This piece was reviewed by an investment banking associate at JP Morgan. A Sales & Trading VP from Morgan Stanley also contributed.
1. But first, what's an "investment bank"?
🏦 "Investment bank" demystified
❓ Why do investment banks exist?
2. What's an investment banker?
✨ "Investment banker" demystified
🔍 What do investment bankers do?
❌ What investment bankers don't do
🌈 What types of investment bankers are there?
👥 Not everyone at an investment bank is an investment banker
3. Where can I find internships?
Let's start with what you might already know—a typical neighborhood bank. This kind of bank is like a bridge between people who want to save their money and people who need to borrow money. For example, when you save money in a bank account, the bank can lend that money to someone who needs a loan to buy a house or start a small business.
Now, investment banks do something similar, but on a much bigger scale. They act as bridges too, but instead of dealing with individual savers and borrowers, they work with big organizations.
Investment banks help these two sides come together: they find investors for the entities that need big amounts of money and help manage these large financial transactions.
By doing this, investment banks play a crucial role in the flow of money on a large scale, supporting the growth of companies and, by extension, the economy. They are the bridge between those who have capital (money to invest) and those who need capital for big endeavors.
Above all, finance is about money flowing from where it's abundant to where it's scarce.
- On the abundance side, we have investors and lenders looking to multiply their money. Examples are banks, life insurers, and pension funds. These supply the funds.
- On the scarcity side, we have investees and borrowers. Examples are corporates and governments. These have a demand for funds.
– Sales & Trading VP @ Morgan Stanley
Think of investment banks as the go-to helpers for really big money matters, where the usual bank down the street doesn't cut it. Here's why they're so important.
Imagine a city that needs to build a new subway system or a company that wants to buy up another company. Projects like these need a ton of money. For example, Elon Musk bought Twitter for $44 billion – that's way more than what you could borrow from a regular bank!
Investment banks come into the picture because they know how to gather huge amounts of money by connecting these big projects with investors who have the cash and are looking to invest.
They do this through something called "capital markets," where stocks (pieces of a company you can own) and bonds (like a loan to the company or government that pays back with interest) are sold to gather the needed funds.
In their most basic form, investment banks help corporates with financing. The reason corporates come to investment banks is because we know:
- Who has the money to finance them (aka investors)
- Which investors would be interested in funding this specific corporate.
– Sales & Trading VP @ Morgan Stanley
Sometimes, companies want to grow by buying other companies or merging with them (these are called "mergers & acquisitions" or "M&As"). This is a lot trickier than it sounds. It involves figuring out how much the other company is worth, talking terms, and making sure the deal is fair and legal.
This is where investment banks shine. They have teams of experts who specialize in making these complicated deals happen smoothly, ensuring their clients get the best outcome possible.
In short, investment banks exist because they are pros at handling big and complex tasks that regular banks can't. They're the bridge connecting big ideas needing big money with the people who have that money and are looking for ways to grow it.
Stripped to the basics, a banker is someone who sells a bank's financial products and services – and an investment banker is like a "super banker" who sells the most sophisticated financial products and services.
To better understand this, let's go back to your neighborhood bank for a second.
Investment bankers are like your neighborhood bankers but:
It's a world where the stakes are high and the deals are bigger. But just like your local banker, they're all about finding the right match for their client's needs and aiming to win big for everyone involved.
Investment bankers help their clients with M&As, IPOs, and other big financial moves. Out of these services, M&As form the bulk of their work. There are even investment banks who just do M&As and nothing else!
What does an M&A look like from start to finish? Get a glimpse through this account by an investment banking associate.
There are two kinds of M&A transactions. There's "buy-side" and "sell-side." On the buy side, your clients will be companies who want to buy up other companies. On the sell-side, your clients are companies that want to be sold.
The main difference is that being on the sell side is a lot more work, since you have to really market the company. On the other hand, being on the buy side is mainly looking up companies to buy– and in some cases, a client will already have a target company in mind, so you just go with that!
Here's the general flow.
- Understanding your client's needs: Both types of M&As start with conversations with your clients to understand what they're looking for, such as the types of companies they want to partner with (e.g. "We want to buy a company with $100 million in revenue.") You'll also understand their timeline (Timing matters for some companies because they might need a few more years to raise their value).
- Researching buyers and sellers: Based on your client's needs, you come up with a list of target companies. On the buy-side, this means companies your client can consider buying. On the sell-side, it's a list of potential buyers.
- Shortlisting: You'll bring your list to your client and together, narrow down to 1-3 companies on the buy-side and around 10 companies on the sell-side.
- Outreach: You will then reach out to potential buyers and sellers. Sellers will send out marketing materials that explain who they are, what they do, and why they're great (think: their market share, their growth trajectory, how many countries they're in).
- Initial bids: Buyers will indicate roughly how much they're willing to buy a target company for. Sellers will invite buyers over for presentations and arrange for one-on-one meetings with management.
- Due diligence: Buyers will try to understand everything about the company they're buying to make sure there are no surprises. This entails asking hundreds of nitty gritty questions about the business – from their suppliers to their IT infrastructure. They may even hire consultants and accountants to ask even more questions! If you're on the team selling the company, your task involves answering as many of these questions as you can and then sifting through the remaining ones to pick out the most crucial questions that your client needs to focus on answering (or they'll be overwhelmed).
