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What is investment banking?

In simple terms, the job of investment bankers is to help their clients to raise capital (wealth in money or property) by buying and selling securities. They help their clients to access the capital markets. Investment banks advise clients on important financial decisions – such as mergers and acquisitions, or flotation on the stock market, as well as manage investments and suggest strategy.

Traders then make sales on behalf of clients. Traders also deal independently in financial markets, buying and selling-on assets at a profit.

Clients are generally large corporations or even governments; Investment banks don’t deal with ordinary consumers or small businesses – this is the province of retail banking, which is ‘ring-fenced’ (financially protected) from the riskier investment arm of banks.

Key roles of an Investment Bank:

  • Proprietary trading – trading stocks, bonds, currencies and commodities for a profit with its own money.
  • Mergers and acquisitions – managing clients’ expansion and assessing the impact of deals.
  • Raising equity capital – money that is staked by the owners of a company, which can be sold as stock to investors. This can be raised through IPOs or through an underwriter.
  • Restructuring and raising debt capital – money raised through incurring debt.
  • Insuring bonds or launching new products (e.g., such as credit default swaps).

The roles at Investment banks are divided into the Front, Middle and Back office:

Front office – one of the most competitive areas of the business, the front office offers the most client facing work. Activities include, helping clients with mergers and acquisitions, managing clients’ investments, and merchant banking. The main roles are divided into Trading, Sales and Research. Those in Sales suggest trades to clients and pass these orders on to Traders. Traders then make trades based on orders from sales people and clients; they also independently buy and sell securities at a profit. Researchers keep up with all the latest market developments, reading and analysing data for in-house use.

Middle office – the fastest growing area of investment banking, people in the middle office keep tabs on the front office transactions, capping how much can be traded, as well as making checks on risk and ensuring that the bank complies with all current laws and guidelines on trading. With recent reforms aimed at making the industry safer pushing up regulatory costs, compliance is an increasingly important area.

Back office – with graduate training schemes into front office roles more competitive than ever, back office roles are often seen as an alternative way into the industry. Consisting of support roles such as IT, another major part of the back office is operations, which involves checking the numbers of trades – making certain that everything runs smoothly and no mistakes are made.

Challenges and opportunities for graduates

The spotlight cast on the financial services industry in recent years has often shown it in a very negative light. Fred Goodwin losing his knighthood at the beginning of 2012 illustrates the public anger over the industry’s excesses, after reckless trading has led to the need for huge tax payer bailouts.

With the economy still fragile, it may take some time to build it back to its pre-2008 strength, but there is little doubt that the industry will, on recovery, prove to be crucial to the social and economic future of the country. When working properly, Investment banks channel money to where it can be used, driving the investment that underpins economic growth. Vital to this growth and recovery is a new influx of bright, dedicated graduates and the industry provides excellent opportunities for career progression for those with potential.

In particular, increasingly sophisticated systems in operations and greater legal complexity in compliance requires the high level skills of top graduates.

In investment banking, hours are long and the work is high pressure, demanding a lot of commitment – but in return, it is a business that offers you the chance to rapidly progress your career and responsibilities in a truly global industry, with attractive financial rewards and a broad scope for career opportunities and ambition.

For more information on the challenges the industry faces and where it’s headed, read changes in the finance industry.

To see what graduate opportunities are currently available in Banking, take a look at our Employer Directory.

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