Are you interested in the world of Wall Street, but totally clueless as to what people actually, you know, do there?
You’re not alone. You might know that an investment banker is a job, and even a prestigious one at that, but what exactly does an investment banker do?
Do they work at a bank, as a bank teller? Do they work strictly with investments, like a stockbroker? How many jobs are there in finance anyway?
This is confusing!
Investment bankers are a crucial part of the financial sector of the world, and if you’re curious about what their job actually is, you’re in the right place.
In layman’s terms, here’s what an investment banker actually does.
What is an Investment Banker?
An investment banker works with an investment bank. An investment bank isn’t exactly what you might think of when you think of traditional banking.
Investment banks (and thus, their bankers) typically work with large corporations and businesses, or high net worth individuals. Some traditional banks offer investment banking and have investment bankers on staff, but the two are not always going to go together.
What Does an Investment Banker Do?
This is kind of a big question, and it’s going to need to be broken down a bit. An investment banker takes on a lot of jobs, and they’re not all exactly the same. Basically, though, investment bankers have the goal of getting money from one place to another.
There are different types of investment banking, and they don’t all look the same. Depending on the needs of you or your business, you might want to seek out someone specific.
Mergers and Acquisitions
If a company is interested in buying another company or merging with it, an investment banker can come into play.
They might put research into the company in question. This research will lead them to a fair evaluation of the company and a price that both companies can hopefully agree on without much further dispute.
The company on the other end will likely also have an investment banker to help assess their value. The end goal is for both companies to reach a similar number, but this can be an ongoing conversation for a while.
Stocks and Investors
If a company is going public for the first time in the stock market, the initial public offering (IPO) is often handled by the investment banker. This is an important role, as a company having available shares is a big deal.
The investment banker, in handling the IPO, helps in setting the initial stock price to something attractive to potential investors. They also manage all legal and compliance issues that might arise with the new public offering.
A professional is needed for this process. Pricing a stock too low means that not enough money will come in to properly fund the company. Pricing it too high means that not enough investors will be willing to bite.
Underwriting
Investment bankers manage the underwriting of the deals involved in acquiring more funds for the company, whatever those deals may be.
They’re managing the risks from the deals by buying and selling securities for a profit that will hopefully compensate for the potential loss. For this, they don’t have to work alone. They can work in a group or a syndicate, so the risk is spread out between them.
Private Placement
Not all money is going to come from the public market. Sometimes, there are private funds involved.
If a company needs money, it’s possible to use an investment banker to help sell stocks and bonds privately to investors and institutions.
What Are Some Investment Banker Special Skills?
Investment bankers work hard to get where they are. Their job is difficult, and they have to handle a lot of risks and manage a lot of money. Here are some skills involved in being an investment banker that may contribute to their day-to-day.
Research and Analysis
This isn’t an exciting part of the job, but it’s an important skill for investment bankers to have.
For an investment banker to make educated decisions on initial stock prices or company buyouts, they need to be able to research effectively. They need to know where the best places to look are, and how to find announcements before they happen.
Basically, you want someone who isn’t an insider but somehow seems like they always have inside information.
Financial Modeling
When an investment banker is making a decision for a company, they want to be able to see where it will most likely lead down the line given the current circumstances with some degree of variability.
Financial modeling will do just that.
It creates a roadmap for where the money is going to go, and what the timeline is going to look like for the company given the current trajectory.
This requires a lot of math and a hefty amount of practice with Excel.
So, in Short, What Do Investment Bankers Do?
Investment bankers help people with money make money. They help corporations or individuals negotiate funds to build their capital and take away some of the risks of doing so.
It’s a tough job, and it involves a lot of negotiation and financial management.
They’re financial advisors, but they’re also so much more than that. They’re essential for any company that hopes to grow.
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