Overview of the investment banking industry
Investment banking is the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. Investment banks act as intermediaries between investors (who have money to invest) and corporations (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 division of a bank provides only the underwriting and M&A advisory services.
Full-service banks offer the following services:
Underwriting is the process of raising capital through selling stocks or bonds to investors (e.g., an initial public offering IPO) 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:
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) 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.
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:
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:
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 interview for more information on how to break into Wall Street.
In addition, you’ll want to check out our example of real interview questions 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:
The main banks, also known as the bulge bracket banks in investment banking, are:
View a full list of the top 100 investment banks here. It is important to note that there are many smaller firms, often called mid-market banks, and boutique investment banks that make up a very large part of the market.
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.
Thank you for reading CFI’s overview of i-banking and how the industry works. CFI is the official global provider of certification courses for aspiring investment banking professionals. To learn more about career paths and how to break into banking, please see these additional resources: