so according to bloomberg in the past 12 months
investment banking profits have surged to all-time highs so what do they actually do to make that
much money and how can you break into the industry all of that and more in this video in short
investment banking provides funds governments and companies two main services one is advisory
which is also known as m a and the other one has to do with financing which is also known as
underwriting but here's where it gets a bit confusing the large investment banks don't
just have an investment banking division instead they have many other client-facing
divisions like what might be asset management trade sales and trading or research as well so
when people talk about investment banking it's not necessarily the investment banking division but
back to the investment banking division and their services so financing consists of raising money
by selling stocks or bonds on behalf of a company and the most famous type of financing out there is
an ipo which stands for an initial public offering this is the first time that a company gets to
sell its shares in the public markets that's the iconic bell on the new york stock exchange and
it's probably the highlight of any ceo's career but wait why do i need an investment bank
for this well the investment bank acts as the middleman between the company wanting to raise
the money and investors looking to invest money they're the ones that connect both parties
and make sure a fair price is set examples of major recent ipos include that of airbnb
doordash and robin hood just a few months back the other part is advisory which is also known
as mergers and acquisitions and this has to do with advising companies either on the buy side
or on the sell side about a deal now these large investments are usually very knowledgeable of
the financial markets and using their network they're able to find potential buyers or sellers
they're able to negotiate and help out the company throughout the process and lastly they're able to
find a good price for that deal recent examples include that of a t merging with discovery amazon
acquiring mgm studios or salesforce acquiring slack for 27 billion us dollars an advisory isn't
strictly for mergers and acquisitions it can also be for other things like spin-offs restructurings
and so on but i'm not really going to get into that all right so we now have a good idea of what
they do so how do we make money with it well in short is from fees on the financing side here's a
table from pwc to illustrate the fees for an ipo the average underwriting fee percentage you have
here is what gives them the big bucks so if the ipo raises 100 million the bank takes around
seven million but there is a slight nuance to this there's usually multiple investment banks
involved in an ipo so that means they split the fees between them based on their contributions
and in the case of alibaba the biggest ipo today raising 25 billion on the new york stock
exchange it's safe to say that jack ma probably wasn't the only one smiling in the room now on
the other hand there's the advisory fees and these are not a different from a consulting
practice where they take a fee for that too but like i said earlier investor monks also have
other divisions that earn money for them as well when looking at a breakdown by division in goldman
sachs's annual report you can see net revenues and investment banking are high but there's other high
areas too in this case investment banking refers to advisory and financing investor management
refers to asset and wealth management commissions and fees refers to executing transactions like
stock trades for clients while market making refers to the global markets division which has
to do with market making and credit products interest rate products currencies and much more
and as you can see that's the biggest chunk here so even though the investment marketing division
is usually the one in the headlines there's other very profitable divisions as well so who are
the big players in the industry well there's actually a split between bulge bracket investment
monks and boutique investment monks the bunch market investment banks are the big household
names the likes of jp morgan goldman sachs or morgan stanley and they really have thousands
of employees and offices all around the world on the other hand there's boutiques which are smaller
in size and they specialize in a particular area like what might be advisory sometimes they
also specialize in a particular industry like what could be tech advisory for instance examples
of some well-known boutiques out there include evercore moeles or lazard and you might think
that a bulge bracket is better than a boutique but that's not necessarily the case in a boutique
given the smaller size that also means that junior employees have more responsibilities which usually
leads to better learning opportunities right as for the work hours and the pay they're actually
quite similar between the two moving on to a career in investment banking and salary wise after
a surge in junior staff complaining about burnout the base salary was recently boosted to around
100 000 from 85 000 a year before the complaints that's her first year is fresh out of college and
on top of that you'll stand to make a considerable bonus depending on your performance but it's
certainly not free money hours are extremely long averaging around 80 hours a week and peaking
at 100 depending on the time of the season now if you want to see what the day to day is
like do check out this other video i made i'll leave it somewhere up here as for who they look
for it's the best students in what they call the target universities which are basically the best
universities in the nation in the us that's the ivy leagues and a couple others in the uk that's
oxbridge lsc and a few more in terms of skills it's about being reasonably good with numbers
having attention to detail being a team player and obviously having a willingness to work long hours
but even ticking all these boxes doesn't guarantee you a spot as the acceptance rate is lower than
five percent for a top tier investment banks so there you have it i hope i didn't go past
the five minute mark if you enjoyed this video feel free to like and subscribe it really
helps out and i'll catch you in the next one you