- Final bid: The buyer will submit their final bid along with all the terms of the transaction. This means things like whether they'll retain the management team (and if not, how much severance they'll provide) and whether they'll buy up the whole company or a certain portion of it.
- The deal: If buyer and seller come to an agreement, the deal goes through! The companies might merge (combine into a new company with a new name altogether) or the seller might become a subsidiary of the buyer (or even a subsidiary of a subsidiary) or however the deal is structured.
– Investment banking associate @ JP Morgan
For details on what bankers do day-to-day, check out Junior bankers share what they actually do – and why their hours are so long.
Even though they're called "investment bankers," they don't actually make investments. In other words, they don't spend their days buying things like stocks or businesses.
What they do do is sell investment opportunities. This is illustrated by something called "book-running," which is an important part of their job.
Confusingly, investment banks do have other divisions besides investment banking, and some of these divisions do make investments on behalf of clients. However, these folks are not investment bankers, as we'll cover later.
There are two main types of investment bankers: coverage bankers and product bankers.
Coverage bankers specialize in helping companies in specific industries, like tech, real estate, or healthcare. They use their deep understanding of the sector's trends, challenges, and opportunities to offer tailored financial advice and services to companies in those sectors.
For example, a "TMT" investment banker "covers" clients within the Technology, Media, and Telecommunications sectors. They specialize in helping companies in this space with their M&As and IPOs.
Coverage bankers are industry experts. As a coverage banker, you get in-depth experience in a sector. You also have the opportunity to work on different products: M&A, Debt Capital Markets (DCM), Equity Capital Markets (ECM). The disadvantage is you don't get to be a specialist in any of the products.
– Investment banking associate @ JP Morgan
In some cases, coverage bankers cover a specific region (such as Latin America) instead of a sector. For instance, we once spoke with a junior investment banker in Southeast Asia who "covers" their country. This means their team handles all the clients in their country!
Bankers in this group focus on specific types of financial transactions or products, such as mergers and acquisitions (M&A), equity capital (like IPOs), debt capital (issuing bonds), or restructuring efforts for companies in financial distress.
Product bankers are technical experts. As a product banker, you gain real technical skills. That's because if you're, say, a DCM banker, you just do debt capital markets – you don't touch M&A or ECM. So if you aren't particular about an industry or if there's a product you like in particular, you might be a good fit for product banking. As a plus, you'll also get experience across industries.
– Investment banking associate @ JP Morgan
Let's imagine a client is a tech company looking to merge with another tech company. The TMT bankers (who know all about technology, media, and telecommunications industries) would team up with M&A bankers. Here's how it works:
The TMT bankers ensure the merger makes sense in the fast-moving tech landscape, and the M&A bankers handle the nuts and bolts of making the deal happen.
This collaboration ensures that the client gets the best advice and support throughout the merger process, maximizing their chances of success.
Now, we must address a very confusing aspect of investment banks – the fact that not everyone who works at one is an investment banker.
The reality is that big investment banks are huge operations with lots of different people – besides investment bankers – contributing to the bottom line.
The three main divisions are Investment Banking, Sales & Trading, and Equity Research. As you might guess, only the folks in the "Investment Banking Division" (IBD) are called "investment bankers."
| Division | What they do | How they make money | Who their clients are |
|---|---|---|---|
| Investment Banking Division (IBD) |
Work on big deals like M&As or IPOs |
Earn fees from advising on deals and managing the sale of shares. | Companies, government entities |
| Sales & Trading (S&T) | - Buy and sell stocks, bonds, and other financial products. - Advise investors on what to buy or sell and help them do that. |
Make money from the difference in buy/sell prices (trading) and commissions on sales. |
Investors |
| Equity Research (ER) | Study companies and industries to recommend which stocks to buy, hold, or sell. |
Support trading and sales, indirectly contributing to revenue. |
No paying clients |
The main distinction you'll need to know is that:
These two sides are separated by an invisible wall. This means that people who work on the private side of the bank aren't supposed to share non-public information about their work with the people on the public side of the bank.
Why? Well, imagine if an investment banker is helping a company with an M&A. If the public side of the bank got ahold of that "insider" information, they could use it to sell stocks to their clients, who'd make a killing when the deal goes through. This would be insider trading, which would get the bank in a lot of trouble.
The bank drills into you from the time you're an intern that you can't discuss a deal with anyone until it gets announced. Like, they give you real examples of people who've gone to prison for insider trading.
And as an investment banker, if you want to talk to someone on the public side of the bank, you need to get someone (typically in compliance) to "chaperone" your talk. So they'll literally sit there and listen to your conversation!
– Investment Banking Associate at JP Morgan
That said, these different divisions don't operate in silos. They do help each other out – just after a deal has gone through. For example, let's say an investment banker has just helped a company IPO which means anyone can now buy their stocks.
Keep in mind:
Internships are the best way to break into investment banking, and you'll find plenty of them on Prosple. We have a vast selection of internships curated for students like you.
If you need help making sense of the internships you see, check out: