Investment banking is a financial advising service that a company provides to individuals, governments, and corporations. It is a branch of banking that deals with the generation of capital by the borrowing of funds or the issuance of stock in a company. In the process, investment bankers serve as counsellors or mediators.
In the fiscal year 2020–21, Indian startups raised about $39 billion, more than twice the amount raised the previous year. In the year 2022, new business prospects based on increased growth projections may emerge.
In this blog post, Jaro Education have given a deep insight about the functions of investment banking and its types and how it will be shaping the modern business world.
The Different Types of Investment Banks
Investment banks are unlike any other type of organisation. There are four different sorts of investment banks to be aware of:
Bulge Bracket Investment Banks
Some of the world’s largest financial services brands fall under the category of bulge bracket investment banks. Companies like Barclays, JP Morgan, Citibank, and others are among these banks. These companies already have significant business interests in retail banking, mortgage lending, and other areas of consumer and corporate banking.
Bulge brackets are typically involved in businesses worth more than $1 billion. Because big-bulge investment banks have offices all over the globe, they have a superior worldwide network to cater to the needs of their clients, who are often other global behemoths who require their services in different regions of the world. Another distinguishing aspect of bulge bracket investment banks is that they offer a wide range of investment banking services, including advising and research.
Elite Boutique Investment Banks
Elite Boutique Investment Banks are in some way identical to Bulge Bracket Investment Banks. The size of the transactions and deals is usually the reason for this.
Elite boutique investment banks, on the other hand, tend to concentrate on fewer operations. Some of these elite boutiques will specialise in a single sector, such as mergers and acquisitions, but the deal sizes they work on are comparable to those of mid-market firms.
Elite Boutique Banks operate nationwide and in certain circumstances, internationally. They may have a few offices in several countries, but not to the level of huge corporations.
Regional Boutique Investment Banks
Investment banks of this size are minuscule. The bank’s size, as well as the transactions and dealings it conducts, are modest. These banks usually specialise in a single service, such as mergers and acquisitions, in a specific market. They frequently enter into agreements with small-scale local businesses. The regional boutique investment bank’s usual deal size is less than $10 million. They are, nevertheless, frequently involved in transactions worth up to $50 million. They usually assist businesses with loan financing. Due to its size, its operations are also limited to a specific region or country. Because regional boutique banks do not release much information, information about them is not available in the public domain.
Middle-Market Investment Banks
Middle-Market Investment Banks fill in the gap between Bulge Bracket Investment Banks and Regional Investment Banks. They may have multiple offices in the same country or region, but they rarely cross national borders. Middle-Market Banks, on the other hand, cater to mid-market clients and deals. This means they concentrate on transactions that are too large for boutique businesses but too small for bulge brackets. Medium-sized businesses are the primary users of their services. Their average deal size is between $500 million and $1 billion. Mid-market banks are rarely used by Fortune 500 businesses and other global behemoths.
What’s ahead for Investment Banking in the coming years?
Investment banks are unlikely to be challenged by digital disruptors or other non-industry competitors as long as significant barriers to market entry remain in place (capital requirements, regulatory scrutiny, conduct risk, and long-standing client connections). However, in the face of changing market conditions, investment banks should be willing to rethink, rebuild, and renounce costly internal infrastructures in favour of a connected flow model in which outside suppliers supply services for both vital and non-critical operations. The ability of the investment bank to produce and utilise differentiating insights from data becomes its new competitive advantage in this new environment.
IIM Kozhikode provides a Professional Certificate Programme in Investment Banking, which is tailored to working professionals with at least three years of experience. The curriculum teaches professionals advanced corporate finance concepts such as higher arithmetic, economics, company valuation, mergers and acquisitions, and corporate restructuring, and helps them contextualise and solidify their knowledge. Investment bankers perform a number of critical responsibilities for businesses, ensuring their long-term viability. On the other hand, the high compensation and prestige associated with investment banking positions enhance competition for available positions.
Investment banking offers the opportunity to become an expert at building large, complex financial models at the earliest stage of your career. While bankers aren’t necessarily great investors, they do spend a lot of time on valuation work, and this can be an excellent way to build a successful career.
- Skills sets for becoming an efficient Investment Banker?
A skill set is crucial in any job, and becoming a successful Invest Banker requires a certain set of skills that will benefit them in the long term and lead to better career opportunities. One is the skill set that the individual contributes to the role, both within and outside of the financial services business. Investment bankers must have analytical skills, time and project management expertise, and strong interpersonal skills in addition to business knowledge.
- How much does an Investment Banker earn?
The pay in investment banking are among the highest in the financial services industry. Investment bankers’ compensation are determined by the number of years they’ve worked in the industry and the talents they bring to the table. An Investment Banker’s average compensation in India is around 12LPA, and it tends to rise with years of experience.
- Is CFA better than MBA for becoming an Investment Banker?
If you are already employed in a finance job then CFA is a smart choice. If you are still undecided about your future ambitions and are interested in finance, you should consider a general field such as an MBA, which will allow you to gain a deeper understanding of corporate life.