How do you become an investment banker?
The main job of an investment banker is to raise money for businesses, governments, or other organizations. They usually work for a financial company. Banks like Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of America Merrill Lynch (BAC), and Deutsche Bank (DB) hire investment bankers.
How Investment Banking Works
Investment bankers make it possible for extensive, complex financial deals to happen. As part of these deals, they may help clients set up a purchase, merger, or sale. The issue of securities as a way to raise money is another job duty of investment bankers. This means compiling all the paperwork the Securities and Exchange Commission (SEC) needs for a business to go public.
An investment banker can save clients time and money by letting them know about the risks of a project before the company goes forward with it. In theory, an investment banker knows much about their business or field and is in tune with investors’ feelings. Investment bankers are often asked for help by businesses and nonprofits on how to plan their growth best.
An investment banker also helps set prices for financial products and deal with government rules. When a company has its initial public offering (IPO), an investment bank will buy some or all of its shares straight from it. In this case, the investment bank will sell the company’s shares on the public market for the company to go public. This will create instant liquidity.
In this case, an investment bank can make money because its shares are usually priced higher than they are. The investment bank is taking on a lot of danger by doing this. Analysts at the investment bank use their knowledge to set the right price for the stock. However, the investment banker could lose money on the deal if they overvalue the shares.
A Case Study of Investment Banking and an IPO
Let’s say Pete’s Paints Co., a business that sells paint and other hardware, wants to go public. Pete, the owner, contacts Kate, a well-known financial banker. Katherine agreed to buy 100,000 shares of Pete’s Paints for her company during the IPO for $24 per share, based on the advice of her research team. Katherine and Pete then make a deal. The stock exchange gives $2.4 million for the 100,000 shares.
They file the necessary paperwork, like SEC Form S-1, and set the date and time of the IPO. Then Katherine and her team started selling the stock on the open market for $26 per share. However, the investment bank can’t sell more than 20% of the shares at this price because there isn’t enough demand. The price has to be chopped to $23 to sell the rest of the stocks. Katherine and her team lose in the end because of this.
Skills that investment bankers need to have
People like to work in investment banking because those who do it usually get paid well. These jobs, on the other hand, require specific skills, like being able to work long, hard hours and being able to communicate your thoughts and feelings accurately and clearly.
The educational requirements generally include an MBA from a top school and maybe the chartered financial analyst (CFA) designation.
There is a code of behavior that investment bankers must follow, and they usually have to sign a confidentiality agreement because the information they get is private. Also, if investment banks’ advisory and selling departments work together, there could be a conflict of interest.
In investment banking, there is usually a hierarchy of jobs, with analyst, associate, vice president, senior vice president, and managing director being the most senior roles.
Conclusion
- A financial organization hires investment bankers whose main job is to help businesses, governments, and other groups get money.
- Many people want to work in investment banking because the pay is usually good.
- Investment bankers need to be great at working with numbers, have good spoken and written communication skills, and be able to work long, hard hours.
