Investment Banking

This article has been sent by my student, Shivan Bakshi, who wants to make a career in equity research. Here I wish him all the best and pray to God to make his dreams come true. 

An investment bank is a financial institution that assists corporations and governments in raising capital by underwriting and acting as the agent in the issuance of securities. An investment bank also assists companies involved in mergers and acquisitions, divestitures, etc. Further to provide ancillary services such as market making and the trading of derivatives, fixed income instruments, foreign exchange, commodity, and equity securities. To provide investment banking services in the United States an advisor must be a licensed broker-dealer. The advisor is subject to Securities & Exchange Commission (SEC) (FINRA) regulation.

Salaries in Investment Banking (with bonus)

Job Level                       Salary RangeTypical All-in Comp  Prerequisite

                                                                                           (degree/yrs experience)

First Year Analyst            $60K - 150K$90K                        Bachelor's

Third Year Analyst           $120K - 300K$150K                    Bachelor's

First Year Associate         $150K - 250K$170K                    MBA

Third Year Associate        $250 - 450K$300K                       MBA

Vice President                  $350K - 1MM$500K                    3-6 years

Director / Principal           $400K - 1.5MM$700K                 5-10 years

Managing Director /

Partner                            $500K - 20MM$800K                  7-10 years

Department head             $800K - 70MM$2MM                  10+ years

Starting salaries in investment banking positions with a bachelors degree after bonus (assistant or junior analyst position) range from $60,000 to $70,000. Starting salaries with an MBA degree range after bonus (associate position) range from $80,000 to $150,000.

Investment Banking: Top Firms

Leading Firms / 2008 M&A Volume League Table

Rank

1                              Goldman Sachs & Co

2                              J.P. Morgan & Co., Inc.

3                              Citigroup

4                              UBS

5                              Morgan Stanley

6                              Bank of America / Merrill Lynch

7                              Credit Suisse

8                              Deutsche Bank

9                              Barclays Capital

10                            Lazard

Source: New York Times, January 2009 citing Dealogic

Investment Banking: Skill and Talent Requirements

Investment banks want employees with a combination of strong analytical and interpersonal skills. Some jobs lean more towards one skill set than another (e.g. brokers need to be mainly sales people). A typical job of an equities analyst requires both analytic and interpersonal skills. The skills involved include:

 

Key Skill Area                     Requirement

People skills:                         High

Sales skills:                            Medium

Communication skills:            High

Analytical skills:                     High

Ability to synthesize:              High

Creative ability:                     High

Initiative:                               Medium

Work hours:50-120/week

Investment Banking: Life as an Analyst

Analysts are typically recent undergraduates who work long hours and do a fair bit of grunt work. A good analyst helps his or her boss get their job done and done well. Analysts are not normally expected to contribute in meetings but often can. Many analysts return to the business. Others choose to try other opportunities. During recruiting out of an MBA program, former analysts will be at a significant advantage over others without experience.

Key analyst skills include:

the ability to work with Excel spreadsheets, write macros in VBA, track and generate weekly newsletters (weeklies), keep schedules, generate prospectuses, get burgers, put in and retrieve pitch books from the copy center, and answer client phone calls.

Success Factors

Key success factors include (i) getting your job done well and without friction, (ii) getting things done on time, (iii) asking for help when you need it, (iv) dressing neatly, (v) not complaining, gossiping or whining, (vi) learning to use the library and the web to do research, (vii) become a whiz-kid with Bloomberg, Excel, Word and Powerpoint, (viii) always give your boss credit, (ix) know when to cheer up your boss and (x) know when to stay out of the way.

A good analyst also networks, observes and thinks. You want to be genuine yet make it clear that you like your boss. Excessive posterior kissing is a negative. It's always good to have a little hobby as well like following stocks, playing Liars Poker or following currencies. You can do this when things get quiet in August.

Assessment

It's a tiring life but gives you a good chance to learn the investment banking field and bond with people whom you will work with later. Being an analyst is one of the best ways to break into a very good field. The return on investment from being a good analyst can be over 50 times what they actually pay you. After two years, most analysts leave to get their MBA or pursue other positions. It all depends on the firm. Some places have a pretty strict policy of getting rid of you. Others are more mellow. It makes sense, after all, to try to keep very good people who can get a job done. If you don't go back and get an MBA you might benefit from going out and getting a CFA.

Recommended Books

Fundamentals of Corporate Finance By Brealey, Myers and Marcus. An excellent, detailed book on topics in corporate finance. If you want to study what the field is about, this is a good book to start with. Keep this at your desk. An alternative finance reference book to use is Fundamentals of Corporate Finance by Ross Westerfield and Jordan.