About two centuries ago, the construction of railroads and heavy industries caused the American economy to grow faster than manageable. Commercial banks at the time could not keep up with the industrial revolution, and people sought to find a solution that could help maintain growth. Investment banks were born.
Investment banks, in the simplest sense, are a bridge between people with money and people who need it. Sure sounds a lot like loans. However, these types of loans are enough to run a company or even buy one. It all started in the 19th century when governments issued bonds to help finance their projects. Those bonds needed to be exchanged with prominent investors for capital. However, a big problem here was that nobody trusted anybody. It’s like a typical hostage exchange situation from a spy movie where both parties didn’t know if the other would stay true to the demands. Investment bankers served as the middlemen that brought trust and credibility to the table while making a profit off the exchange, a lot of profit. Today, investment banks offer a range of financial solutions, such as:
Underwriting of stocks or bonds – Investment banks provide capital and funding through investment in companies or government entities. They provide financing to these institutions through underwriting – which essentially is a formal agreement that connects investors and corporations.
Managing IPO – It stands for initial public offering. When a company goes public (investors can buy stocks) there is a lot of research required to determine the initial stock price and handle the legal issues. Investments banks overlook this entire procedure.
Mergers and Acquisitions – The clients looking to sell their company or buy another company go to investment banks for advice. The banks perform financial valuation to find out how much the company is worth and assist clients through the whole process of merging or acquiring by drawing out the best possible structure for the offer.
So how do you become an investment banker?
Investment bankers require a wide range of technical skills, ranging from market analysis and conducting research to performing financial modelling. They have to come up with ways to present all this information effectively and follow on in other administrative duties as well. They must have intellectual curiosity in mathematics, finance and analytics along with a knack to think creatively to build innovative solutions.
Investment Bankers work in pressure for long hours, and they need utmost discipline and commitment to justify their sky high salaries. Another crucial skill is networking, as this is what allows investment bankers to climb up the corporate ladder. They manage a lot of clients, and it is necessary to deal with them with a positive and professional attitude.
The easiest and most popular way to become one is through school. Entering laterally into this field is rare and rather hard. This profession requires credibility and professionalism above all and therefore, most investment bankers hold an MBA degree or at least a BBA degree. Banks pay a lot of attention to B-schools during recruitment, but students in the fields of accounting, economics and mathematics have a good chance of making it in this industry too.
The best institutions for a direct route into investment banking (read good placements) are:
- London School of Economics
- Oxford University
- Cambridge University
- Harvard University
- Columbia University
- Yale University
- University of Pennsylvania
- Cornell University
- University of Chicago
- University of California
Apart from a Business education, doing internships add value to a student’s profile. B-schools offer opportunities for summer internships and networking events. The best way for students to dig into this field would be to make their presence known. Many companies provide pre-placement offers to their interns, guaranteeing a cosy spot for them when they graduate.
The best investment banks in the world like Goldman Sachs, Morgan Stanley, Credit Suisse and Merrill Lynch tend to prefer recruiting only from the top 10 business institutions. It’s no secret that the competition is high, but the compensation is higher. Major banks offer six-figure salaries right out the university gate, with a starting Goldman Sachs employee making nearly $180,000 a year. In the US, the average starting salary with bonuses for investment banking analysts is between $135,000/year to $200,000/year, and a first-year banker gets at least $180,000/year.
Investment banks are an indispensable part of the economy because they operate at a global level with huge companies and entire governments as players. Although investment bankers usually work super hard in 80 hours workweeks, this field has gained a lot of popularity because they pay top dollar and offer endless learning opportunities. So, if you are a risk-taking student with a knack for numbers and an interest in working along with top company CEOs, a career in investment banking is a perfect fit.