Investment Banker

What Is an Investment Banker?

An investment banker is an individual who frequently works as part of a financial institution and is essentially concerned with raising capital for corporations, governments, or different entities.

Examples of investment banker employers are Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of America Merrill Lynch (BAC), and Deutsche Bank (DB).

Understanding Investment Banking

Investment bankers work with large, complicated financial transactions. These transactions might incorporate structuring a acquisition, merger, or sale for clients. One more responsibility of investment bankers is issuing securities as a means of raising capital. This involves making nitty gritty documentation for the Securities and Exchange Commission (SEC) necessary for a company to open up to the world.

An investment banker can save a client time and money by distinguishing the risks associated with a particular project before a company moves forward. In theory, the investment banker is an expert in their field or industry, who has a finger on the pulse of the current investing climate. Businesses and nonprofit institutions frequently go to investment bankers for advice on how best to plan their development.

An investment banker also assists with pricing financial instruments and exploring administrative requirements. At the point when a company holds its initial public offering (IPO), an investment bank will buy all or a lot of that company's shares straightforwardly, going about as an intermediary. In this case, following up for the company opening up to the world, the investment bank will subsequently sell the company's shares into the public market, making immediate liquidity.

An investment bank stands to create a gain in this scenario, generally pricing its shares at a markup. In doing as such, the investment bank takes on a substantial amount of risk. While experienced analysts at the investment bank use their expertise to price the stock precisely, an investment banker can lose money on the deal assuming they have overvalued the shares.

An Example of Investment Banking and an IPO

For instance, suppose that Pete's Paints Co., a chain supplying paints and other hardware, wants to open up to the world. Pete, the owner, gets in contact with Katherine, a noticeable investment banker. Pete and Katherine strike a deal in which Katherine (for the benefit of her firm) agrees to buy 100,000 shares of Pete's Paints for the company's IPO at the price of $24 per share, based in her analyst team's recommendations. The investment bank pays $2.4 million for the 100,000 shares.

In the wake of filing the proper administrative work, such as SEC Form S-1, and setting the IPO's date and time, Katherine and her team start selling the stock out from the dark market at $26 per share. In any case, the investment bank can't sell over 20% of the shares at this price given weak demand and is forced to reduce the price to $23 to sell the rest of the holdings. This eventually leads to a loss for Katherine and her team.

Required Skills for Investment Bankers

The investment banking field is famous because investment bankers are normally generously compensated. Be that as it may, these positions require specific skills, such as great calculating abilities, strong verbal and written communication skills, and the capacity to work long and tiring hours.

Instructive requirements usually incorporate a MBA from a first rate institution and possibly the chartered financial analyst (CFA) designation.

Investment bankers must comply with their firm's stipulated code of conduct and normally sign a confidentiality agreement because of the sensitive idea of the information they receive. Additionally, there is potential for conflict of interest assuming the advisory and trading divisions of investment banks communicate.

A hierarchy of positions regularly exists in investment banking: (from junior to senior) analyst, associate, vice president, senior vice president, and afterward overseeing director.

Highlights

• Investment bankers must have astounding calculating abilities, strong verbal and written communication skills, and the capacity to work long and overwhelming hours.
• An investment banker works for a financial institution and is fundamentally concerned with raising capital for corporations, governments, or different entities.
• The investment banking field is famous because it is regularly generously compensated.