Let’s start with a question:
What’s the difference between Investment Banking, Corporate Finance, IBD, Advisory and Global Banking? Of course, this is a trick question – they are all terms for (roughly) the same thing.
In finance we have tend to find as many ways as possible to confuse the uninitiated.
So, over the next six weeks we are going to attempt to demystify Investment Banking, taking you on a jargon-free journey through this exciting, highly competitive area of the bank.
Investment Banking is the catch-all term for a division within a bank that helps facilitate, or broker, transactions between companies and investors, companies and other companies or investors and other investors. In return for this service, they get (lots of) fees.
Investment banking can be roughly split in two: Global Banking and Global Markets. The fundamental difference between the two is who pays you – in Global Banking, your client is a company looking to raise funds, or buy another company, or restructure.
In Global Markets (also known as Sales and Trading), your clients are investors (asset managers, hedge funds) looking to buy and sell investments at the best price.
In reality, these two divisions are very different and, by law, should not interact with each other (for example, Global Bankers might hold non-public information about a company that the Sales and Trading teams are not allowed to know about).
Frustratingly, when people talk about Investment Banking, or IBD, they often mean Global Banking – the division of the bank that serves companies seeking to undertake significant and strategic initiatives.
For the remainder of the series therefore, we will use Investment Banking and IBD (Investment Banking Division) interchangeably – our clients are companies, and we are doing fun things like capital raising, Mergers and Acquisitions and restructuring.
As Investment Bankers, you are brokers, helping to facilitate transactions, be it between a buyer of a company, and a seller (Mergers and Acquisitions), the issuer of a bond and an investor (Debt Capital Markets), or an issuer of Equity and an investor (Equity Capital Markets).
Moreover, you quickly become trusted advisors to the leadership teams of companies. You are operating on a strategic level, helping companies execute sometimes transformational (and often risky) transactions. You do a lot of ‘free’ strategic work, helping company management set and execute their corporate strategy, providing industry updates and insight on a competitor’s strategy in the hope that you will land a mandate for some big, fee-paying business (for example, as a bookrunner on a company’s Initial Public Offering).
All investment banks are different, however the big ones tend to follow a similar organisational structure. A typical IBD ‘floor’ will consist of product teams and sector teams.
The main product teams are:
Sector teams are a little bit different. They are specialists in a particular sector (Industrials, Real Estate, Healthcare etc.) and maintain strong relationships with companies within that sector, advising on corporate strategy, including capital raising and mergers and acquisitions. We will cover sector teams in week 6.
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