What is corporate finance or the investment banking division (IBD)?

by Girl Banker

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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?

• Experience counts for a lot in corporate finance. Revenue goals are given to senior management and it is ultimately their responsibility to bring in profitable transactions.
  
  
• Analysts and associates do not have revenue goals (generally) and are evaluated according to how hard they work on allocated projects, so to get recognized you need to work extremely hard; 
  Hard work is difficult to measure in IBD. Different people measure it in different ways: it could be according to face-time (i.e. the number of hours you’re ‘seen’ to be working), the complexity of the financial models you can manage, the quality of the presentations you produce or some random mixture thereof. 

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.

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Excerpt from To Become an Investment Banker by Heather Katsonga-Woodward. Click image to buy the book.

​Regional teams that may be found in a US based corporate finance team: 

Excerpt from To Become an Investment Banker by Heather Katsonga-Woodward. Click image to buy the book.

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. 

Excerpt from To Become an Investment Banker by Heather Katsonga-Woodward. Click image to buy the book.

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.

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