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  • Writer's pictureOverheard on Wall Street

What is Investment Banking?

The most real article you will ever read on Investment Banking



There are plenty of misconceptions about investment banking - it’s all models and bottles, all you do is move logos around, you work until 4am every night, etc. - but very few people actually know what investment banking truly is.


The very simplified version that you can explain to someone who knows nothing about finance is that investment banks are advisors who help facilitate transactions. Typical product offerings (transaction types) include:

  • Mergers & acquisitions (“M&A”) - M&A transactions come in two flavors: buyside and sellside transactions. I am sure you are smart enough to guess what each one means or you would have stopped reading by now, but buyside = advising a company on acquiring another company and sellside = advising a company on selling itself to another firm.

  • Equity Offerings - more goes into an initial public offering (“IPO”) than just ringing the NYSE bell. IPOs can be very complex and require a lot of legwork to get over the line, and investment banks help guide companies on that process. In addition to IPOs, Banks will also help with other equity offerings, such as follow-on offerings.

  • Debt Financing (“LevFin”) - Leveraged finance teams at banks help firms raise money. Typically, these groups work closely with financial sponsors (PE funds) as they use debt in almost every deal. Debt can come in various packages, but only some banks - the bulge bracket banks - have the ability to provide debt financing off of their own balance sheet. Other banks, can only advise on and syndicate (sell) the debt to other parties.

  • Restructuring - though you hope you never get here, most countries have a process to allow companies to restructure their debt and recapitalize the business and re-emerge from bankruptcy rather than outright liquidating the assets. It is more complicated than Michael Scott makes it look, and simply yelling “I DECLARE BANKRUPTCY” does not get the job done…or so these groups want you to believe.

How Banks Make Money

So when it gets down to it, everyone always asks why bankers are paid so much. Well for starters you make less per hour as an analyst than a McDonald’s employee these days, but hey that’s life on Wall Street baby.

To understand how bankers get paid it is important to first understand how banks make money.

The biggest way investment banks make money is simply on commission. Yup, it’s that simple. The investment bank charges a fee usually with a fixed minimum and a percentage of total deal value and they take their cut when the deal closes.

While it may seem crazy that you have to pay someone potentially 2% of your deal, you have to remember that the senior bankers are taking on risk alongside you. Investment banking is the poster child for the ‘eat what you kill’ mentality, so while these guys have a cushy base salary, the key driver of their income is getting deals closed.

Okay, so now you get how your MD makes money. He brings in fees for the bank, so the bank pays him a hefty bonus as a share of those fees. But what about everyone else? Well, if you are just an expense to the bank like every other drone in a midtown uniform, your income is split between a nice base salary and a bonus that is dependent upon what bucket you fall in across the bank and your team.

When you hear someone say they were “Top Bucket” that means they received the maximum bonus they could. Conversely, I am sure you can imagine what “Bottom Bucket” means, and if you can’t, you’ll learn your first year.

To get a sense of how much money you can make in banking, check out our 2024 comp deck.

How To Get Recruited

Step 1: Have a dad who is an MD or works for a PE fund.

Step 2: Beg them to hire you

Jokes aside, having a connection to banks is helpful, but it is not the only way to get employed. Banks typically start recruiting during sophomore year of college - that is the second year for those of you who don’t speak American - looking to place students into summer internships for their Junior (3rd) year summer of college. Following that internship, you will be either offered a job to come back full time or you will be left out to pasture hoping someone else will hire you.

Recruiting outside of the defined internship pipeline is challenging, so you should do everything you can to get an offer. It is much easier to have an offer and leverage it with a new bank than it is to beg people to hire you when they know you didn’t get a return offer from another bank.

While banking recruiting may seem daunting, there are lots of resources out there, and we are here to help you break into Wall Street. Just look around this website.

Typical Career Path

One of the good things about banking is the paths are pretty defined, so you know what you are getting yourself into, and when you are up for promotion:

  • Interns (10-12 weeks)

  • Analyst (2-3 years)

    • This is typically when people leave to go to private equity

    • You will know if you are on track to becoming an associate or if you should start looking for other employment

  • Associate (3 years)

  • Vice President (3-4 years)

  • Director / Senior Vice President (3-4 years)

    • At this point, you become responsible for generating revenue for the bank. From here, your path to promotion is dependent on the bank and what their requirements are for revenue generation.

  • Managing Director

    • Congrats, you are now a lifer. Very few people make it this far, but if you do, you will probably never leave investment banking, so good luck!

Day in the Life of an Investment Banker

The day in the life of an investment banker really depends on the level. Most investment banks follow the same hierarchy.

The top dogs are the Managing Directors, followed by Directors, then Vice Presidents, Associates, and lastly, you - the analyst.

As an analyst, you will be responsible for many interesting tasks - like building excel models for companies, working closely with CFOs to answer diligence questions, and making presentations to be shared with company boards.

All of that comes with some mundane tasks as well, you will be moving logos around on pages, you will be printing books at 4am, and you will be uploading files to a data room on your 8th cup of coffee for the day.

All of that being said, almost everything you do will have a direct impact on something. Your diligence questions will help facilitate a transaction close, your models and presentations may be used by buyers, and the logos you re-arranged at 3am talked to by your MD about who is the most likely potential buyer of a company during a pitch.

It will not be all models and bottles, but it will be meaningful work, and a grind that will get you instant respect at whatever job you choose to tackle next.

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