Investment banking is the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raisingCapital Raising ProcessThis article is intended to provide readers with a deeper understanding of how the capital raising process works and happens in the industry today. For more information on capital raising and different types of commitments made by the underwriter, please see our underwriting overview.) and mergers and acquisitions (M&ATypes of MergersA merger refers to an agreement in which two companies join together to form one company. In other words, a merger is the combination of two companies into a single legal entity. In this article, we look at different types of mergers that companies can undergo. Types of Mergers There are five different types of) advisory services. Investment banksList of Top Investment BanksList of the top 100 investment banks in the world sorted alphabetically. Top investment banks on the list are Goldman Sachs, Morgan Stanley, BAML, JP Morgan, Blackstone, Rothschild, Scotiabank, RBC, UBS, Wells Fargo, Deutsche Bank, Citi, Macquarie, HSBC, ICBC, Credit Suisse, Bank of America Merril Lynch act as intermediaries between investorsBuy-SideInstitutional asset managers, known as the Buy Side offer a wide range of jobs including private equity, portfolio management, research. Learn about the job (who have money to invest) and corporationsCorporate InformationLegal corporate information about Corporate Finance Institute (CFI). This page contains important legal information about CFI including registered address, tax number, business number, certificate of incorporation, company name, trademarks, legal counsel and accountant. (who require capital to grow and run their businesses). This guide will cover what investment banking is and what investment bankers actually do.
There can sometimes be confusion between an investment bank and the investment banking division (IBD) of a bank. Full-service investment banks offer a wide range of services that include underwriting, M&A, sales and trading, equity research, asset management, commercial banking, and retail banking. The investment banking divisionIBD - Investment Banking DivisionIBD is an acronym for the Investment Banking Division within the overall investment bank. IBD has responsibility for working with corporations, institutions, and governments to carry out capital raising (underwriting in equity, debt, and hybrid markets) as well as for executing mergers and acquisitions of a bank provides only the underwriting and M&A advisory services.
Full-service banks offer the following services:
Underwriting – Capital raising and underwriting groups work between investors and companies that want to raise money or go public via the IPO processIPO ProcessThe IPO Process is where a private company issues new and/or existing securities to the public for the first time. The 5 steps in an Initial Public Offering are discussed in detail including selecting an investment bank, due diligence & filings, pricing, stabilization, & transition to transition to normal trading. This function serves the primary market or “new capital”.
Mergers & Acquisitions (M&A) – Advisory roles for both buyers and sellers of businesses, managing the M&A processMergers Acquisitions M&A ProcessThis guide takes you through all the steps in the M&A process. Learn how mergers and acquisitions and deals are completed. In this guide, we'll outline the acquisition process from start to finish, the various types of acquirers (strategic vs. financial buys), the importance of synergies, and transaction costs start to finish.
Sales & Trading – Matching up buyers and sellers of securities in the secondary market. Sales and trading groupsSales and Trading Career ProfileThe sales & trading division (S&T) of an investment bank helps mutual funds, hedge funds, pension funds, etc. facilitate equities transactions (buy/sell). A career in sales & trading can be extremely strenuous with a very fast paced environment. The competition for positions is intense, compensation can be very high, in investment banking act as agents for clients and also can trade the firm’s own capital.
Equity Research – The equity research groupEquity Research OverviewEquity research professionals are responsible for producing analysis, recommendations, and reports on investment opportunities that investment banks, institutions, or their clients may be interested in. The Equity Research Division is a group of analysts and associates. This equity research overview guide research, or “coverage”, of securities helps investors make investment decisions and supports trading of stocks.
Asset Management – Managing investments for a wide range of investors including institutionsBuy-SideInstitutional asset managers, known as the Buy Side offer a wide range of jobs including private equity, portfolio management, research. Learn about the job and individuals, across a wide range of investment styles.
Underwriting Services in Investment Banking
Underwriting is the process of raising capital through selling stocks or bonds to investors (e.g., an initial public offering IPOInitial Public Offering (IPO)An Initial Public Offering (IPO) is the first sale of stocks issued by a company to the public. Prior to an IPO, a company is considered a private company, usually with a small number of investors (founders, friends, family, and business investors such as venture capitalists or angel investors). Learn what an IPO is) on behalf of corporations or other entities. Businesses need money to operate and grow their businesses, and the bankers help them get that money by marketing the company to investors.
There are generally three types of underwriting:
Firm Commitment – The underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares.
Best Efforts – Underwriter commits to selling as much of the issue as possible at the agreed-upon offering price but can return any unsold shares to the issuer without financial responsibility.
All-or-None – If the entire issue cannot be sold at the offering price, the deal is called off and the issuing company receives nothing.
Once the bank has started marketing the offering, the following book-building steps are taken to price and complete the deal.
