Over the years, because many of my students approach me with questions about careers in Investment Banking, I’ve written down a few stock answers. Here are my notes:

An investment banker is someone who works or is connected with an investment house. Such investment houses or companies are often called investment houses, brokerage houses, underwriters, or simply investment banks. Many investment bankers are employees, but others may function as agents or independent contractors.

Most investment bankers who are sales representatives (stock brokers) are licensed individuals and must pass a background investigation and several exams to obtain the required licenses. Having satisfied the requirements, the candidates become “registered representatives,” and may then buy and sell securities through the organized markets.

The body that supervises both investment banks and registered representatives is the NASD (National Association of Securities Dealers).

Investment banks raise money for the Government, institutions, individuals worldwide, and public corporations by arranging the sale of securities (stocks, bonds, and derivatives) to the public in the primary market. After an initial public offering (IPO), the purchase and sale of securities take place in the secondary markets.

Professional services offered by investment banks:

Lacking the expertise to raise capital on their own or through organized securities markets (NYSE, OTC, Nasdaq, or the American Stock Exchange), the corporation must rely on investment banks. Therefore, they contract these banks so that they can design and negotiate the company’s best strategy and to recommend the sale of either bonds (debt) or stock (equity).

The bank’s resident staff includes a legal department that makes sure all Government regulations are complied with and all the necessary documentation properly gathered and printed. An important aspect of this expertise is the research called “Due Diligence,” which certifies that a checklist of material facts have been scrutinized to protect investors, the bank, and the company that is issuing the securities.

For small corporations seeking finance, the investment banks will require a retainer, which varies from house to house, but usually around $25,000. Since each deal is different and unique, the corporate controller must shop around to get a good idea as to what a reasonable fee may be.

With the deal settled, the investment bank proceeds to get the issue out. Initially they will prepare the Private Placement Memorandum (PPM) which contains a blueprint for marketing the issue.

Mergers and acquisitions (M&A)

Investment bankers also handle mergers and acquisitions and corporate restructurings. This is a very lucrative field for many investment bankers. By bringing together companies and either merging them or acquiring them (and letting them work independently), investment banks foster the growth of successful companies. Some companies achieve growth and earnings through mergers and acquisitions rather than through the operations of their main line of business. Take for example, General Electric. Investors no longer think of GE as a manufacturing electronics company, but as a conglomerate and finance company. Not only do investment banks bring together companies to form a larger company, but they also break them up into smaller companies, spinoffs, or carve-outs. In either case, the banks will make money.

Brokerage and proprietary trading

Proprietary Investing refers to the management of portfolios of high-yield bonds, leveraged loans and other publicly traded securities. The management teams use intense credit research and relative value analysis.  The “prop desk” handles the trades of stocks, bonds, options, commodities, swaps, and other derivatives.

Different strategies are employed for different clients. For example, less aggressive techniques and risk will be employed in the management of pension funds. Likewise, not-for-profit institutions will restrict the trading to safer techniques.

Although investment banks are viewed as businesses which assist other business and institutions in raising money in the capital markets, in fact they also do lots of trading for their own accounts. Part of their daily activities involve: index arbitrage, statistical arbitrage, merger arbitrage, and volatility arbitrage.

Management services and other services

Given their huge pool of skilled and talented employees, they can develop detailed plans for businesses to be successful.

Entire departments and managers specialize in industry sectors such as pharmaceutical, health, wind energy, etc. They develop divisional performance measurement: cost, revenue, profit, and investment and expense centers that determine which method is likely to be the most efficient for each client.

Not only do they design and develop strategies for senior executives to manage the cultures within their organizations, but also they recommend equity compensation instruments (stock options).   

For those corporations that are image-conscious, investment banks offer ‘corporate social responsibility’ programs that can enhance the company’s reputation and goodwill.


Many of my students often ask me, can I start with a commercial bank and then transfer to an investment house? Yes. This happens all the time. But, human resources, and division heads in investment banks tend to look down on applicants with commercial bank experience. The action, they feel, is in investment banks. Another question that comes up: what college majors are preferred for investment banking? The answer is: finance, accounting, and economics. Yet, I’ve met successful investment bankers who majored in liberal arts. In fact, a friend of mine majored in French Literature. The ultimate major that is required is: intelligence, coupled with a flair for numbers, and excellent communication skills.

Retired. Former investment banker, Columbia University-educated, Vietnam Vet (67-68).
For the writing techniques I use, see Mary Duffy’s e-book: Sentence Openers.
To see my accounting lessons visit my blog: Writing To Live

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