| You may have heard about all the glamor and | | | | "Trading" in i-bank engages in the trading various |
| excitement of these "money-making machines", but | | | | financial instruments to earn a spread (difference |
| what exactly are investment banks and what do | | | | between purchase and selling price) or commission |
| they do? Here is a practical guide for those | | | | (charge to client in the form of a percentage from |
| interested in the investment banking careers. | | | | the transactions). These financial instruments include |
| In a nutshell, investment banks are financial | | | | stocks, bonds, foreign currencies, commodities, |
| institutions that advise and execute various financial | | | | structured products and other derivative products. |
| instruments to optimize the financial efficiencies of | | | | Large investment banks may also have a proprietary |
| corporations. | | | | trading desk in which the traders use the investment |
| A typical investment bank has 3 arms: Corporate | | | | bank's own capital to trade and make profits (i.e. their |
| Finance, Sales and Trading, and Research, each with | | | | client is the i-bank itself). These traders are |
| different but complementary roles. | | | | (in)famous of making big bets that may generate |
| 1. Corporate finance is what usually known as the | | | | huge gain or loss for the firm. Therefore, investment |
| core investment banking and offer the following | | | | banks with an active proprietary desk are considered |
| services to corporate clients: | | | | to have a more risky profile. |
| - Capital raising (issuing equities and debts) | | | | 3. In the Research department, the Security Analysts |
| - Bring companies to public markets (Initial Public | | | | (or Research Analysts) study public companies and |
| Offerings or IPO) | | | | write reports with recommendation, typically with |
| - Mergers, acquisitions and divestitures of companies | | | | "buy", "hold" or "sell" ratings. These research reports |
| and their divisions | | | | are often used by Institutional Sales for |
| - Business and financial restructuring | | | | recommending trading ideas and for Investment |
| - Overall advice on strategic planning | | | | Bankers to cover their clients. |
| In a large investment bank, the corporate finance | | | | As you may realize, having research and corporate |
| department is divided into industry and product | | | | finance in the same firm create a potential conflict of |
| groups. Major industry groups include | | | | interests: for example, an investment banker may |
| Telecommunications and Media, Technology, | | | | "force" the research analyst to write something good |
| Healthcare, Consumer Products/Industrial, Financial | | | | on his best clients; or that the research analyst may |
| Institutions (FIG). | | | | become aware and incorrectly disclose an imminent |
| Major product groups include Mergers and Acquisitions | | | | transaction not yet known to the public. To solve this |
| (M&A), Leveraged Finance (for high-yield | | | | problem, investment banks are required to strictly |
| products), as well as Equity Capital Markets (ECM) | | | | separate these two divisions in a practice known as |
| and Debt Capital Markets (DCM) which work with | | | | the "Chinese Wall". |
| equity and debt issuance respectively. | | | | While this covers the three major divisions in an |
| An investment bank may also have geographic | | | | investment bank, the firm may have other divisions |
| teams such as Latin America Corporate Finance, and | | | | such as investment management, private equity, as |
| specific country teams in the European and Asian | | | | well as other middle- and back-office functions such |
| offices in which team members can speak the | | | | as Treasury, Corporate Strategy, Financial Control, |
| language of countries under coverage. | | | | Risk Management, Compliance, Operations and IT. |
| 2. Sales and Trading is responsible for buying and | | | | Therefore, students and graduates should not limit |
| selling financial products. "Sales" in i-bank means | | | | themselves to consider only Corporate Finance for |
| Institutional Sales, whose role is to offer trading ideas | | | | their investment banking careers - Sales and Trading, |
| to the institutional clients (e.g. mutual funds, pension | | | | Research as well as other opportunities within |
| funds, hedge funds and other fund houses). In many | | | | investment banking can be equally rewarding. Do |
| cases the institutional sales will help promote the IPO | | | | more research and find out what's best for you. |
| and new equity/debt issuance arranged by the | | | | Good luck! |
| Corporate Finance arm. | | | | |