Investment Banking

Investment Banking is one of the most prestigious and lucrative sectors in the financial world. Investment bankers play a crucial role in assisting companies, institutions, and governments in raising capital, providing advice on mergers and acquisitions (M&A), and managing initial public offerings (IPOs). Working in this field requires a combination of technical skills, soft skills, and strong determination.

What is an Investment Banker?

An investment banker is a professional who provides financial advice and facilitates complex financial transactions. Key activities include capital raising, M&A advisory, and managing financial instruments.

Capital Raising

Investment bankers help companies raise funds through the issuance of stocks or bonds. This process, known as underwriting, involves guaranteeing that the securities will be sold at an agreed price, thus ensuring the success of the fundraising. A classic example is the work done by Goldman Sachs for Facebook in its 2012 IPO, which raised $16 billion.

Mergers and Acquisitions Advisory

M&A advisory is another crucial area. Investment bankers assist companies in evaluating, negotiating, and structuring mergers and acquisitions, operations that can transform entire industries. For example, the merger between Dow Chemical and DuPont, valued at about $130 billion, was supported by major investment banks such as JP Morgan and Goldman Sachs.

Initial Public Offerings (IPO)

Investment bankers guide companies through the IPO process, helping them go public by listing on the stock exchange. This includes preparing the necessary documentation, setting the share price, and promoting the IPO to investors. In 2020, IPOs in the United States raised over $167 billion, highlighting the importance of this process.

The Different Types of Firms in Investment Banking

The investment banking sector is composed of various types of firms, each with specific characteristics and specializations.

Bulge Bracket

Bulge Bracket firms are the largest and most prestigious investment banks globally, including Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup, Bank of America Merrill Lynch, Credit Suisse, Barclays, and Deutsche Bank. These banks operate on a global scale and offer a full range of financial services. Working at one of these firms often means accessing the largest and most complex projects, with significantly high compensation.

Middle Market and Boutique Firms

Middle market and boutique firms are smaller and focus on mid-sized transactions or specific sectors. Examples include Jefferies, Houlihan Lokey, Evercore, Lazard, and Piper Sandler. These firms can offer more specialized work experiences and a more intimate environment, with a personalized approach to clients. Boutiques, in particular, often stand out for high-quality advisory services and close client relationships.

How to Obtain a Solid Academic Background

A solid academic background is fundamental for a career in investment banking. Investment banks look for candidates with a strong background in economics, finance, accounting, or engineering.

Educational Requirements

Graduating in economics, finance, accounting, or engineering is often necessary. However, disciplines such as mathematics, physics, or statistics can be appreciated if combined with analytical and quantitative skills.

Target and Semi-Target Universities

The target universities from which investment banks recruit the majority of their analysts. Attending one of these institutions can significantly improve the chances of entering the sector.

Read our article about the best universities to study economics

Developing Key Skills

Beyond academic education, aspiring investment bankers must develop a set of essential technical and soft skills.

Financial Analysis and Valuation

Being able to analyze financial statements, project cash flows, and value companies is crucial. Understanding financial metrics and performance indicators is fundamental to providing accurate advice. For example, knowing how to calculate the net present value (NPV) or the internal rate of return (IRR) is essential.

Financial Modeling

Creating complex financial models to forecast economic outcomes. Investment bankers must be able to build discounted cash flow (DCF) projection models, comparable transaction models, and leveraged buyout (LBO) models. Skill in building these models can make a difference in evaluating a transaction.

Research Capabilities

Conducting thorough research and gathering relevant data. Investment bankers must analyze market data, economic trends, and corporate information to provide informed advice. For example, they need to be able to identify emerging trends in sectors of interest.

Gaining Practical Experience

Practical experience is crucial to entering the investment banking sector. Internships represent a critical opportunity to acquire practical skills and build a network of professional contacts.

Internships are a fundamental element for entering investment banking. They offer valuable practical experience and the opportunity to build a network of professional contacts. Demonstrating dedication, competence, and the ability to learn quickly during internships can often lead to full-time job offers. Internships provide an insider view of banking operations and corporate culture, as well as developing essential practical skills.

Prestigious Internships

Internships in Bulge Bracket and boutique firms provide an immersive experience in the world of investment banking. Competition for these positions is fierce; for example, Goldman Sachs receives tens of thousands of applications for its internship programs, with an acceptance rate of less than 1%.

• Goldman Sachs Summer Analyst Program

• Morgan Stanley Summer Analyst Program

• JP Morgan Investment Banking Summer Analyst

• Citigroup Summer Analyst Program

• Credit Suisse Summer Internship

• Evercore Summer Analyst Program

• Lazard Summer Internship

These programs often include rotations across different departments, allowing participants to gain a comprehensive view of banking operations and develop diverse skills. For example, Goldman Sachs' internship program is known for its rigor and practical experience, often leading to full-time job offers.

