Investment banking forms part of the financial services industry involved in the underwriting, distribution, and trading of securities. Investment bankers work on behalf of both individual and institutional clients to raise capital by issuing securities, as well as to advise clients on financial matters such as mergers, acquisitions, and other corporate finance activities.
What Investment Bankers Do
There are several key roles within investment banking, including corporate finance, sales and trading, and research.
Corporate finance is a key function of investment banking and involves working with clients to raise capital through the issuance of securities. This may involve assisting companies with the initial public offering (IPO) process, as well as helping them to issue debt or equity securities to raise capital. Investment bankers in corporate finance may also be involved in mergers and acquisitions (M&A) activities, advising clients on the potential risks and benefits of buying or selling a business.
Sales and trading is another key area of investment banking that involves matching buyers and sellers of securities or buying and selling securities out of the bank’s own account in order to make a market. Investment bankers may also be involved in the creation and distribution of new securities.
Research is another important function within investment banking, and involves analyzing financial data and trends to provide insights and recommendations to clients. Investment bankers in research roles may work on producing reports and presentations on specific industries or companies, or may be involved in analyzing macroeconomic trends to provide broader market insights.
Breaking into Investment Banking
Breaking into investment banking can be a competitive process, as it is a highly sought-after career path.
Here are four steps that can help you get started:
- Pursue a relevant degree – While there is no specific degree requirement for investment banking, a degree in a field such as finance, economics, or business is typically preferred. This will provide you with the necessary foundation in financial concepts and analysis that will allow you to present well in the interview and hit the ground running from day one.
- Gain relevant experience – Many investment banks look for candidates with relevant experience, such as internships or part-time jobs in finance or banking. This can help you develop your skills and knowledge, as well as give you a better understanding of the industry and which role would suit you best.
- Network – Building relationships within the industry can be a key factor in getting your foot in the door at an investment bank. Attend networking events, join relevant professional organizations, and reach out to alumni or other professionals in the field to learn more about their experiences and get advice on how to break into the industry.
- Prepare for the interview process – Investment banks typically have a rigorous interview process, and it’s important to be well-prepared. This may include taking practice tests, researching the company, and rehearsing your answers to common interview questions such as:
- How do you value a company?
- How would you value a company with negative historical cash flow?
- What is typically higher – the cost of debt or the cost of equity?
- How do you calculate the cost of equity?
- How would you calculate beta for a company?
Conclusion
Investment banking is part of the financial services industry and involved in the issuance and trading of securities, as well as advising clients on financial matters. Investment bankers work in a variety of roles, including corporate finance, sales and trading, and research, and may be involved in activities such as IPO’s, M&A, and market analysis.
Breaking into investment banking typically requires a relevant degree, relevant experience, strong networking skills, and preparing for the interview process. It can be a competitive field, but with hard work and dedication, it can be a lucrative career path.
Zuhair Imaduddin is a Senior Product Manager at Wells Fargo. He previously worked at JPMorgan Chase and graduated from Cornell University.
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