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Investment banking is comprised of three main areas: investment banking division (IBD), sales and trading (S&T), and asset management. The large global banks typically offer all three services, with smaller banks usually focusing more on the investment banking division side covering advisory and mergers and acquisitions (M&A).

The investment banking division is sometimes referred to as corporate finance and is broadly split into 2 sectors, products and industries. The purpose of both is to provide advisory on transactions, mergers and acquisitions and to arrange (and sometimes even provide) financing for these transactions. This area of banking is the subject of the popular book "Monkey Business: Swinging Through the Wall Street Jungle".

Investment banks are categorized as a "bulge bracket" bank, regional bank or a boutique. Larger banks are considered to be bulge bracket banks and offer a full service approach to clients. The bulge bracket is comprised of nine top banks that include Bank of America, Merrill Lynch, Morgan Stanley, Citigroup, Deutsche Bank, UBS, Goldman Sachs, Credit Suisse, Barclays Capital and JP Morgan Chase.

Boutique banks vary in size from small one-man shops to large global enterprises. They typically specialize in an industry or specific product offering. Often times, a boutique is started by a banker interested in owning his own company. Some of the higher-profile boutiques include: Lazard, Evercore, Moelis, Jefferies & Co and Piper Jaffray.

Investment Banking Services

When companies seek out an investment banking relationship, they are interested in a financial partner that can guide them through the complicated landscape related to financing a business and managing its assets. Investment bankers offer executives strategic planning advice. They often advise company executives about the best times to make a public offering or on asset management subject matter.

Investment banking product groups comprise the following types of deals:

  • Mergers and Acquisitions (M&A) - advisory on sale, merger and purchase of companies
  • Leveraged Finance (LevFin) - issuance of high-yield debt to firms to finance acquisitions and other corporate activities
  • Equity Capital Markets (ECM) - advice on equity and equity-derived products (IPOs, shares, capital raises, secondary offerings etc.)
  • Debt Capital Markets (DCM) - advice on raising and structuring of debt to finance acquisitions and other corporate activities
  • Restructuring - improving the structures of a company to make it more profitable or efficient

Industry groups focus on one specific industry (Technology & Media & Telecoms, Financial Institutions, Energy etc) but carry out all the different kinds of deals for firms within that sector. For example, the Financial Institutions (FIG) team will work with clients on raising debt, IPOs, acquisitions etc, but will only work with clients within that sector.

Some firms are known for being particularly good at certain sectors, for example Goldman Sachs TMT (Technology, Media & Telecoms), Morgan Stanley M&A, and JPMorgan LevFin.

Relationships and Liaisons

A primary advantage for accessing the services of an investment banker is the relationships and contacts that an established investment bank can offer its clients. The principle role of an investment banker is to introduce lenders to companies in need of capital. Investment banks regularly cultivate business liaisons with venture capitalists and private investors.

Hierarchy and Compensation

The hierarchy within the investment banking division is very well defined. The actual role names may differ from region to region and bank to bank, but all follow the same general pattern.

Analyst - this is how you will enter banking once you have completed your degree. The usual way to be offered a place is to complete an internship with the bank at the end of your junior year at school and then to receive a full time offer to come back at the end of your final year, although it is also possible to apply directly for a full-time job. Typically the analyst does all the 'grunt' work on projects such as valuing companies, creating models, putting together pitch books etc. Analysts are well known for working 80-100 hours per week but are well paid for it.

Associate - if you have been working in finance for several years and/or gone to a business school for an MBA, you can break into investment banking as an associate. It is also possible to be promoted to associate directly from analyst level if you stay on with the bank for a 3rd year as an analyst. Your work as an associate will be focused on co-ordinating the work of the analysts to meet the expectations of the vice president. Associates tend to work as much as or slightly less than analysts, but are paid more for it.

Vice President - vice presidents are where the managerial work starts to kick in. Your role is to make sure that the work your analysts and associates produce is what your senior vice president and managing directors want. There is a lot of client interaction and the work becomes more client relationship orientated. At some firms this position is called 'Director'.

Senior Vice President - this is basically a mixture between vice president and managing director. The focus is both on executing deals and client relationships and what you actually do will depend on the needs of the group at the time. Also known as 'Executive Director'.

Managing Director - MD is the highest level you can achieve within a bank without becoming a group head or higher (CEO, CFO etc). Almost all of an MD's time is spent on client relationships and sourcing new clients.