Financial Career Track #2: Investment Banking

Posted on September 12, 2011 by aleksandra

This week’s focus is on a very prestigious financial career track: Investment Banking. It is otherwise known as Corporate Finance, Mergers & Acquisitions, Corporate Banking, Global Banking, and Merchant Banking. This article will cover the following areas:

What is Investment Banking

What are the top Investment Banks

What roles are out there in Investment Banking

What skills are you expected to bring on board

What would a graduate analyst’s work look like

What salary can you expect to have

What is Investment Banking

Fundamentally, Investment Banking is about helping corporate clients build their businesses by providing them with financial and strategic advice as well as products. The corporate clients investment bankers work with are typically large blue chip companies. As an investment banker, you would be expected to raise money for your client by issuing shares and debts in the firm, advise your client in times of merger with another company, helping develop financial strategies for your client, as well as identifying new business deals.

Top Investment Banks

There are three top investment banks that are globally recognised: Goldman Sachs, JP Morgan, and Morgan Stanley. Getting into any of these three requires perseverance and hard work. As a student, you might think of getting ahead of your competition by participating in Spring Weeks organised by the banks or by interning during a Summer Analyst Scheme. For example, have a look at Goldman Sachs’ website on Division Spring Internships: http://www2.goldmansachs.com/careers/choose-your-path/our-programs/emea-programs/division-spring-internships.html and Morgan Stanley’s Summer Analyst Programme: http://www.morganstanley.com/about/careers/internships.html

Other investment banks are typically regionally oriented or situated in the middle market. You might come across boutique investment banks, which are oriented toward an industry vertical, bond-trading, M&A advisory, technical analysis, or program trading.

Other top investment banks include – Citigroup, Bank of America, Deutsche Bank, UBS, Credit Suisse, HSBC, Royal Bank of Scotland, Lazard, etc.

Roles in Investment Banking

An investment banker will usually find himself/herself in one of the following two teams: client team or project team.

In a client team, an investment banker is a specialist. He/she will be looking after specific clients in a designated region or industry. The main tasks in a client team are to identify a client’s needs and to then call on product specialists for advice on which products and services would satisfy the client’s requirements.

In a product team, an investment banker is more of a generalist. He/she has to have extensive knowledge of a particular product in order to be able to advise client teams on the range of services that the bank can provide clients with. There are several different product areas that investment bankers can specialise in:

Mergers & Acquisitions – when clients are seeking to buy another firm, they are provided with strategic and financial advice by the bank. The advice may relate to potential target companies, pricing and valuation, as well as how to integrate the firms post-acquisition. Banks which specialise in this area are Goldman Sachs, Deutsche Bank, and Morgan Stanley.

Structure Financing – investment bankers provide clients with an alternative to standard business loans. They borrow against a company’s cash-flow history. In order to successfully do your work in this area, you must have good spreadsheet, accounting, and legal skills.

Equity Capital Markets – in this case, investment bankers help clients structure, buy, sell, and issue shares. What they decide to do with the shares is highly dependent on the financial situation and future estimates of the client firm’s performance.

Debt Capital Markets – when clients have limited access to traditional capital sources, they ask investment bankers to help them raise funds by taking out loans in the form of high yield bonds or investment grade bonds. Investment bankers working in this area will need to interact with other divisions, such as financial strategy, derivatives, and currency trading, in order to be in a position to give sound advice to clients.

Skills and qualities

It is vital to know that it is very tough to break into the investment banking market. Potential employers require from their future employees a strong analytical and interpersonal skill set.

Generally, the following qualities are looked for in a prospective employee:

Strong problem solving skills

Highly numerate

Drive, ambition, flexibility

Ability to quickly learn

Exceptional networking skills

Stamina

Ability to work with influential clients

As an Analyst, you are expected to be:

Very dedicated

Have good spreadsheet skills

Be highly analytical

At a mid-career level, you should have:

Very good communication skills in order to successfully work with clients

A thorough understanding of market trends, the political and macroeconomic environment, and deal mechanics

In order to get a leg up in the recruitment process, you might think of acquiring a CFA certificate as accounting skills are highly valuable in investment banking.

What can you expect as a Graduate Analyst

As a Graduate Analyst at an investment bank, you have to be prepared for a number of difficulties and challenges. You should expect to work hard from the first day with very long hours in a demanding environment constantly under pressure. As an Analyst, you probably won’t have much choice on which division you can work in; most likely, you’ll be rotating between different departments at least during the duration of your first year. However, on the bright side, you can expect to receive very high rewards in terms of financial compensation as well as considerable client exposure.

Salaries

Salaries will vary with the firm you’re working for and the region of the country you are in. However, below are rough estimates of how much you can expect to earn as an investment banker.

At the level of an analyst or a junior analyst, you can anticipate a salary between $100,000 and $130,000 (figures for fiscal year 2011), not including the bonus you are sure to receive.

At an associate position, a salary between $90,000 and $180,000 is to be expected after bonus (figures for fiscal year 2011).

Bonuses greatly vary in size and can reach very high levels; they can end up being between 10% to 50% of your salary. In 2008, due to the severity of the financial crisis, most investment bankers received low and even zero bonuses. You have to be aware of the fact that bonuses are heavily dependent on the state of the current economic climate.

In addition, it is important to know that the salary you will receive will include an equity component, which is especially designed for the purpose to limit employees’ movement between firms.

In terms of investment banking areas, due to the new financial forms, salaries in prop trading, institutional equity sales, and securitisation will most likely fall. In contrast, areas such as restructuring, health care M&A/financing, and debt capital markets are growing, and therefore, are expected to have a positive upward effect on salaries.

If you are interested in more information about how to become an investment banker at Credit Suisse, check out a detailed article written by Credit Suisse alumnus here.

Come back next week for an insight into Wealth Management!