsibilities of an Investment Banking job.
- Vice President
- Managing Director
Part 13 – Investment Banking – Front Office vs Back Office vs Middle Office
In this part 13 on Investment Banking, we discuss the following –
- What is a front office in Investment Bank
- What is a back office in Investment Bank
- What is a Middle office in Investment Bank
- Front office vs Middle Office vs Back Office
Part 14 – What is Investment Banking – Conclusion
Investment Banking Tutorials
Additional Resources on Investment Banking that you can use to enhance your investment banking knowledge –
- Free Investment Banking Courses – This free Investment Banking course is a must for someone who is new to Investment Banking. This free course starts from Excel, then moves to teach Accounting concepts, Valuations concepts and finally, Financial Modeling concepts. Try and make the most from this Free Investment Banking course.
- Sell Side vs Buy Side – This article provides you with the 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. Pitchbook is nothing but professional presentations prepared by Investment bankers when they communicate with clients.
- Free Investment Banking Courses – This free Investment Banking course is a must for someone who is new to Investment Banking. This free course starts from Excel, then moves to teach 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 a very detailed case study. In this, we take a live case study of Colgate, download its annual reports and prepare a fully 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 a range of concepts from Accounting, valuations, financial modeling, pitch book, LBOs, Private Equity, etc.
- Also check out the Top Boutique Investment Banks, Top Bulge Bracket Investment Banks, Top Middle Market Investment Banks
This has been a guide to what is Investment Banking and its domains like Equity Research, Sales & Trading, M&A, etc. If you learned something new or have any comments/questions/suggestions, please drop me a note in the comment section below.