Investment banking for most brings up thoughts of bankers earning millions a year, the cause of the recent financial crisis, conspiracy theories of top bankers secretly running the government, but no real idea of what they actually do. Well known firms include Merrill Lynch, Lazard, Morgan Stanley, Lehman Brothers, Goldman Sachs, Bear Stearns. Be a successful Ivy League business major and MBA and you might join a large investment banks, which is nothing like the bank on your high street that your parents have used all their life. This article takes a look at four of the key areas you would find in an investment bank and what the jobs entail. These areas are;
- Sales and Trading
- Capital Markets
- Investment Banking
There are other areas of course such as asset management, and prime brokerage, but the top successful bankers tend to be in one of those four areas.
Sales and Trading
Traders are not bankers and nor are they salesmen though they do work on the same trading floor as the latter. Traders jobs are to trade for the bank itself (known as proprietary traders) or clients (known as flow trading or market making). They usually specialize in either a certain region or a particular product. If you walk out onto the trading floor you can spot traders with their rolled up sleeves, using several phones at once, occasionally smashing one of them against a trading assistant, computer or desk!
Salesmen tend to be a lot calmer on the floor, while they also work several phones, by working the mute buttons they are able to carry on several contained conversations at once, charm clients, chat with their bookie, communicate needs to their assistant, take a personal call and none of the people they are talking to realize that there is more than one conversation occurring.
While in terms of salaries sales and trades people get similar figures to those in banking, in this case the bonuses are based on the number of clients that have, how their trades are doing on the market and how much trading is happening. This means a successful trader or salesman can earn a significant income, in fact a very good proprietary trader in a good year, could earn more than the CEO of a big bank. An example would be Michael Milken in the 1980s at Solomon Bothers. And of course all that gambling on the market done by proprietary traders is with the firm’s money not theirs!
Working in Capital Markets involves knowing the market and knowing what everything costs as they are the ones that check out the market when investment bankers need to raise debt. The scenario would run something like a banker pitches to various companies that they need to raise debt and one gets back to them. So the banker then states that so and so company wants to raise ___ amount in debt, they want something with a maturity that is fairly short, what will it cost them? Capital market people then work as part of a syndicate to get that pricing for the investment bankers. In terms of salary these workers do not make as much as an investment banker as they do not work as closely with the clients.
Investment bankers can be generalized or specialized for example in a specific industry or in a group like M&A (mergers and acquisitions). Essentially they charge a lot of money for being a company’s financial advisor – they help raise capital either through equity or debt offerings, they also assist in the purchasing of other companies and making private ones public. To be a successful banker you need to have a calm demeanor, be able to handle high stress and be able to pitch to clients successfully.
An investment banker only really makes money when the company is moving its money around, either to earn more money or to buy other businesses. To get companies to do this they have to pitch ideas to them giving a presentation called pitch-book or PIBS. Often most companies turn their ideas down, and that is why they work such long hours as for those that do bear fruit they need to give 110% of their time and energy, being at the beck and call of that company. Bankers have access to client information that is private and for that reason work separately from others in the bank who may be able to make money from that privileged information. Learn more on how to become an investment banker.
Investment bankers start out as analysts, and this low down position means you work the longest hours. You then progress to associate, then vice president, then director and managing director. The average starting salary for an analyst is $70,000, plus if successful you could get 50% to 80% of that on top as a yearly bonus. You would though be working 80 to 100 hours a week if off of Wall Street or 100 to 120 hours if you are on it when deals were on. After a couple of years you can get an MBA, become an associate and your salary goes up to around $100,000 plus that same per cent of bonus. Good VPs can earn half a million a year, and good MDs can make several million a year.
Should you end up working in Operations this is where the bank is managed, it included the administration and the legal team. Large banks actually have one or several separate buildings to house the operations people and often they are not as glamorous as where the traders and bankers work. For example Goldman Sachs actually has a large building in New Jersey for its operations, not even near Wall Street. Operation people work out the trades, make sure accounts are clear and that everything goes through okay. Pay for this role is far less than for any of the other careers mentioned in this article.