What is investment banking in simple terms?
Definition: Investment banking is a special segment of banking operation that helps individuals or organisations raise capital and provide financial consultancy services to them. They act as intermediaries between security issuers and investors and help new firms to go public.
Investment banking is essentially a financial service provided by a finance company or a banking division to help large multinational corporations in their investment plans. Along with large companies and organisations, this service also helps high net worth individuals and governments to raise or create capital.
In essence, investment banks are a bridge between large enterprises and the investor. Their primary roles are to advise businesses and governments on how to meet their financial challenges and to help them procure financing, whether it be from stock offerings, bond issues, or derivative products.
Investment bankers often work as part of a financial institution. Examples of investment banker employers are Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of America Merrill Lynch (BAC), and Deutsche Bank (DB).
Investment banks play a key role in the economy by helping clients with money to invest and generate a return from clients that need funds to support growth. In this way, they make it more likely that companies can expand.
Investment banks earn revenue through fees charged for their services. Typically, there are two types of fees they earn: Underwriting fees for arranging the sale of securities (debt or equity) on behalf of clients. Advisory fees for providing strategic guidance.
The difference between commercial banking vs. investment banking is that investment banks typically raise money by selling securities (like stocks and bonds). On the other hand, commercial banks use consumer deposits to fund loans and mortgages, and the interest on those loans becomes profit for the bank.
Investment bankers meet with clients, send emails, prepare offers, conduct financial projections, work on signing new clients to the company, providing initial public offerings (IPOs), and mergers and acquisitions. These are some of the tasks an investment banker must do on a daily or weekly basis.
Can you become a millionaire as an investment banker? It is possible to become a millionaire as an investment banker, but it is not easy. Investment bankers typically earn salaries in the $200,000 to $700,000 range, with bonuses that can bring their total income up to several million dollars per year.
| Annual Salary | Monthly Pay | |
|---|---|---|
| Top Earners | $142,000 | $11,833 |
| 75th Percentile | $123,500 | $10,291 |
| Average | $118,333 | $9,861 |
| 25th Percentile | $107,500 | $8,958 |
How hard is investment banking?
Investment banking is one of Wall Street's most coveted roles. It is also one of the hardest. It is no surprise that the average day in an investment banker's life is long and stressful. Those who manage to survive the adjustment period often go on to have long and financially rewarding careers.
J.P. Morgan is one of the most storied and powerful bankers of all time, consolidating industries and bailing out the government in times of economic turmoil. Paul Warburg was instrumental in creating the U.S. central bank, the Federal Reserve. Amadeo P.
What Is an Investment Banker? Investment bankers are investment professionals who combine financial services industry expertise, analytical prowess, and effective persuasive communication skills to support institutional clients in activities like capital raising and mergers and acquisitions.
Investment bankers are typically the highest-paid workers in the finance industry—high salaries are most prevalent even among younger employees. The starting salary for the typical investment banker exceeds that of most other finance positions, but working in this field has its challenges.
Key Takeaways
The downsides of an investment banker's life are lengthy working hours, unpredictable work nature, stress, no error tolerance, work pressure, and conducting unimportant tasks.
- Conduct Financial Analysis (e.g., Profitability and Credit Risk Analysis)
- Perform Financial Modeling and Valuation Analyses in Excel (e.g., DCF Analysis, Trading Comps, and Transaction Comps)
- Build a Merger Model (Accretion/Dilution Analysis)
Investment banks earn commissions and fees on underwriting new issues of securities via bond offerings or stock IPOs. Investment banks often serve as asset managers for their clients as well.
Earn a Finance Degree
According to Simmerman, investment banking jobs typically require a minimum of a bachelor's degree in finance or a related field, such as a bachelor's in accounting or a bachelor's in business administration.
Investment bankers must earn at least a bachelor's degree and obtain FINRA licensure. Completing a bachelor's program usually takes at least four years; completing licensure exams and certifications thereafter is generally ongoing.
J.P. Morgan is a leader in investment banking, commercial banking, financial transaction processing and asset management. We serve millions of customers, predominantly in the U.S., and many of the world's most prominent corporate, institutional and government clients globally.
What are the three main functions of an investment banker?
An investment banker performs three basic functions: underwriting, distributing, and advising.
While investment banking is a subset of corporate financing, the type of work you might do in either field can differ. Where corporate financing focuses on helping organizations maximize their worth through acquiring capital for expansion and consolidation, investment banking focuses on more narrow investment needs.
Investment Banking Career Path
Increasingly, analysts that do stay are getting promoted directly to associate (going "A to A") after two years. As an associate, compensation rises significantly. The next level up is Vice President, which can make upwards of 500k.
How Much Sleep Do You Get in Investment Banking? Investment Bankers who average 80-hour work days will likely get around 7 hours of sleep per night assuming that they go to bed at around 2 AM and wake up around 9 AM.
How can you earn a six-figure salary at top investment banking firms without any experience in 2023. On average, a first-year investment banker makes a 5-digit salary, in the range of $70,000 – $90,000, while a 7-digit salary is considered above average and is difficult to achieve for most people in their careers.