Mergers and acquisitions (M&A)Mergers Acquisitions M&A ProcessThis guide takes you through all the steps in the M&A process. Learn how mergers and acquisitions and deals are completed. In this guide, we'll outline the acquisition process from start to finish, the various types of acquirers (strategic vs. financial buys), the importance of synergies, and transaction costs advisory is the process of helping corporations and institutions find, evaluate, and complete acquisitions of businesses. This is a key function in i-banking. Banks use their extensive networks and relationships to find opportunities and help negotiate on their client’s behalf. Bankers advise on both sides of M&A transactions, representing either the “buy-side” or the “sell-side” of the deal.
Below is an overview of the 10-step mergers and acquisitions process.
M&A Process
Banking Clients
Investment bankers advise a wide range of clients on their capital raising and M&A needs. These clients can be located around the world.
Investment banks’ clients include:
Governments – Investment banks work with governments to raise money, trade securities, and buy or sell crown corporations.
Corporations – Bankers work with both private and public companies to help them go public (IPO), raise additional capital, grow their businesses, make acquisitions, sell business units, and provide research for them and general corporate finance advice.
Institutions – Banks work with institutional investors who manage other people’s money to help them trade securities and provide research. They also work with private equity firmsTop 10 Private Equity FirmsWho are the top 10 private equity firms in the world? Our list of the top ten largest PE firms, sorted by total capital raised. Common strategies within P.E. include leveraged buyouts (LBO), venture capital, growth capital, distressed investments and mezzanine capital. to help them acquire portfolio companies and exit those positions by either selling to a strategic buyer or via an IPO.
Investment Banking Skills
I-banking work requires a lot of financial modeling and valuation. Whether for underwriting or M&A activities, Analysts and Associates at banks spend a lot of time in Excel, building financial models and using various valuation methods to advise their clients and complete deals.
Investment banking requires the following skills:
Financial modeling – Performing a wide range of financial modelingWhat is Financial ModelingFinancial modeling is performed in Excel to forecast a company's financial performance. Overview of what is financial modeling, how & why to build a model. A 3 statement model links income statement, balance sheet, and cash flow statement. More advanced types of financial models are built for valuation, plannnig, and activities such as building 3-statement models3 Statement ModelA 3 statement model links the income statement, balance sheet, and cash flow statement into one dynamically connected financial model. 3 statement models are the foundation for advanced financial models such as DCF models, merger models, LBO models, and others. This three statement model guide has examples, images, discounted cash flow (DCF) models, LBO models, and other types of financial modelsTypes of Financial ModelsThe most common types of financial models include: 3 statement model, DCF model, M&A model, LBO model, budget model. Discover the top 10 types of Excel models in this detailed guide, including images and examples of each. Financial modeling is performed for many reasons including to value a business, raise money.
Business valuation – Using a wide range of valuation methodsValuation MethodsWhen valuing a company as a going concern there are three main valuation methods used: DCF analysis, comparable companies, and precedent transactions. These methods of valuation are used in investment banking, equity research, private equity, corporate development, mergers & acquisitions, leveraged buyouts and finance such as comparable company analysis, precedent transactions, and DCF analysis.
Pitchbooks and presentations – Building pitchbooksPitchbookA pitchbook is a sales book used by investment banks to sell products and services, as well as pitch potential clients. The purpose of a pitchbook is to secure a deal with the potential clients. It provides an overview of the firm, including historical information, financial strength, and services available to potential clients. and PPT presentations from scratch to pitch ideas to prospective clients and win new business (check out CFI’s Pitchbook Course).
Transaction documents – Preparing documents such as a confidential information memorandumCIM - Confidential Information MemorandumA Confidential Information Memorandum (CIM) is a document used in M&A to convey important information in a sale process. Guide, examples, and template (CIM), investment teaser, term sheetTerm Sheet GuideThis term sheet guide will teach you all the important information you need to know about term sheets with detailed examples of all major sections and, confidentiality agreement, building a data room, and much more (check out CFI’s library of free transaction templatesTemplatesFree business templates to use in your personal or professional life. Templates include Excel, Word, and PowerPoint. These templates can be used for transactions, legal, financial modeling, financial analysis, business planning and business analysis. Download and use these financial business templates for free.).
Relationship management – Working with existing clients to successfully close a deal and make sure clients are happy with the service being provided.
Sales and business development – Constantly meeting with prospective clients to pitch them ideas, offer them support in their work, and provide value-addedValue AddedValue Added is the extra value created over and above the original value of something. It can apply to products, services, companies, management, and other areas of business. In other words, value-added is the enhancement made by a company/individual to a product or service before offering it to the end customer. advice that will ultimately win new business.
Negotiation – Being a major factor in the negotiation tacticsNegotiation TacticsNegotiation is a dialogue between two or more people with the aim of reaching a consensus over an issue or issues where conflict exists. Good negotiation tactics are important for negotiating parties to know in order for their side to win or to create a win-win situation for both parties. between buyers and sellers in a transaction and helping clients maximize value creation.
