Investment Banking Overview

Recent Trends

• Investment banking profits have surged to all-time highs in the past 12 months (according to Bloomberg).

Main Services Provided by Investment Banks

• Investment banks provide two main services:
  1. Advisory (M&A): Mergers and Acquisitions
  2. Financing (Underwriting): Raising funds for companies and governments.

Financing Services

• Initial Public Offerings (IPOs):
  • The first time a company offers its shares to the public.
  • Investment banks act as middlemen between companies and investors.
  • Notable recent IPOs: Airbnb, DoorDash, Robinhood.

Advisory Services

• Mergers and Acquisitions (M&A):
  • Advising companies on buying or selling deals.
  • Examples of recent M&A deals:
    • AT&T merging with Discovery.
    • Amazon acquiring MGM Studios.
    • Salesforce acquiring Slack for $27 billion.
  • Advisory can also include spin-offs and restructurings.

Revenue Generation

• Fees:
  • Investment banks earn money primarily through fees on financing and advisory services.
  • Example: If an IPO raises $100 million, the bank takes around $7 million in fees.
  • IPO fees are typically split among multiple investment banks involved.

Breakdown by Division (Goldman Sachs Example)

• Investment Banking: Advisory and Financing
• Investor Management: Asset and Wealth Management
• Commissions and Fees: Executing transactions like stock trades
• Market Making: Involves credit products, currencies, etc.

Major Players in Investment Banking

1. Bulge Bracket Investment Banks:
   • Large, global firms with thousands of employees (e.g., JP Morgan, Goldman Sachs, Morgan Stanley).
2. Boutique Investment Banks:
   • Smaller firms that specialize in specific areas or industries (e.g., Evercore, Moelis, Lazard).
   • Junior employees often have more responsibilities, leading to better learning opportunities.

Career Insights

• Salary:
  • Base salary for first-year analysts has increased to approximately $100,000 (up from $85,000).
  • Bonuses are also considerable, depending on performance.
• Work Hours:
  • Long hours, averaging 80 hours a week, peaking at 100 hours during busy seasons.
• Target Universities:
  • Top candidates are typically from Ivy League and other prestigious universities (e.g., Oxbridge, LSE).
• Skills Required:
  • Good with numbers, attention to detail, teamwork, and willingness to work long hours.
• Acceptance Rate:
  • Very low for top-tier investment banks (below 5%).

Conclusion

• Investment banking is a highly profitable field with significant opportunities but also demanding work hours and high competition for entry.