If you are an MBA you must start understanding investment banking. “I-banking” as it is sometimes called, is a very popular career choice amongst MBAs. The salary is high, the pace is fast, and you get exposure across a number of different businesses. This article provides a straightforward explanation of what an investment bank really does. Typically, an investment bank serves one of two main functions:
Raise money for a company. In industry terms this is called “pricing a securities offering”. This is the first important element to understanding investment banking. If a company is trying to borrow money it will use an investment bank to sell bonds on the open market. If a company is trying to go public it will use an investment bank to sell shares of stock for its initial public offering (IPO). In both cases, the investment bank will work hard to make sure there are investors committed to purchasing the issue of stocks or bonds before they enter the marketplace.
Set the value of a company. In industry terms this is called “valuing a merger or acquisition”. This is the second important element to understanding investment banking. One company may be buying another, or two companies may be coming together to create one larger company. In either case, much analysis is necessary to set a proper value for the companies involved. The investment bank looks at past performance, current assets, and future projections in order to determine what the appropriate pricing should be.
For MBAs an experience in investment banking can be very potent. If you are finance oriented, it is clear to see why you are interested in understanding investment banking. To dig deeper, look into the operations of the larger, full service investment banks such as Goldman Sachs, Lehman Brothers, and Merrill Lynch. A position at these esteemed firms will be extremely valuable no matter where you decide to take your career in finance.
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