by Girl Banker Listen to the iTunes podcast instead. This is a possible investment banking interview question. Many investment banks are composed of two key divisions: 1. Corporate Finance. Frequently referred to as the (Classic) Investment Banking Division or simply (Classic) IBD in many banks. 2. Debt and Equity Capital Markets. This frequently includes Sales, Trading and Research functions. Many investment banks now also have large asset management divisions including private wealth management; however, this book focuses only on corporate finance and capital markets. The term ‘investment banking’ is sometimes used as a catch-all phrase for both corporate finance and the capital markets (sales and trading jobs) i.e. in referring to the industry as a whole or it could refer to the corporate finance division within an investment bank.
This is the quick answer. You can expand upon it by adding: Investment Banking 101 What is corporate finance or the investment banking division (IBD)? What are the capital markets/what is sales and trading? What is the difference between an investment bank and a commercial bank?
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by Girl Banker Listen to the iTunes podcast instead. This is a very likely interview question. The purpose of a capital markets division is to provide a range of financial products to investors and companies. The sales force specializes by product and will be the first point of contact for clients. Any buy or sell orders are passed on from sales to a trader, who executes and manages the risk associated with such a purchase or sale. Many traditionally advice-only investment banks have incorporated capital markets activities to their offering because they wanted to offer a fuller suite of products to their clients. Excerpt from To Become an Investment Banker by Heather Katsonga-Woodward. The capital markets tend to be less hierarchical than corporate finance. Why?
Some view capital markets as more meritocratic than corporate finance. Why?
Please see these related interview questions: What is corporate finance or the investment banking division (IBD)? What is the difference between an investment bank and a commercial bank? by Girl Banker Listen to the iTunes podcast instead. This is a possible interview question. You know, I find it surprising that some people come to interview for a role in corporate finance but they don't really understand the structure of a corporate finance departrment. So below, I give you a brief overview. I go into more depth in To Become an Investment Banker but the below should still give you a good idea. Within corporate finance, you will find two key categories of bankers: 1. Mergers & Acquisitions (M&A) bankers: provide strategic and valuation advice on mergers, acquisitions and company restructurings: o Buy-side: advise a company that wants to buy another company o Sell-side: advise a company on selling its assets or its entire operation (divestments) o Defense advisory: advise a company on how it can protect itself from a hostile takeover 2. Financing bankers: provide advice on raising money (using equity, debt or some combination thereof); they also provide advice on managing any risks associated with these instruments. Corporate finance tends to be very hierarchical compared to the capital markets. Why?
People working in corporate finance normally specialize according to a country team or sector: It’s important to have country teams because local, country specific knowledge, including language, may be necessary to do business, e.g. people working on a ‘German Team’ normally speak German and have good knowledge of German culture and regulations. o It is common for London offices to have a lot of country teams because of its central geographic location and its relatively friendly business environment compared to Europe. o Economies of scale also mean it’s cheaper to service some European clients from London because the client base in that country is too small for a dedicated office. Regional teams that may be found in a US based corporate finance team: It’s important to have sector teams because some industries have so much sector-specific knowledge that it would be difficult or confusing for someone to work across too many different sectors. Different banks will have a slightly different variation on the above sector themes, e.g. Mining and Metals in one bank may be called Natural Resources in another. Boutique investment banks may focus only on one sector.
Finally, remember that when people refer to "investment banking" they could either be referring to the corporate finance division or to the industry as a whole. The industry as a whole includes the capital markets, i.e. sales and trading. by Girl Banker Listen to the iTunes podcast instead. This could easily be asked as an interview question. To help you understand investment banking, it’s best to differentiate it from the type of banking that you have experience with: commercial or retail banking – the banks that you see on the street. The bank where you maintain your current (UK), checking (USA) or savings account is a commercial or retail bank. Some investment banks have a commercial banking unit, others do not. Example
A Loan Structuring team in an investment bank can give a company advice on how to structure a loan; however, even if the investment bank has a commercial banking unit, it does not necessarily follow that they will provide that loan. When the loan is fully structured (i.e. the most achievable terms are determined) the borrowing company can show it to a variety of banks and select the bank that commits to the best terms. This may not be the structuring bank. The structuring bank gets a fee for their advice and the loan provider receives whatever fees they are due for actually providing the loan. Of course, the lending arm of the structuring bank is likely to provide the best lending terms in many cases as they can account for the fees received by their structuring team. That is, a bank providing several products to a client can afford to charge a little less for each product than would be the case if they were selling just one. |
Girl Banker®I created my investment banking blog in 2012 as soon as I resigned from i-banking & published my book, To Become An Investment Banker.
Initially published at girlbanker.com, all posts were later subsumed into my personal website under katsonga.com/GirlBanker. With 7 years of front office i-banking experience from Goldman Sachs and HSBC, in both classic IBD (corporate finance) and Derivatives (DCM / FICC), the aim of GirlBanker.com was to make it as straight-forward as possible to get into a top tier investment bank. I'm also a CFA survivor having passed all three levels on the first attempt within 18 months - the shortest time possible. Categories
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