Investment Banking : A Career Choice

Investment Banking is a very fancy word. Most of the MBAs want to go to either Management Consultancy or Investment Banking, because both of these fields are very challenging in nature and requires a lot of efforts, but in the end, rewards are substantial.

Investment Banking is one of the highest paid professions.

It’s all about the money. Investment bankers work crazy hours but get paid huge bucks.

The work done by investment banks can be broken into two areas

  1. Corporate Finance
  2. Sales & Trading

C. F. involves providing financial advice and support to corporations considering mergers, acquisitions, divestitures, raising capital through initial public offerings (IPO) and any other corporate restructuring strategies.

Sales and Trading involves buying and selling equity and debt securities to institutional buyers.

Let’s understand some terms about Investment Banking.

Bulge-Bracket (BB) Firms: Large, well-known and very well-respected firms operating in the upper end of the market. They usually engage in transactions that exceed Rs. 2,500 million. Bulge Brackets in India are not clearly defined but the internationals – JP Morgan,Merrill Lynch fit the description. Internationally, the well-known Bulge’s are JP Morgan, Citi, UBS, Credit Suisse, Barclays etc.

Boutique Firms: Firms operating in what is known as the SME (Small & Medium Enterprise) space. The transactions are usually smaller than the Bulge-Bracket’s but are still able to gather enough fees to survive. There are hundreds of boutique firms that clamour for fame in India – they are usually attached to securities broking firms and exist in an attempt to ensure that institutional clients have access to securities broking as well as corporate finance products under one roof.

Middle-Market Firms: Usually firms that operate with companies that have transaction sizes that fall in the gray zone between BB’s and Boutique firms.

A first-year Associate at a bulge-bracket could earn (starting, including bonus) about Rs. 40-65 lacs in a decent year in India.

A first-year Associate at a bulge-bracket could earn (starting, including bonus) about $ 300,000 – 400,000 (Rs. 1.35 – 1.8 crores) in a decent year in the US.

However, before the lure of the money begins to blind you, you must keep in mind that bankers work 85-100 hour weeks on an average. That means over 15 hours a day / 7 days a week.And very often, you will end up sleeping on the floor at your desk.

Most people brag about their work weeks but there is a lot of attrition rate, most of them leave this industry to join their former clients.

Let’s understand some more terms.

Back-Office: The part of the IB process which provides transaction, research, reconciliation and number-crunching support for the bank. They usually work out of KPOs and work on processes as complex as financial modelling. Hours are kind of fixed and not very demanding. Skill-set level is minimal compared to the rest of the firm. Pay is better than most places but nothing “Investment-banking”-like… Usually located in India or other developing countries with cheap labor and lots of smart people.

Middle-Office: Usually dealing in risk and having minimal client interaction. They ensure that the investment bank’s risk and compliance requirements are satisfied. Hours are either the same as or somewhat worse than KPOs, but not by too much. Usually located physically in the same building as the investment banking front-office. Money is pretty decent and fixed component of the salary is slightly below the front-office.

Front-Office: Fee-generators. The “bankers” sit here – defined as the place with maximum client interaction. Fixed component is pretty okay – but what boggles the mind is the bonuses.

Analyst: Undergraduate level support for the front-office. Not to be confused with back-office, these guys are some of the best undergrad recruits on their campuses and are chosen for their ability to work like crazy. They usually spend 3 years before being “encouraged” to go to business school. Those asked to stay on are turned into Associates and do not require to go to business school. Analysts are not so popular in India; since MBAs come so cheap.

Associate: The post-MBA level bankers. The Associate designation is usually the start of the process to reach MD. They usually handle work on client interactions and manage the Analysts.

Investment Bankers (in India): Usually CA’s or MBA’s. They work in either debt raising, equity raising or structured finance (lending from their firm’s balance sheet). Very rarely will you see a non-MBA / non-CA in this business, unless they’ve moved in laterally from a bank job.

Investment Bankers (in the US): Usually MBA graduates (there are some undergrads who move from Analyst directly to Associate after 3 years, but they’re the best of the best).

Reference :

  • Pagalguy
  • Beyond the MBA Hype by Sameer Kamat
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Sukrut is a passionate geek, internet visionary and a full time blogger, he has been teaching MBA students from the past two years, he is a chemical engineer by qualification,. Read my full story here

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