Pursuing a Master’s or MBA Program

Pursuing a Master's or MBA program can significantly enhance career prospects in investment banking. These programs offer the opportunity to deepen technical skills, expand the network of contacts, and access exclusive internships and job opportunities.

Study Options

MBA (Master in Business Administration): An MBA is particularly useful for those who wish to advance quickly into leadership roles in investment banking. MBAs offer a wide range of skills in business management, finance, marketing, and strategy.

Master in Finance: A Master in Finance is more focused on specific technical skills for investment banking, such as advanced financial analysis, modeling, and risk management. Master's in Finance programs at universities like the London School of Economics (LSE) are highly regarded in the sector.

Building and Leveraging Networking

Networking is essential to enter and succeed in investment banking. Building a solid network of contacts can make the difference between getting a job opportunity and staying in the shadows.

Why Networking is Important

Access to Opportunities: Many positions in investment banking are not publicly advertised. Networking can provide access to these hidden opportunities. For example, internship opportunities or analyst positions can be awarded to candidates referred by internal contacts.

Advice and Mentorship: Building relationships with industry professionals can provide valuable career advice and mentorship. Mentors can offer guidance on how to navigate the career, develop key skills, and make strategic decisions.

How to Network Effectively

Events and Conferences: Attending industry events, conferences, and job fairs is a great way to meet industry professionals. These events offer the opportunity to interact directly with company representatives and learn about industry trends.

Alumni Network: Leveraging the university or MBA program alumni network. Many universities have strong alumni networks that can offer support and connections in the investment banking sector. Alumni can provide valuable information and internal referrals.

LinkedIn: Using LinkedIn to connect with industry professionals, participate in discussion groups, and maintain an updated and professional profile. LinkedIn is a powerful platform for building and maintaining professional relationships.

Selection and Hiring Process

The selection process for a position in investment banking is highly competitive and rigorous, composed of several stages.

Stages of the Selection Process

Submitting a Resume and Cover Letter: The first step is to submit a resume (CV) and a cover letter. The CV should highlight technical skills, relevant work experience, and academic achievements. The cover letter should be personalized for each application and demonstrate a clear motivation for a career in investment banking.

Technical and Behavioral Interviews: Interviews can be divided into two categories: technical and behavioral. Technical interviews assess financial knowledge and problem-solving abilities, while behavioral interviews evaluate soft skills and cultural fit. Preparing for these interviews is essential; many banks use case study questions to assess candidates' abilities.

Examples of Interview Questions

Technical Questions:

• How do you calculate net present value (NPV)?

• What are the main differences between stocks and bonds?

• How would you value a company for an IPO?

Behavioral Questions:

• Describe a time when you had to work under pressure.

• Tell me about a time when you had to resolve a conflict within a team.

• Why do you want to work in investment banking?

Salaries and Career Prospects

Salaries in investment banking are notoriously high, reflecting the long working hours and high-pressure environment.

Entry-Level Salaries and Bonuses

First-year analysts at Bulge Bracket firms can expect a base salary ranging from $85,000 to $105,000, with bonuses varying from 50% to 100% of the base salary. For example, a first-year analyst at Goldman Sachs can earn a total between $120,000 and $140,000 per year, including bonuses.

Career Growth

Professional growth in investment banking is structured in well-defined levels:

Analyst:

The entry-level role, generally for graduates, lasts 2-3 years. Analysts focus on technical tasks such as financial analysis, modeling, and preparing presentations.

Associate:

After 2-3 years as an analyst, professionals can be promoted to associate or can pursue an MBA to advance. Associates manage teams of analysts and handle closer client relationships.

Vice President (VP):

VPs manage projects and coordinate teams. They are responsible for client relationships and overseeing transactions. This role requires about 3-4 years of experience as an associate.

Director:

Directors oversee multiple projects and manage key clients. They are responsible for business development and expanding the client portfolio. This role typically requires an additional 3-4 years of experience as a VP.

Managing Director (MD):

The highest role in the industry, MDs are responsible for overall strategy, business development, and managing relationships with key clients. MDs can earn base salaries exceeding $500,000, with bonuses that can double or triple this figure.

Conclusion

Embarking on a career in investment banking requires a combination of academic excellence, development of technical skills and soft skills, practical experience, and a strong commitment to networking. Despite fierce competition and long working hours, the rewards can be significant, both in terms of financial compensation and professional growth. With the right preparation and determination, it is possible to build a successful career in this dynamic and fascinating industry.