Pros and Cons of Investment Banking for Finance Professionals

Pros and Cons of Investment Banking for Finance Professionals. Investment bankers prescribe to Corporates on bulk transactions of debt and equity issues.

Raju Choudhary

Investment Banking

Investment bankers prescribe to Corporates on bulk transactions of debt and equity issues. They also coordinate with Corporates to buy and dispose companies, look for prospective targets for acquisition, and ultimately finish deals, also prescribe the optimum terms/conditions. They also advise when a capital issue (debt or equity) will be initiated for investors. Investment bankers do multiple work with a combination as advisor, sales person /marketing, negotiator and finally deal-making. They do whatever is required with desperation to bag a deal. They seamlessly back upper management of investment banking in an unusual manner to win deals irrespective of the nature of jobs sometimes no connection with accounting or finance.

Investment banking is a fabulous job to initiate a career. The working hours are like a marathon race and one may feels this job is sometimes interesting, sometimes tedious, monotonous and it extracts one’s full energy both mental and physical. However, this job simultaneously provides an avenue for faster and sure in career growth. From this job one can learn faster beyond your imagination a number of traits including powerpoint, excel, sales/marketing, crisis management simultaneously you will be a cultural fit in a new organization.

Requirement of Educational Bankground of Investment Bankers

Investment banking primarily need MBA/CFA other than CMA or CA. The aspirants will have to be well conversant in business administration and finance. Apart from that, all above-mentioned programs additionally teach topics from strategic management to asset analysis. However, Investbanking companies has a preference for master’s degree. These students get exposure on projects for different companies. Investbanking jobs have cut throat competition. In their own interests, preferably, they should go for internship in an investment bank which allows exposures in analysis assets and portfolios with an application of valuation models.

Apart from knowledge, very important, is an analytical skill which they learn from intership in companies of invest banking. In these interships apart from analytical skills, they are well-versed in networking in areas of investment banking. This networking skill push aspiring investment bankers to grab a job after completion of the required programs mentioned above.


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Stress in the job

At the entry-level, they start as Associate Investment bankers and work up to 80 -100 hours a week, which is unusual in other industries. In spite of this huge pressure in work environment, the main carrot in investment banking is the fabulous compensation. On the contrary, there is pathetic work-life balance considering the long work hours. Before choosing of career as Investment Banker, the aspirants should be considering the pro and cons of this particular field before joining.

Finance and banking, in general, is a very good option in competitive field. Other than Investment Banking, many in Finance and Banking sector have good compensations package with right/ better balance between work and personal life as opposed to Investment Banking sector.

Investment Bankers Salary Outlook

In India, entry level Investment Bankers like Kotak Bank ranges from INR 8 Lakhs to 16 Lakhs per annum. At senior levels, they earn from INR 20 Lakhs to INR 1 Crore per annum depending on the company, where they are working. Indian salary including bonus in Investment Banking is no match for US salary including bonus. There is two reasons for this disparity of salary including bonus in India vs.US. First reason is rate of exchange in USD ranging from INR 70 to 76. The other reason is US is a developed country, on the contrary, India is a developing country on the way being a developed country.

The ranges of products in Investment Banking in US is voluminous compared to India. Coming to salary in US in premier Investment Banking company like Golden Sach, JP Morgan pays entry level at $1,00,000 per annum ( so monthly pay $8333). Even at the standard of living of US, this salary including bonus is fabulous. Hence, at entry-level, they earn huge USD higher compared to their age. This amount is huge. This will be shock to other Finance Professionals in other fields. This salary consists of salary and bonus. The bonus component is huge compared to total income in all posts throughout the hierarchy except at the more senior all positions.

At this higher up level in the hierarchy, a bonus is multiple times compared to the base of salary. All these super-compensation are earned by these investment bankers who are diligently, skillfully, smartly pursuing their goals in the areas like trading of securities/derivatives, Merger and Acquisition, IPOs etc. which produce a fantastic topline of the company throughout US specially around NEW YORK.

Stress in this job

This salary including bonus sounds sweet and but also very stressful. This job has a lot of stress and they work always like warlike situations. Addition to this, there is no fixed hour of working (which may extend to upto 20 hours a day or more depending on the situation) specially in Merger and Acquisition, IPOs. I have slight knowledge of working pattern of Golden Sach in Newyork(my close relative was working there).This office is open 24 hours along with canteen for refreshments and food so that they need not go to their residence or elsewhere.

In the lower hierarchy (like Associate and Senior Associate) have to go through continuously stress with erratic hour of working. They come at office 7 am along with seniors. Juniors leave in office around 2/3/4 am depending on load. This is because seniors officers delegate their work to juniors around 9 pm for preparation of materials for next day presentations to clients which are known as PITCHING.

Next day, around 7 am in the morning, seniors come for getting a briefing on the presentation to clients which was delegated last night around 9 pm for clients. Most of these of lower hierarchy officers, in their early twenties, sometimes break mentally with unbearable stress and become sick. Higher up executives like VP and Managing Director have reasonable working time in the office. 

Why financial professionals are crazy to be investment bankers

1) Psychological Attraction

They are attracted when they see a young investment banker are coming out of a luxurious car. They also see young investment banker wearing class suits. Glamour is right but the beholders do not know behind all these glamours, there is enormous stress, smart intelligence and almost working round the clock for years to match up this lifestyle.

2) They are paid enormous money

It is true. They get a every month fat salary. Apart from salary, periodically, they get bonus which is multiple times over salary depending on in which company, they are employed. This is the real motivation. However, in investment banking has greater risky compared to other jobs for Finance Professionals.

3) Status of Investment Banker

They are termed financial wizard and successful financial professionals. They draw prestige and also attention. When there is interactions on financial topics, they seek their views specially on Investments, MandA, Loan, Mortgages. Outsiders give weight on your views.

4) Passion for Finance

Many young persons, from earlier age, they are motivated to be Finance Professionals. Their finance sense is excellent. Some people has the great ability of analysis of financial figures. After completing of a university degree, they opt for investment banking.

5) Elevated Expectation

Some young persons have good background from where they come. Mostly, they come from families whose profession is jobs and practice as a financial professionals. They work mostly in hedge funds and investment banks. Hence, they are motivated to join investment banking.

6) Multiple skills in Investment Banking

Apart from powerpoint presentation, communication and excel skills, by virtue of their nature of work, they are partly sales/marketing professionals when they pitch to prospective clients. They also know how to work in difficult situations and in challenging situations. They have all square abilities. After leaving this job, at the senior level, they get ample opportunities for growth in other sectors. This is the reason when some people join as an investment bankers.

Nature of this job – sell- side and buy- side

There are two types of transactions in Investment Banking. They are Sell-side and Buy-side transactions. Sell-side means to Investment Bankers who are working on a Merger and Acquisition (MandA)deal where their client is selling their companies. On the other hand, Buyer-side means Investment Banker’s client is acquiring a company in MandA deal. Transactions and activities on these two sides (Sell-side and Buy-side)are opposite nature from the perspectives of Buyer and Seller in MandA.

When you are engaged in sell-side transaction you deal

1) Start initiating activities with methodology so that your customer can understand how to proceed differently in respect of disposing minority stake, majority stake, merge into a new entity, and so on. Invest banker makes a list a of Dos and DO NOTs for their customer to deal in all respective transactions

2) Simultaneously, investment banker would start short listing prospective investors list

3) When you zeroed down the TARGET, you will have to make a short note (known as Teaser) on TARGET Company with no mention of their name along with a Non-disclosure Agreement (NDA)which is a legal document stating that someone should not disclose to anyone on certain private information about the company they are working and a prospective investor will sign to know additional information.

4) Simultaneously to the teaser, you would be making a confidential information memorandum in PowerPoint deck that details the target company and the markets where they make businesses.

5) When you get signed NDA, you will have to send the investor memorandum to the prospective investors and wait for the result for a few weeks to get feed back from them.

6) During transition time, you can make an approximate valuation based on similar public company, past transactions in similar companies, and DCF (depending on which is more suitable) to zerodown for what the concerned firm is approximate valued at and where you desires the investors offers to come finally.

7) After a few weeks prospective investors would come with a (NDA) non-binding offer with the initial purchase price.

8) Next step is Due Diligence which will consume approximately 4 months. It is more coordination work with team of the buyers diligence.

9) When due diligence is finished then negotiation is finalized. This final step are dealt by more senior members in team.

Raju Choudhary

Article by Raju Choudhary Raju has written 810 articles. If you like This post, you can follow CAknowledge on Twitter. Subscribe to CAknowledge feed via RSS or EMAIL to receive instant updates.


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