An investment banker is a banker who works on large and complicated transactions and financial systems in the investing world. Investment bankers are contrasted with traditional bankers, who are associated with traditional savings and loans banks, and perform more mundane banking duties, such as mortgages and small business loans.
Investment banks are at the center of the modern global banking system. These crucial financial agents are employed in virtually every large financial transaction, from government bond sales and initial public offerings (IPOs) to prime brokerage services and market making. Investment banks tend to act as intermediaries instead of principals in most transactions, but sometimes make proprietary transactions when governing regulations allow.
Some of the most famous and influential investment banks include Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), Deutsche Bank (DB) and Bank of America Merrill Lynch (BAC).
Providing corporate finance services is the traditional role of the investment banker. Investment banking corporate finance services help large corporations, governments and other organizations to finance their operations, structure their operations, issue securities, perform mergers and acquisitions, and various other minor roles.
Investment bankers work closely with clients to navigate complex legal, regulatory and financial issues to help their clients achieve their goals. Without the knowledgeable and experienced guidance from investment bankers, most clients would find it impossible to navigate the complex world of capital markets, national and international financial regulations and corporate transactions.
Most investment bankers will focus their careers on a subsection of corporate finance, such as mergers and acquisitions or leveraged finance, but may move between various departments, or banks, during their life-long professional careers.
Sales and Trading
The sales and trading function of investment banking involves transactions of securities for its institutional and high-net-worth clients. In sales, investment bankers will pitch specific investment products to their clients, which they believe will help their clients to meet their financial and operational goals.
Investment bankers also act as market-makers in the capital markets, buying and selling securities as intermediaries and taking a fee or spread as a profit. Recently investment bankers have also started creating specialized structured products, such as mortgage-backed securities, which are complex synthetic securities composed of one or more traditional securities.
Investment banks offer their clients a wide range of market research on practically every area of finance and finance-related issues, such as relevant political events. Investment bankers may charge their clients for this market research, offer it as part of other investment banking services or provide it for free as a way of attracting and retaining clients.
Investment banking market research is widely considered to be among the highest quality financial research in the investing world. Investment bankers have access to resources and information that are competitive with dedicated research firms, and have the advantage of extensive contacts and clientele throughout the worlds of finance, business, government and media.
Risk management services help clients to identify potential risks to their financing and operations. Risk management services can be offered as a stand-alone product or investment bankers can bundle risk management services in with traditional corporate finance, sales and trading services.
Investment bankers’ broad exposure to issues in finance and business provide them with a unique vantage point from which to identify highly specific and detailed threats to their clients, and investment banking risk management services are considered to be the best in the world.
Investment bankers play a crucial role in the contemporary financial landscape. Without the professional services that investment bankers offer, many of the most important features of modern capitalist economies would not be possible.
Traders are most likely to interact with investment bankers on the ‘sell-side’ or as a source for market research. Although investment bankers have a fiduciary duty to all their clients, it is important for traders to remember that investment bankers have an incentive to sell products and make markets. Investment bankers will tend toward advice that encourages traders to buy more products and make more trades, and this is often reflected in their research materials as well, free or otherwise.
The trading floors of investment banks are becoming increasingly automated and streamlined, but trading for investment banks is still considered to be some of the best possible experience for traders in the world of finance.