Before moving forward with an investment banking job search, it is important to get the big picture as to what an Investment Bank is, the role it plays in the market and the different divisions within the bank.
Investment banking refers to the segment of banking that includes the entire gamut of activities associated with helping companies and other entities acquire funds, make investments and carry out certain transactions.
Traditionally, banks were either commercial banks or investment banks. In fact, it was illegal for a bank in the US to offer both commercial banking and investment banking services. That changed on November 12, 1999, when the Gramm-Leach-Bliley Act allowed the consolidation of commercial and investment banks. Several banks opted to widen their horizon. For instance, Citigroup as we know it today would not have existed had it not been for this Act.
Today, investment banks play an important role in shaping the global financial industry. But how are the activities of investment banks different from those of commercial banks? Commercial banks provide deposit and loan services through their wide branch networks and thousands of ATMs spread across the globe. If you are looking at opening checking or savings accounts, you are seeking the services of a commercial bank. We all are familiar with commercial banks and interact with them regularly to invest our savings, fund our education or take a loan to buy a car. Commercial banks are involved in accepting deposits and using these funds to lend to other people. These banks earn their income by lending at rates higher than what is being paid by them to their depositors. Commercial banks also lend through credit cards, besides offering safe deposit, notary and merchant banking services.
Investment banks differ from these commercial banks in that they work with bigger organizations, institutional investors and high net worth individuals. They advise clients on their investment issues, besides helping them raise funds through the debt as well as the equity routes. Investment bankers sometimes act as principals in some transactions, while representing their clients in several other transactions.
Investment banks, such as Goldman Sachs, Lehman Brothers and Merrill Lynch, provide a wide range of services comprising of underwriting, trading in securities and financial advisory services related to restructuring, mergers and acquisitions. Although a significant percentage of investment banks are located in or around Wall Street , the nerve centre of global financial activity, several players operate from other financial centers, such as London (Barclays), Germany (Dresdner Kleinwort, Deutsche Bank) and recently Hong Kong (HSBC).
The primary revenue sources of the investment banks are the fees or commission earned through the placement of equity and debt on behalf of their clients, which may include large institutions, companies, hedge funds and wealthy individuals. Investment banks also provide strategic advisory services for mergers, acquisitions or divestitures as well as other financial services, such as the trading of derivatives, fixed income, foreign exchange (forex), commodities, and equity securities.
Over the years, the line between commercial banks and investment banks has thinned and is slowly disappearing. Several mega-banks, such as Citibank, Deutsche Bank and BNP Paribas, operate at a number of levels and provide an umbrella of services that could fall under either commercial banking or investment banking.
The investment banking industry plays a crucial role in raising and supplying the capital needed by a corporation to establish its business, expand and grow. The industry also provides advisory and asset management services to potential investors, governments and retirement funds. Investment banks act as intermediaries between the firms raising funds and investors, whether individuals or institutional. These banks help in the issuance of equity (primary or secondary) and bonds, in addition to arranging debt for their clients. Apart from acting as a mediator, investment banks often purchase debt and equities on their own accounts and act as market makers.
Investment bankers can act as underwriters of new issues or initial public offerings (IPO) by buying the equity of the offering company at a pre-negotiated price and then reselling them to investors, institutions and, in some cases, other investment banks. An Investment Bank can also provide advisory services, like asset management, market research and analysis and facilitating mergers and acquisition (M&A) deals. Income earned on the sale and purchase of securities and other financial instruments also forms an important part of an investment banker’s revenues. Although a major chunk of the investment banking community’s income comes from fees related to M&A deals and related transactions, it may vary for individual players depending on their specialization.
The functions of an investment bank can be divided into specific categories or divisions depending on the services being offered and the clients being catered to. The corporate finance department of an investment bank caters to the funding requirements of a company. This division is responsible for extensively studying what the client needs and how the necessary funds can be arranged through equity or debt routes.
Since securities trading and investment in financial instruments is a significant contributor to an investment bank’s income, firms like Merrill Lynch and Morgan Stanley, have a separate department for capital markets trading and investment. This division is responsible for all investments by an investment bank into the securities markets, whether through underwriting or direct trading in the stock markets.
Leading investment banks, such as Goldman Sachs, Lehman Brothers, JP Morgan, Deutsche Bank, Credit Suisse, UBS and Merrill Lynch, have their own research departments with specialized staff analyzing the latest economic and industry situations. This department aims to provide insightful, objective and decisive research that enables the bank as well as its clients to take informed decisions. Although there is some question regarding conflict of interest, the research staff in these organizations is well equipped to carry out risk, financial and economic analysis to aid these investment banks in advising their clients and chalking out their own investment strategies.
The institutional sales and trading division maintains relationships with institutional investors comprising of mutual funds, investment advisory firms, banks, pension funds, insurance companies and other money management firms so as to have a potent distribution system.
According to the investment banking league tables issued by the Financial Times, JP Morgan ranks as numero uno in terms of total revenues recorded in the first quarter. JP Morgan is followed by Citi, Goldman Sachs, Merrill Lynch, UBS and Banc of America. Morgan Stanley, Credit Suisse, Deutsche Bank and Lehman Brothers (Barclays acquired Lehman Brothers, North America, after the bankruptcy filing) are also among the top ten. Revenues of all these firms have been driven by a significant contribution from M&A activity and are followed by contributions from equity and debt capital raising. Job Search Digest published an overview of the Top Investment Banks in New York City as well.
Although the size and revenues of the investment banking industry have risen sharply in the past few years, many investment banks suffered losses due to their exposure to the US sub-prime securities segment.
If you would like to find an investment banking job opportunity, you could look at the numerous investment banking jobs available. You can do this by browsing sites like Job Search Digest. You can also get in touch with leading executive search consultants for details of current vacancies. www.JobSearchDigest.com provides its members with a database of niche investment banking recruiters.