The screenshot above is of a leveraged buyout (LBOLeveraged Buyout (LBO)A leveraged buyout (LBO) is a transaction where a business is acquired using debt as the main source of consideration. An LBO transaction typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70-80% of the purchase price) to achieve an internal rate return IRR >20%) model from CFI’s Financial Modeling Courses.
Careers in Investment Banking
Getting into i-banking is very challenging. There are far more applicants than there are positions, sometimes as high as 100 to 1. We’ve published a guide on how to ace an investment banking interviewHow to get a job in investment bankingThis guide will outline how to get a job in investment banking using out top three tactics: networking and resume, interview prep, and technical skills. This guide is based on my firsthand experience of what is the most effective way of how to get a job in investment banking. for more information on how to break into Wall Street.
In addition, you’ll want to check out our example of real interview questionsInvestment Banking Interview Questions & AnswersInvestment banking interview questions and answers. This real form was used by a bank to hire a new analyst or associate. IB interview insights & strategies. Questions are sorted into: bank and industry overview, employment history (resume), technical questions (finance, accounting, valuation), and behavioral (fit) from an investment bank. In preparing for your interview it also helps to take courses on financial modeling and valuation.
The most common job titles (from most junior to senior) in i-banking are:
Analyst
Associate
Vice President
Director
Managing Director
Head, Vice Chair, or another special title
MapInteractive Career Map - discover your career path in corporate finance. Learn which job is right for you: salary, personality, skills, certifications etc.
Who are the Main Investment Banks?
The main banks, also known as the bulge bracket banks Bulge Bracket Investment BanksBulge Bracket investment banks are the top global investment banks. The list includes companies such as Goldman Sachs, Morgan Stanley, BAML, and JP Morgan. What is a Bulge Bracket Investment Bank andin investment banking, are:
Bank of America Merrill Lynch
Barclays Capital
Citi
Credit Suisse
Deutsche Bank
Goldman Sachs
J.P. Morgan
Morgan Stanley
UBS
View a full list of top 100 investment banks hereList of Top Investment BanksList of the top 100 investment banks in the world sorted alphabetically. Top investment banks on the list are Goldman Sachs, Morgan Stanley, BAML, JP Morgan, Blackstone, Rothschild, Scotiabank, RBC, UBS, Wells Fargo, Deutsche Bank, Citi, Macquarie, HSBC, ICBC, Credit Suisse, Bank of America Merril Lynch. It is important to note that there are many smaller firms, often called mid-market banks, and boutique investment banksBoutique Investment BanksBoutique Investment Banks are smaller firms that typically do not offer full-service investment banking, but do offer at least one investment banking financial service. Boutique banks often have only a local or regional presence, although some operate globally. List of boutique investment banks that make up a very large part of the market.
Video Explanation of How I-Banking Works
Below is a short video that explains how the capital markets function and who the key players are. You can see more free video tutorials on CFI’s YouTube channel.
Additional Resources
Thank you for reading CFI’s overview of i-banking and how the industry works. CFI is the official global provider of the Financial Modeling & Valuation Analyst (FMVA)® certificationFMVA® CertificationThe Financial Modeling & Valuation Analyst (FMVA)® accreditation is a global standard for financial analysts that covers finance, accounting, financial modeling, valuation, budgeting, forecasting, presentations, and strategy. for aspiring investment banking professionals. To learn more about career paths and how to break into banking, please see these additional resources:
What is financial modeling?What is Financial ModelingFinancial modeling is performed in Excel to forecast a company's financial performance. Overview of what is financial modeling, how & why to build a model. A 3 statement model links income statement, balance sheet, and cash flow statement. More advanced types of financial models are built for valuation, plannnig, and
Valuation methodsValuation MethodsWhen valuing a company as a going concern there are three main valuation methods used: DCF analysis, comparable companies, and precedent transactions. These methods of valuation are used in investment banking, equity research, private equity, corporate development, mergers & acquisitions, leveraged buyouts and finance
Financial modeling guideFree Financial Modeling GuideThis financial modeling guide covers Excel tips and best practices on assumptions, drivers, forecasting, linking the three statements, DCF analysis, Excel modeling and much more. Designed to be the best free modeling guide for analysts by using examples and step by step instructions. Investment banking, FP&A, research
Investment banking salariesInvestment Banker SalaryAn investment banker salary is among the highest in the world. They are paid a base salary and a bonus for their compensation. Find out how much they make. An analyst straight out of university can expect to earn over USD $100,000, but per hour it could be as low as $20-35 when working 100 hr/wk
FMVA certification program
Advance your career in investment banking, private equity, FP&A, treasury, corporate development and other areas of corporate finance.
Get certified as a financial analyst with CFI’s FMVA® ProgramFMVA® CertificationThe Financial Modeling & Valuation Analyst (FMVA)® accreditation is a global standard for financial analysts that covers finance, accounting, financial modeling, valuation, budgeting, forecasting, presentations, and strategy. .
