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