What Does it Take to be an Investment Banker?

Career & Internship

What Does it Take to be an Investment Banker?

To many students the dream to become an investment banker promises both prestige and financial reward. Yet, most students have no idea what an investment banker actually does. So what does it take to be an investment banker? 

I. What Does an Investment Banker Do?

To put it simply, an investment banker is basically a general banker

A banker’s job for retail customers is to help customers with deposits, transactions, loans, credit, etc. So, in comparison, an investment banker is the same, except for an investment banker the customers are bigger, essentially institutional, large corporates, or FT500 companies. Their job does not change, though! It is the same loans and transactions, only the numbers involved are much bigger, since the clients are wealthier. For example, a retail client might be seeking a loan, finance opportunity, or credit to purchase a warehouse, open a bakery, or seek a home loan. An investment banker will be providing similar things, only for the purposes of buying companies, setup new businesses, finance new operations in existing corporations, and much, much more. So the question is, are you interested in such a profession, beyond money and prestige?

II. Interested in Finance?

To work in investment banking, the student or candidate needs to demonstrate an interest in finance. An interest in finance is crucial to explain or provide “investor education” to Chief Financial Officers (CFOs) and any other client on complicated financial instruments like bonds, derivatives, FX or hedging instruments. 

The basic foundation in finance/accounting is essential to convince banks that you are interested in this profession beyond financial reward and prestige. To further their education in these different subjects, students should not just stick to the basic courses in school, but can even start by watching Bloomberg news or CNBC and by reading the Wall Street journal, the Financial Times, and several other industry publications. This will help anyone interested in beginning the path towards a career in finance to learn the terminology, test interest, and gain a basic, parlance foundation in how several financial instruments are linked and affect financial markets. Being familiar with all these will also come in handy during interview season! Get in the habit of following the news now, as opposed to trying to catch up later.

III. Academic Foundations: Accounting

In an investment bank, students often get mixed up between the two most common professions – investment bankers and traders. And most think they are interchangeable. In fact, these roles are completely different. 

A trader sits on the “public” side of a bank, where an investment banker sits on “private” side. The reason for this is that bankers are predominantly in charge of sensitive and private deals, whereas traders, as their name implies, trade on publicly available information. This is a very important distinction! To work as a banker, a banker needs to analyze complex financial information, usually from financial statements, build excel models to calculate and forecast future returns, etc. Hence a foundation in accounting and mathematics is essential so that these forecasts are correct. If these calculations are made incorrectly, the bank will lose money and fees in the process due to defaults and a failure to meet financial obligations.

If you're still with me up to this point and continue to find the idea of being an investment banker fascinating, then really consider it as a possible career. Just one more thing...

IV. Final Comments: Different Divisions in Investment Banking (IB)

Depending on the firm, these can change (or use different titles), but the three primary investment banking teams are M&A, ECM (equity capital markets), and DCM (debt capital markets). 

The primary difference in each team is the product. So, in ECM, the products include equity placements, equity issues, and block trades, whereas in DCM, your products are bonds, fixed income, convertibles, and some others. 

When students apply to an IB team, they need to be sure and knowledgeable about “why” they want to work in a particular team. Research is essential. More than 50% of students automatically get rejected because they are so fascinated with the idea of being in IB that they don’t care about what team they join. But your team is super important. Banks employ you because you like the job, will stay in the role, and can make them money. So if you have no clue about what you are doing, they will automatically discount you. So research, research, research.

Thus, remember, it isn't just about showing passion or knowledge. You need to have both AND a solid understanding of your strengths and where you can best contribute to the profitability of a bank. Good luck!