For years, investment banking has been one of the financial sectors that have attracted interest from many people due to its considerably high compensation. But what does an investment banker do? Still around! In this article, we will discuss the roles of investment bankers and the expected yearly salary.
Roles of Investment Bankers
Here are some of the key roles of investment bankers:
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Arranging Financing
In case a company plans to construct a factory and does not have enough cash to do so, it may choose to raise funds for the project by issuing a bond. The company will then pay the cost of the bond using future revenue generated from the new project.
Similarly, a particular government may want to finance the development of a big project like a highway or an airport by issuing a bond and then repaying it from future revenues.
In these instances, an investment banker can be hired to plan the financing. Their role will be to arrange the bond issuance, determine the bond’s fair price, market it, and complete all the documentation with the relevant authorities.
Equity Financing
Many companies fund their expansion by selling shares. They usually hire investment bankers to arrange the sale of stocks via initial public offerings (IPOs). These professionals are tasked with educating potential investors about the terms of the IPOs and associated risks. Also, investment bankers are expected to submit applications for initial public offerings to relevant authorities.
After approval, the step that follows is pricing. An investment banker must ensure that the stock prices are fair to attract investors so their client can raise enough money.
Underwriting Deals
Investment bankers underwrite the deals on behalf of their clients who want to profit from financing companies through the private sale of shares. That means an investment banker will buy shares from the issuer privately and later sell them to institutional buyers. The difference between the buy and the sell price is known as the underwriting spread.
In most cases, investment bankers are paid on commissions, meaning the higher the number of shares they sell to institutional buyers, the higher the commissions they will earn.
Arranging Private Stock Sales
Some companies may want to sell their stocks privately to raise funds. As such, they can hire investment bankers to help identify and persuade specific institutional investors like retirement funds or insurance firms to buy the shares.
Negotiating Acquisitions and Mergers
When a company wants to merge or acquire another company, an investment banker can be hired to help in negotiations. The negotiation process usually takes long due to multiple offers and counter-offers from investment bankers representing the involved companies.
Investment Banking Demographics in the United States
According to the latest data, White Men continue to dominate the American investment banking sector. They represent 68% of the total investment bankers in the United States. Moreover, men account for 75% of the investment bankers, while 25% are women. A 2022 report indicated that female investment bankers earned 9% less than men.
How to Become an Investment Banker
Do you want to become an investment banker? If so, you need a bachelor’s degree in economics or finance. Also, you must obtain a Chartered Financial Analyst certification.
With these professional and educational qualifications, you can apply for an internship at a leading firm to gain relevant experience. Remember to network to increase your chances of landing a job.
Salaries of Investment Bankers
As of June 2024, the annual salaries of investment bankers range between $250,000 and $550,000. They vary based on factors like level of experience and the company location.
Top Investment Banks in 2024
There are several established investment banks in the world today. Some of the popular ones include UBS, Barclays, Morgan Stanley, Bank of America, Citigroup, JPMorgan, Deutsche Bank, and Goldman Sachs. Most of them offer services to both companies and individuals.
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