Last Updated on May 18, 2023
Given the high reputation and lucrative pay of investment banking, it attracts many people looking for careers on Wall Street. But an investment banker’s title doesn’t necessarily describe what they perform. What does an investment banker actually do?
Famously, investment bankers play a major part in the initial public offers (IPOs) of emerging companies getting ready to go public. That is merely one of their work assignments, though.
Investment bankers essentially act as financial counsellors to businesses and, in certain situations, to governments. They assist their clients in fundraising. That could entail issuing stock, putting a bond on the market, negotiating the purchase of a competing business, or setting up the sale of the firm as a whole.
Investment bankers typically do well when the financial markets are performing well. For investment bankers and their customers, greater funds and activity result in more profitable deals.
What Does an Investment Banker Do?
Because an accomplished investment banker can benefit from high pay, plenty of networking possibilities, and the opportunity to play a prominent role in business success stories, this profession is frequently sought after. Nevertheless, people who prefer a more relaxing work-life balance may find the day-to-day work of an investment banker to be hard, fast-paced, and stressful. Investment banking might not be the right career choice for you if you’re seeking a job that typically requires 40 hours per week and flexible scheduling.
An investment banker will support large, sophisticated financial transactions whether they are related to the business or not. These can entail putting together a deal for an acquisition, merger, or sale to a business or client party.
Another crucial activity is the issuance of shares as a form of capital raising. It entails creating thorough Securities and Exchange Commission (SEC) documentation, which is necessary for a company to go public.
By identifying potential hazards before a company moves forward, an investment banker can help a client save time and money. In theory, the investment banker is a specialist in his profession who keeps a finger on the pulse of the present investment environment.
Investment bankers are frequently consulted by businesses and non-profit organisations for guidance on the best ways to finance their expansion.
A banker that specialises in investments can also assist with regulatory compliance and pricing of financial products. An investment bank may occasionally directly purchase all or a significant portion of the stock in a company during its Initial Public Offering (IPO), acting as an intermediary.
In this case, the investment bank will then act on behalf of the company going public and sell the company’s shares to the public market, creating immediate liquidity.
The Roles of an Investment Banker In Depth
Investment bankers are involved in a variety of financial operations carried out by businesses and governments. The primary types of deals they engage in are summarised here.
Arranging Financing
A huge corporation is unlikely to have the funds on hand to create a factory even if it wanted to. To raise the funds necessary to move forward with the project, it can choose to issue a bond. The higher output that the new facility would provide will be used to cover the bond’s cost.
Similar to this, a government might have to provide funding for the development of an airport, a motorway, or any other significant local undertaking. If it issues a bond, it can complete the project right away and pay back the bond with incoming tax money. An investment banker may be employed in any scenario to handle the funding arrangements.
Underwriting Deals
Investment bankers frequently underwrite projects for their customers when arranging capital markets financing. This entails accepting a large portion of the process’ inherent risk by purchasing the shares directly from the issuers before selling them to the general public or institutional buyers.
Investment bankers mark up the price at which they sell the shares in order to profit from their employers. The underwriting spread is the distinction between the purchase price and the markup price.
The investment banker may occasionally only serve as a middleman, marketing the offer without taking on any underwriting risk. To underwrite an issue and spread the risk among numerous parties, a lead investment banker typically works with a syndicate of other investment bankers. The investment bankers in this situation might sell a portion of the securities and be compensated on a commission basis for the quantity they sell.
Equity Financing
Selling bonds or shares is the most cost-effective way for businesses to finance their expansion and growth. When it comes to organising the sale of stock or equity financing, the investment banker also contributes.
Let’s say a new business wishes to do an initial public offering (IPO) to generate capital for growth. It would first employ an investment banker to draught a prospectus outlining the parameters of the offering and the risks it entails for prospective investors.
Next, the offering requires investor marketing, media outreach, and SEC approval.
The offering price holds great significance. If priced too high, the public might ignore the IPO, branding it a failure. However, undervaluing the shares means the investment banker loses potential client earnings.
Read: Why is Money Important?
Negotiating Mergers and Acquisitions
A corporation usually goes through a lengthy planning and negotiation process before acquiring or merging with another business. Investment bankers frequently serve as advisors during that process, especially when determining a fair sale price.
Long-lasting negotiations can be a part of mergers and acquisitions, with investment bankers on both sides of the table weighing numerous bids and counteroffers.
Daily Life of an Investment Banker
Investment bankers need to be workaholics by nature as they work anywhere between 60 and 100 hours per week! Longer hours are usual for analysts, and as you advance in the world of investment banking, you get more relaxation at the expense of more responsibility.
An investment banker’s everyday activities are greatly influenced by the work they are currently managing. When a banker is actively involved in a deal, which means they have a customer looking for a buyer or seller, those are often the busiest days. There are slower days, though, such as when a banker is concentrating more on marketing to prospective clients.
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