Banking has been in some shape or another since the first coins were released. Taxation gave rise to currencies, particularly coins. As empires grew, functioning methods to collect taxes and transfer income were necessary.
Different banks generate revenue in a number of ways; yet, at their foundation, they are lenders. Banks are making money by borrowing it from deposits and paying them a specific rate of interest in exchange. Banks will loan money to customers, offering them a higher interest rate and benefitting from the interest rate differential.
Other banking markets, such as investment banking, help banks diversify their business models and create revenue.
What is Investment Banking?
Investment banking typically focuses on raising cash for other businesses, government entities, and other organisations.
It is a type of banking that provides financial support (fundraising) and mergers and acquisitions (M&A) advising options to governments, companies, and organisations. Investment banks operate as go-betweens for investors (those with capital to invest) and businesses (who need investment to grow).
Through investment banking you can do the following:
- Expanding financial facilities
- Financing a project for revenue
- Investment banks are allowed to finance capital markets
- Managing portfolio on both, discretionary and non-discretionary basis
- Analyzing investors and assisting them in obtaining financial help
- Issuing guarantees
- Being an underwriter
- Providing custodial/trustee services in exchange for specific requirements being met
Why are top investment bankers so wealthy?
Simply put in two words: huge deals. Investment bankers become wealthy by selling firms for a lot of money and earning a lot of money in the process while investing very little on their own. Because bank fees are frequently determined as a proportion of the deal, managers, directors, and partnerships oversee teams that deal with expensive products and generate large commissions.
Let’s take Bulge Bracket Banks as an example. These banks will refuse all projects with low transaction volumes. If the bank is already dealing and making money with large size deals, it will never go selling a firm making less than $200 million in revenue.
What are some famous Investment Banks?
Top investment banks offer all kinds of services from advising investments to advertising and market analysis.
Here are the top ten investment banks of the world:
- JPMorgan Chase – an Investment banking company
- Goldman Sachs – a financial services firm.
- Securities by BofA
- Morgan Stanley – a financial services firm based in New York
- Credit Suisse – a financial services firm based in Zurich, Switzerland
- Deutsche Bank – a financial institution based in Germany
- Barclays Investment Bank – a British investment bank.
Is Investment Banking a good career?
Although investment banking is a profitable and exciting job, it is not for everyone. You may desire to make more than $100,000 per year as a new analyst, but bear in mind that investment banking is not just a high-paying industry, but also a difficult one.
According to a research survey, 45 percent of applicants who joined the market immediately after college left within two years. Some of these individuals may have moved on to work for private equity firms, but the investment banking industry places a strain on the physical and mental health of its employees.
Young bankers work in a difficult atmosphere. They are pushed to work longer hours and have few opportunities to communicate or sleep. Many people use coffee and alcohol to survive this job.
What are the skills required in Investment Banking?
Bank analysts and associates spend a lot of time in Excel, building financial models and using various valuation approaches to advise their customers and clinch deals.
Investment banking necessitates the following skills:
- Financial modelling tasks include creating 3-statement models, discounted cash flow models, LBO models, and other types of financial models.
- Using approaches such as analogous company analysis, antecedent transactions, and DCF analysis, to mention a few.
- Producing pitch books and making PowerPoint presentations from scratch to pitch ideas to prospective clients and acquire new business.
- Papers that must be created include a confidential information memorandum (CIM), an investment teaser, a term sheet, a confidentiality agreement, and other documents.
- Working with current clients to complete a contract and guarantee their satisfaction with the service provided.
Being proactive and obtaining expertise in as many fields as possible from the start shows dedication and a willingness to grow.
High-performing employees are in high demand, and it is not uncommon for some other banks to steal employees or entire teams.