Confused about Investment Bank business structure

Can someone please explain the different divisions in an investment bank? I know it may seem like there are ALOT of divisions, but I am just so confused. For example, I am from Canada and when I look at RBC Capital Markets, I understand that they divide Capital Markets into ECM and DCM but i always hear about these product groups and industry groups and equity research and leveraged finance and stuff like that, which makes me pretty confused.

If someone could clarify this bank structure for me, it would be greatly appreciated.

 
Best Response

In my experience, the best way to understand how investment banks work/are structured is to start with the concept that an investment bank is an intermediary of capital - it has two sides. One faces companies looking to raise capital, and the other faces investors looking to invest capital. In the old days, these were called the "buying" and "selling" departments, since one would "buy" (underwrite) bonds/stock from companies, and the other would "sell" (syndicate) it to investors, while the bank keeps a fee (or "spread").

This still holds true - the "buying" side corresponds with IBD/client coverage, and the "selling" side corresponds with S&T.

Over time, new functions emerged/evolved within this structure. IBD always helped clients with prospective mergers/acquisitions/sales/divestitures, and as this role became more complex/specialized, they started charging for the service - thus M&A as a distinct product was introduced, alongside the traditional debt/equity underwriting products banks have always offered. In addition, as capital markets evolved and became more complex, specialist capital markets bankers and groups emerged. It used to be the case that investor-facing salesmen & traders would assist IBD in structuring capital markets deals, but for a number of reasons this role was taken on by capital markets bankers. For example, the creation of the junk bond/high yield market led to the creation of leveraged finance banking groups with bankers knowledgable in this specialized market. This structure was solidified as regulations were put in place to separate client-facing personnel who have access to non-public information about their clients, from S&T who face public investors and markets (ie the "Chinese Wall," which describes this separation).

That more or less brings us to the present. M&A groups have become separate groups of bankers with specialized expertise. Similarly, Equity Capital Markets, Debt Capital Markets, Securitization, Leveraged Finance, and other groups who specialize in their respective markets and help advise companies on how they might raise capital/funding from these markets.

On the S&T side, groups/desks are generally divided by market (eg equity vs debt), and then again by sector (eg financials equity vs tech equity), region (eg US vs Western Europe), and also along the lines of the various other products offered out of S&T (eg derivatives, prime brokerage/hedge fund coverage), and myriad other ways. I would also add that Research generally sits on this "Public" side, and supports S&T by assisting its investor clients with equity, fixed income, and other research reports and investment perspective/analysis.

That's more or less it. IBD brings in Clients who want to do deals, Capital Markets bankers/product partners help structure the deals, S&T sells the deals, and Research educates investors on the deals. Then the fee for facilitating the deal is split in various ways across all of those involved, and everyone gets paid. Obviously it's a lot more complex/nuanced in practice, but this framework is more than enough to get you started.

I will address the obvious follow-up comment about M&A - that it is not really a product partner in the same way as Capital Markets groups are. That's true, in that its role is generally separate from the capital underwriting and syndication process which an investment bank is designed to facilitate. A typical stock-for-stock merger assignment involves IBD, having a client who needs assistance, calls the M&A group in to advise. The fee in this case is "earned" by only these groups, and split among them. This process requires far less personnel and infrastructure, and so can be more profitable. The independent M&A firms out there (also called "boutique"), such as Moelis, Lazard, and Greenhill, generally play only in this space and serve the M&A function, as opposed to bulge bracket firms which also function as capital markets intermediaries.

"There are three ways to make a living in this business: be first, be smarter, or cheat."
 

There's a difference between industry and product groups. Industry groups handle dealflow specifically within their sector of coverage, which is why they're also referred to as coverage groups sometimes. i.e. Someone in MS healthcare would handle M&A, equity, debt, etc. transactions, but only for firms within that sector space. During those deals, however, an analyst in healthcare would be working with an analyst in MS M&A who would be helping run the model. People in product groups (M&A, LevFin, etc.) work across all sectors but specialize in one product.

GS does not have a dedicated M&A group. MS does. Citi does too (and used to be a complete powerhouse in it pre-crisis, is climbing back well though). It varies firm to firm, but M&A is the only dedicated product group that you may not find in some banks' structure. Almost every bulge bracket offers every other product group.

I am permanently behind on PMs, it's not personal.
 

After you get a bachelors, you start as an analyst for two years. Then you may elect to stay on a 3rd year if invited by your bank. At the end of your 3rd year, you may get the boot or promoted to associate.

If you choose to get your MBA, you will start as an associate regardless of your pre-MBA experience.

The overall hierarchy is typically:

Analyst --> Associate -- VP --> Director --> Managing Director

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

alright, thank you CompBanker.

And is there a max. age for a bachelor to get an entry? Oh and does it better in which subject you made the bachelor? I've read in another thread about that it isnt important in which field you did the bachelor as long as its good.. just curious about the Age.

 

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