Investment Banks help companies and sometimes governments raise capital through equity or debt. Looking from the other side it helps investors find companies where they can invest for better return. Frequently, Investment banks also end up helping/advising their clients on how to manage their financial assets.

All Investment Banks are not large “Banks” as the term may suggest. Sometimes one or a few individuals who understand “deal making” and have the market relationships and experience start small investment banking companies, typically called “boutique investment banks”. They generally work with smaller deal size (amount of money to be raised or invested).

In India, there are about 12-15 multinational investment banks such as Citi, Deutsche; 15-20 large Indian I-banks e.g. Kotak, ICICI Securities, Tata Capital, SBI Caps, Enam etc.; about 3-400 I-banks that have teams of 5-30 people, and another 500 odd small mom-and-pop i-banks usually with one or two partners running the show.

How is an Investment Bank different from a Commercial Bank?

As we discussed earlier an investment bank’s key role is to help companies get money from investors. An investment bank typically earns fee and commissions in the process. A commercial bank on the other hand accepts deposits i.e. takes money from individuals/companies itself and then on-lends it to those who may be willing to borrow. And it makes a spread e.g. it bank may give you 9% on your deposit and may lend it to others at 12% and keep 3% spread as its own income. So as you see, since a commercial bank accepts money, especially from individual retail customers, it requires a different operating structure in terms of large number of branches, internet banking etc and is also subject to very different set of regulations. Consequently operating costs are also higher given the large operating structure. Investment Bankers on the other hand can even operate from their Ferrari. That may offer you a clue why investment bankers make so much money and why it is such a sought after career.

What are the services provided by an Investment Bank?

An investment bank provides a gamut of services. They can be enlisted as below:

  • Merger Acquisition advisory
  • Organizing IPO (Initial Public Offer) for companies
  • Project Financing
  • Brokerage Services & Investment Research

Who works in Investment Bank?

Investment banks want employees with a combination of strong analytical and interpersonal skills. Key Skill Area Requirement:

•         Ability to build strong relationship and networking skills

•         Good negotiating and deal making ability

•         Strong Analytical Ability

•         Spreadsheet Modeling / financial Analysis Skills in the initial stages of career