Demystifying the Mysterious, Glamorous, and Demanding World of Investment Banking

The Lure of Investment Banking and Why is it so for Management Practitioners

All aspiring management students as well as career professionals’ dream of working in either a management consultancy or an investment bank during their education and working life. Indeed, asks any MBA (Masters of Business Administration) student about their dream jobs, chances are that they would answer the above.

The glamour of Investment Banking is so alluring and attractive that management grads are willing to burn the “Midnight Oil” to pursue their ambitions of working in such an entity. However, most of them are also aware that Investment Banking is a demanding career choice despite the outward sheen of Business/ First Class flights, Star Hotel stays, and the very lucrative pay and bonus especially.

So, what do Investment Bankers do that makes them the envy of their peers?

To start with, while commercial and retail banking make money through volumes wherein profits accrue after a sizeable number of deals, Investment Bankers are always in the search of that “one” M &A (Merger and Acquisition), Outright Takeover, Equity Issue, IPO (Initial Public Offering, and/or a Debt/ Equity Swap and road shows for the same.

Given the fact that these deals run into the Millions and Billions of Dollars, it is easy to see how a single deal painstakingly gathered can make or mar the chances of Investment Banks and consequently, the Investment Bankers.

The High Stakes World of Investment Banking

In other words, Investment Banking is a profession where the stakes are so high much hard work, intuition, and a knack for spotting patterns and discerning trends from hard numbers determines whether one is cut for it or not.

Indeed, any Banker has to be a number cruncher and especially so in Investment Banking where “financial modeling” or the practice of forecasting and present value accounting with quantitative details is paramount.

Moreover, in recent years, Quantitative abilities have become so important that an entirely new niche in the form of Quants or those Bankers whose sole job is to number crunch and devise “Exotic” forms of investment has arisen due to the demands of technologically driven Investment Banking.

This is the reason why many Doctorates in Physics, Mathematics, and Sciences are being recruited in Investment Banking as they are in demand for their Quantitative abilities.

Investment Banking is as Much about Numbers as it is about Soft Skills

Having said that, it is not the case that Investment Banking is all about numbers and financial modeling alone. Indeed, until technology developed to the extent it has now, Investment Banking was as much about soft skills as it was about hard skills and more so, when Bankers had to do what is known as “pitching”.

This is the term that is used to describe cold calling and other marketing strategies by investment bankers to prospective clients wherein they try and sell a deal or a merger or an acquisition that would give their clients more traction in their industries and verticals.

As can be seen from the discussion so far, Investment Bankers exist to provide their clients with advice on how to generate more profits, how to grow either organically or inorganically, and above all, provide them with advice on profitability.

Difference between Management Consultants and Investment Bankers

While Management Consultants do the same, their expertise is on the non financial avenues such as optimizing processes and tweaking strategies rather than advising them on purely financial matters.

Indeed, the biggest difference between Investment Bankers and Management Consultants is that the former talk about enhancing growth through inorganic means whereas the latter deal with organic avenues for growth.

Remember that the terms Organic and Inorganic Growth refer to whether firms can grow using their existing resources or can grow through acquiring or merging with other firms. In particular, both consultants and investment bankers vie for the same mind space of the CEOs (Chief Executive Officers) and the crucial difference is that they differ in their focus areas and the approaches.

Investment Banking is Grunt Work

Thus, Investment Bankers typically approach or are approached by the clients with strategies that would make their firms larger or attract more investments.

To do so, they rely on any of the strategies that were mentioned earlier. In addition, before a deal fructifies, there is much grunt work that involves them to travel to and fro and sometimes, undertake intercontinental travel as well.

Indeed, when working on deals, bankers typically spend a major part of their time traveling and meeting clients, lawyers, other bankers, and even the staff of the clients to arrive at the best possible terms and conditions as well as pricing for their clients.

Moreover, they also need to hold road shows and other events to convince investors to invest in their clients’ firms and to do so; they also need to have superlative communication abilities.

This is the reason why top notch investment banks usually hire MBAs with specialization in Finance and whose soft skills are also excellent.

Are They Doing God’s Work?

Lastly, in recent years, bankers of all niches have come under scrutiny and much criticism for their exorbitant salaries and their obscenely huge bonuses.

This has led to many questioning whether they do indeed create such value that those sky high salaries are justified.

Without taking sides, one must admit that perhaps bankers can do some introspection and analyze whether they are creating value for society, or for their sole profit and that of their clients.

They must also ask themselves whether they are really “doing God’s work” as the CEO of one of the world’s leading investment bank said.