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Investment banking comprises 3 main areas: investment banking division (IBD), sales and trading (S&T), and asset management. The large global banks typically offer all 3 services, with smaller banks usually focusing more on the investment banking division side covering advisory and mergers and acquisitions (M&A).

What Is Investment Banking

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".

Products comprise the following types of deals:

  • Mergers and Acquisitions (M&A) - advisory on sale, merger and purchase of companies
  • Leveraged Finance (LevFin) - lending money to firms to finance acquisitions
  • Equity Capital Markets (ECM) - advice on equity and equity-derived products (shares, options, futures etc)
  • Debt Capital Markets (DCM) - advice on raising and structuring of debt to finance acquisitions
  • 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.

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.

Bulge Bracket vs Boutique

Many different companies are referred to as being investment banks, and they are usually segmented according to their revenue, size or global presence. The 9 largest banks are called the 'bulge bracket' and all other banks are called 'boutiques'. Bulge bracket banks tend to offer every service listed above whilst boutiques tend to focus on advisory roles and sometimes provide asset management.

Currently, the bulge bracket consists of the following banks:

Boutique investment banks can range in size from reasonably large, global firms to tiny 10-man firms. Below is a list of some of the larger and more well-known boutique investment banks: