Typical Hierarchy of Investment Banks
A type of firm that offers financial services and operates as a middleman in significant and intricate financial transactions for various clients and business entities
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May 29, 2023An investment bank (IB) is a type of firm that offers financial services and operates as a middleman in significant and intricate financial transactions for various clients and business entities, such as deal processing for mergers and acquisitions (M&A), pension fund administration, financial sponsorship, and payment options.
Additionally, banks assist businesses in gaining access to capital markets like stocks and bonds.
Its Services and Revenues
Think about a group. A firm that is purchasing company B is unsure about how much is the worth of company B and what are the long-term financial and other advantages if they acquire this target.
A due diligence procedure will be used in this instance to assess the company's value. The IB will finish the transaction by assisting client A with preparing the required paperwork and providing guidance on the best time to close the deal.
The IB, in this case, represents the buy side while another IB will represent the sell side, assisting the type B enterprise in assessing the buyer's offer. The bigger the M&A deal, the larger the bank commissions.
International IBs
A financial organization known as an international bank offers a wide range of investment services across borders, is usually headquartered in multiple countries, and is open to serving any client from all countries around the globe.
Goldman Sachs & Co
Goldman Sachs Group Inc. is the world's largest investment banking, securities, and investment management company. It offers a wide range of financial services to various clients, including businesses, financial institutions, governments, and retail investors.
Goldman was established in 1869 and has been publicly traded for more than 150 years. The corporation has offices in significant financial hubs worldwide and is headquartered in New York.
Senior government leaders have held numerous positions at Goldman Sachs. They consist of the Treasury Secretary of the United States, White House advisors, governors, and heads of central banks.
On September 16, 1935, Henry Sturgis Morgan and Harold Stanley established the international IB known as Morgan Stanley.
Morgan Stanley operates in 42 countries and has a workers base of over 55,000 people. Its corporate office is located in Midtown Manhattan, New York City.
Its services include providing advice in funding, trading, and management to various clients, including institutions, governments, and individuals. Morgan Stanley, perhaps any investment bank, operates in collaboration with its affiliates, subsidiaries, and even other large players in the industry.
Institutional Securities, Wealth Management, and Investment Management are the three main divisions within its organizational structure.
Along with any other big firm, Morgan Stanley struggled during the 2008 financial crisis and was one of the largest funding users from the government's Troubled Asset Relief Program during unrest for financial firms.
JP Morgan Chase & Co.
JPMorgan Chase is one of the other biggest IBs in the world. The company comprises mainly two segments; investment banking and commercial banking. However, JP Morgan's greatest focus is on the former than the latter, which is the company's greatest revenue-generator segment.
The most profitable areas within JPMorgan are IB and mergers and acquisitions. Advisory services, funding, and risk management are other significant services.
Like most large banks, J.P. Morgan expanded by merging with several similar companies, including some big names such as Washington Mutual, Bank One, Bear Stearns, and Chase Manhattan Bank.
Bank of America's investment banking segment was created through a series of acquisitions, most notably the IB branch, Merrill Lynch, purchased by Bank of America amid the 2008 financial crisis.
Establishing its main headquarters in Hong Kong, London, and New York, Bank of America's Merrill Lynch operates globally.
The Merrill Lynch subsidiary specializes in banking and provides a wide range of services, including debt and stock offerings, lending, trading, risk management, and mergers & acquisitions.
The previous Merrill Wealth advising division continues to operate under that name even though Merrill Lynch is a subsidiary of Bank of America.
Similar to other IBs, Bank of America's Merrill Lynch advising provides services to enterprises looking to raise capital on the open markets.
When helping firms with bond and stock issuances, investment banks assist them in determining the initial security price for a listing, considering the supply and demand for that particular type of security.
The City of London's goldsmith banking company, Barclays, was founded in 1690.
Barclays is headquartered in London, with its total assets worth 1.4 trillion British pounds ($1.9 trillion) as of 2022. Barclays is split into two divisions, Barclays UK and Barclays International. Barclays Execution Services provides support for both divisions.
Barclays UK provides retail banking to small and medium-sized U.K.-based businesses in consumer credit cards, wealth management, and corporate banking.
The consumer, credit card, and payment activities are all part of Barclays International, which also includes Barclays's investment and corporate banking divisions.
Barclays investment banking also provides consulting and risk management services to governments, large corporations, and other midsize institutions.
Major Differences Between Investment and Commercial Banks
Despite being equally important financial institutions in the contemporary economy, commercial and IBs serve distinct purposes and are run by different skill sets.
Typically, when someone says "bank," they think of commercial banks, where our wealth is stored in savings or checking accounts.
Given that commercial banks are typically open to the public, they serve a wide range of clients, including the general public and businesses, and interact with each client to collect deposits, provide loans, and provide custody of their assets,
On the contrary, the clients of IBs are large businesses and institutional investors. IBs assist them with closing mergers and acquisitions deals, the issuance of securities, or even the funding of substantial business projects.
Compared to professions in commercial banking, those in investment banking are more sought-after, more competitive, and typically pay higher rates. As a result, IBs frequently have stricter hiring standards and higher employee expectations.
Typical Hierarchy Investment Banks
Even though there are more than a hundred types of different job positions within these banks, the majority of the personnel are organized in the following structure:
1. IB Analyst
After graduating from top-tier business schools, almost all IB analysts start their careers in this field.
These analysts are mainly tasked with researching businesses, developing Excel or similar software financial models, and preparing PowerPoint presentations. These tasks are essential in banks selling their ideas to clients.
The base salary for an analyst typically ranges from $100,000 to $120,000 with 50% -100% year-end performance bonuses.
Most analysts follow their supervisors' daily instructions and are referred to by their superiors as "monkeys."
Excel, PowerPoint, research, and a few hours of sleep are the only occurrences in a typical 24 hours of the analyst.
2. IB Associate
After working as an analyst for two or three years (depending on skills growth), one will be promoted to the associate level with higher authority and responsibility. Alternatively, those who come to IB straight from prestigious MBA programs will skip the analyst route and be considered associates.
Most associates are tasked with communicating with clients, determining their needs, and offering services required to satisfy them. Associates collaborate with analysts to obtain data and models for creating proposals.
The base salary for an Associate typically ranges from $150,000 to $200,000 with 50% -100% year-end performance bonuses.
Most of an Associate's time is spent on end meetings and working on large financial figures. Therefore, analytical prowesses are the most basic qualifications for an associate role.
Despite the shift in emphasis, associates are still required to possess analysts' abilities. The communication between top management and the teams of analysts is mostly handled by the associates, a task that requires some leadership qualities.
Typically, IB associates who work for three to four years and perform at the top level are advanced to the Vice President position.
The two main duties of a vice president are completing pitches and managing client relationships. In addition, they also keep track of the deals and update the deal statuses.
By default, the vice presidents are in charge of overseeing associates and analysts and making sure PowerPoint presentations and financial models are constructed free of errors.
Vice presidents earn significantly more relative to associates and analysts, mainly due to their participation in the execution of business transactions with clients.
The base salary for a vice president typically ranges from $200,000 to $225,000 with 50% -150% year-end performance bonuses.
Compared to associates and analysts, the total annual earnings gap among the vice presidents is significantly wider. These variations are mainly because every vice president is in charge of closing deals that differ in size. As a result, the greater the size of the deal is, the larger the VP commission will be.
4. Director/Senior Vice President
Senior vice presidents are occasionally called directors or principals, depending on the organization. They usually stay in the position for the entirety of their careers, mostly in the later stages of their lifespan.
The functions of senior vice presidents are far different than those of the junior VPs, associates, and analysts. This distinction is illustrated by the job description, as senior VPs are mostly responsible for bringing in new business opportunities.
Some of these banks have junior directors or senior vice presidents at different levels, ranging from a lower level, such as a superstar vice president, to a higher level VP acting as the assistant to the managing director. (We will discuss Managing Directors later).
To become a vice president at such a bank, you must have worked across all lower-level positions in the same industry, making it very uncommon to have a VP with no prior experience in IB. Therefore, if your dream is to become a vice president, you must ultimately start as a monkey if you haven't done so.
In addition to closely working with numerous clients, the SVP serves as a lisian between external clients and internal lower-level teams.
The base salary for a senior vice president typically ranges from $250,000 to $500,000, with more than 100% year-end performance bonuses.
5. Managing Director
Situated at the top of the investment bank is the managing director. They hold great influence and are in charge of the overall organization's profitability. The route requires tremendous relevant experience, unique skills, a raving leadership background, and even some luck to reach the MD level.
The managing director's responsibility is to monitor the entire business dealings and be wary of any political or economic developments that might impact the bank's operations and clients.
Most of the managing director's time is spent courting potential investors, meeting new clients, and cultivating connections with clients and government and large institutions.
The base salary for a managing director typically ranges from $400,000 to $600,000, with more than 100% year-end performance bonuses.
FAQs
Investment Banking or Corporate Finance (IBD), Sales and Trading (S&T), Equity Research (ER) or Research, and Asset Management are the four primary sections that make up the structure.
Depending on how a bank divides up its services, there are a variety of divisions.
The managing directors are at the top. They are in charge of the bank's profitability and have a great deal of influence.
They are Goldman Sachs, Bank of America Securities, Morgan Stanley, and Citigroup.
Bulge bracket banks, middle-market banks, and boutique banks are the three groups into which companies working in the investment banking sector are typically divided.
In IBs, the front office, middle office, and back office are typically divided into these three categories. Depending on the responsibility of each category, the sections are separated.
They generate revenues from assisting clients in areas such as advisory, capital raising, M&A transactions, wealth management, and etcetera.
Everything You Need To Master M&A Modeling
To Help You Thrive in the Most Prestigious Jobs on Wall Street.
Edited by Abdul Aziz Rasheedy | LinkedIn
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