Investment banking is frequently used as a catch-all term. In reality, banks are made up of many divisions and investment bankers perform a range of different functions within them. Traditionally, investment banking encompasses corporate finance, as well as mergers and acquisitions (M&A). The definition has blurred in recent years and may also include trading bonds and shares.
The main role of a corporate investment banker is to advise companies, institutions and governments on how to achieve their financial goals and implement long and short-term financial plans. Corporate investment bankers work in dedicated teams, focusing on specific transactions or market sectors. They also work alongside other related professionals such as lawyers and accountants. A typical corporate finance deal involves two stages:
- Origination: assessing a deal's desirability, which is sometimes an innovative idea from the bank rather than the client. Financial models are used to simulate possible outcomes. This requires a deep understanding of a sector.
- Execution: structuring and negotiating the detailed terms of a deal, often in liaison with other professionals.
Many investment banks deal in three main areas:
- Mergers and acquisitions: assisting clients with expansion to increase profitability, safeguard market position, diversify, and so on. Corporate investment bankers manage the transaction process, assessing the target organisation and the impact of the deal. This involves knowledge of legal and regulatory issues, in addition to sound financial knowledge and an in-depth understanding of the client's industry.
- Debt capital markets: working with lenders such as financial institutions, agencies and public and private companies to support client debt. This includes restructuring debt, refinancing debt and raising new debt.
- Equity capital markets: advising clients on how much capital to raise, from where and when.
Although dealing with different, specific business areas, project teams liaise with one another during the two phases of a deal in order to obtain relevant specialist information and market intelligence.