3rd November 2022 / By Neil Johnson

A Guide to Investment Banking

Guide to investment banking in the United Kingdom
Investment banking in the UK has a history dating back to the 18th century, when London was the world’s financial centre. Times may have changed, but an investment banking career within the UK’s broader financial services sector will be a professional life played out in a world-leading sector integral to the UK and global economies.

What is investment banking?
Investment banks provide corporations, institutions and governments with two core services: underwriting (raising capital for clients by selling stocks and bonds to investors), and assisting in the negotiation and structuring of mergers and acquisitions (M&A).

Investment banks vs commercial and retail banks
An investment bank won’t issue a debit card and you generally won’t see their ATMs or branches on the high street.

Investment banks: Investment banks operate a B2B business model by providing corporate, governmental and institutional clients with capital raising/underwriting and M&A advisory services. The source of an investment bank’s profits come from charging commissions for underwriting and fees for advisory.

Commercial and retail banks: 
By and large, these are the household name high street banks and building societies, such as HSBC, Barclays, Lloyds and Nationwide. They provide personal or consumer (retail) banking to members of the public, with services including current and savings accounts, mortgages, credit cards etc. It’s a B2C business model through which profits are made variously through interest on customer deposits, premium account subscriptions, debit card charges, credit cards, mortgage interest and sales, commissions on financial products.These banks will also usually have a commercial arm, which runs along more of a B2B model by servicing businesses with products relating to general banking, insurance and investments, financing, treasury and cash management, along with other high value services that often mean this is more lucrative than the retail arm.

Functions of an investment bank
It should already be clear that investment banks are not your average day-to-day bank. Essentially, Investment bankers act as a conduit between those with money to invest, and organisations that require capital. They also provide strategic advice to generally large clients in tackling complex M&A transactions.

Full-service investment banks vs investment banking divisions: The main difference here is scale. As the name suggests, full-service investment banks are the grand global players, all of which have a solid presence in the UK, including JP Morgan, Goldman Sachs, Morgan Stanley, Deutsche Bank, BlackRock and Barclays.

Investment banking divisions of banks will focus on the two core activities: underwriting and M&A, while the full-scale banks will have teams spread around the world working collaboratively. They’ll likely have ‘extra’ services to offer, such asset management, sales and trading, and equity research; and in the case of Barclays and Goldman Sachs, ESG advising and sustainable banking.

Underwriting: This is the process of raising capital in which investment banks’ equity and debt capital markets teams (ECMs & DCMs) sell a client’s stocks or bonds to investors. The transactions are made through structures like IPOs, follow-on offerings, structured lending, and leveraged finance.Banks will market (drum up interest/gauge demand ), originate (structure and pitch the deal), syndicate (assemble all investors and agents for deal execution) and execute the transaction, the proceeds from which might go towards funding the client’s expansion, restructuring, operations or projects.A recent example is Barclays work as a bookrunner (underwriter) on the UK government’s issuing of its first green gilt ahead of COP26 in 2021. The initial transaction raised £10 billion and will support the government’s initiative to use innovative financing solutions to target the transition to net zero.

M&A: Investment banks provide advice on M&A transactions like company sales, divestitures or carve-outs, joint ventures, leveraged buyouts, cross-border M&A and spin-offs. Investment banks can be key strategic partners throughout an M&A process. They can be consulted to find, evaluate and complete any transaction. Indeed, a key selling point for investment banks are their extensive networks and relationships to find opportunities and negotiate on a client’s behalf. Bankers can advise on both sides of M&A transactions, representing either the ‘buy-side’ or the ‘sell-side’.

M&A is big business, with 2021 a record year for the number of transactions in the UK. The number of completed transactions involving a UK headquartered business was over 3,790, a 33.5% increase over 2020.

According to the Office of National Statistics, UK companies acquiring foreign companies went from £15.5 billion to £46.0 billion in 2021. This included AstraZeneca’s acquisition of US-based Alexion Pharmaceuticals for £29.8 billion, 64.8% of outward M&A for the year. As part of the financing for the deal, investment banks Morgan Stanley, JP Morgan and Goldman Sachs provided AstraZeneca with a $17.5bn loan in the form of a bridge-financing facility.

Sales and trading: It’s vital that investment banks can firstly convince investors to invest, and secondly execute money making trades and retain clients and reputation. Sales and trading consists of salespeople who call clients — existing or potential — with ideas and opportunities, and traders who execute orders and advise clients on entering and exiting financial positions. 


Equity research: As part of a bank’s structuring, guidance and issuance of its clients’ securities, detailed knowledge of issuing entities is required. Equity research is also required when seeking potential targets for a client’s M&A ambitions.

Asset management: Large banks will also often have their own asset management arms, which build investment portfolios of stocks and bonds on behalf of clients.

How do you select the right investment bank?
When it comes to considering an investment bank, the advice for a prospective client is much the same as for someone considering investment banking as a career path:

Reputation: Does the bank or division conduct itself well? Does it have strong governance? Is it busy? Who are its clients? Has it had many recent headlines — good or bad?

Credibility of the research team: Find the team members on the company website, check them out on LinkedIn, read the trade press — does the team have a good track record? How long has its members worked there? What size and complexity of deals have they worked on and in which sectors?

Industry experience: Is the bank’s sector experience narrow or far-reaching? A broader global reach is common at big banks, but smaller more specialist divisions are worth considering too.

The ability to understand the unique needs of its clients: Does the bank retain clients? Is it happy to share success stories, and vice versa, is it easy to find client recommendations?

Forging a career at an investment bank
Should a career in investment banking appeal, graduate schemes are offered by many banks, including Barclays, Deutsche Bank and Standard Chartered. Graduate jobs can run for at least two years, providing an overview of the bank’s operations and purpose, before specialising in investment banking.

Internships are also widely offered and well structured, but also as competitive to win a place as the graduate schemes.

The skills and knowledge expected of investment bankers include a high level of commercial acumen, along with understanding macroeconomics and financial markets. Being strong numerically and comfortable with software like Excel is also key, as bankers, especially early stage ones like analysts and associates, spend a lot of time building financial models and using valuation methods.

The product of all this knowledge and skill is ultimately to maintain strong client relationships, to sell to investors and to negotiate at the centre of deals, so soft skills are vital, especially an ability to articulate complex information to people perhaps unfamiliar with the language of finance and the markets. You must also work well in teams and under high pressure, with long hours common in investment banking.

Investment banking is a well remunerated profession, one that demands a lot from its professionals, but that will provide a dynamic and fulfilling work life. As a global sector, with a hub in several locations in the UK, there are opportunities to work for large or small businesses on all kinds of deals. If you have a passion for commerce, investment banking can put you at the sharp end of global business.