Investment banking enables companies and government entities to access and manage capital for complex financial transactions. Large banking institutions will typically have an investment banking division (IBD) dedicated to underwriting, advisory and other related financial services. Investment banks are often involved in initial public offerings (IPOs), mergers and acquisitions (M&A), and securities trades.
History of Investment Banking
The first American investment bank was established by financier Jay Cooke in the Civil War era and helped fulfill the federal government’s need for funds during this time. The Post-Civil War era saw investment banking grow with the demand for capital, up until the collapse of the banking industry in the Great Depression. The New Deal set the stage for the evolution and resurgence of investment banking. The industry reached an apex in the 1980s and 1990s, only to crumble in the 2008 Financial Crisis. Fortunately, investment banking has since recovered and stabilized.
Investment Banking After the Financial Crisis
Investment banking both contributed to and was severely impacted by the Financial Crisis of 2008. While some will point to the repeal of Glass–Steagall provisions and, in turn, risky and unregulated practices in investment banking as key causes of the economic disaster, it’s important to remember that there were many other factors and conditions involved.
Nevertheless, even large, proud financial institutions struggled or shuttered altogether during the financial crisis. In response, legislation was put into place to better regulate investment banking and capital requirements, and investment banks sought to reposition as bank holding companies to qualify for bailout money from the government. Despite a questionable future in the eyes of many, the investment banking industry is continuing to regain its footing with clearer regulations, a healthier culture, and exciting career opportunities.
What Does an Investment Banker Do?
Investment bankers assist corporations, institutions and governments with raising capital and managing risk. Their primary role is to liaise between clients and investors while representing the investment bank by which they are employed. However, their job functions encompass much more. Investment bankers are tasked with delivering research and analysis, financial modeling, funding strategy, transaction management and general consultancy. With such a high level of expertise and poise required, investment banking jobs pay extremely well. Between salary and incentives, an investment banker can usually expect to make well into six figures early in their career and upward of $300,000 or more if they rise to become an executive.
Areas of Investment Banking
The foundational facets of investment banking are underwriting and M&A. Underwriting entails selling securities to investors in order to raise capital for companies seeking to grow and/or go public. In M&A, an investment bank will advise clients seeking to buy or sell a company, including structuring, negotiating and implementing a deal. M&A advisory is a tiresome process that can take months or even years.
Other services many investment banks will provide include sales and trading, equity research, asset management, and commercial and retail banking.
Becoming an Investment Banker: Where to Start
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