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Have you been thinking about making a change in your career field? Getting an MBA can be an excellent way to make the switch, but it requires a lot of planning to make sure that you get the most you can out of the time and effort you put in.
This first article in our new series, How to Switch Careers with an MBA, takes a look at the world of investment banking. Many MBA students wind up in a financial field after graduation. Could investment banking be the right fit for you?
What is Investment Banking?
Investment banks are financial intermediaries who facilitate the raising and investing of capital. They act as middle men between corporations and investors. The corporations may be looking to raise capital in order to buy equipment, expand their service area, or grow their business. Investors, of course, are always looking for assets that will give them a healthy rate of return.
Investment banks act as go-betweens for this process. They can do this through organizing a public offering of debt and equity, privately placing those assets, or asset securitization. Investment Banks are also market makers for debt and equity in that they trade equity, debt, and derivative instruments.
Investment banks work with a variety of financial instruments, from common ones like equities, debt, and commodities to more exotic instruments like vanilla fixed rate interest rate swaps. These banks are also responsible for designing new financial instruments like asset- or mortgage-backed securities, credit default swaps, and carbon emission trading.
One example of these asset securitization instruments that got a lot of press was the securitization of David Bowie’s royalties. He received an upfront payment of $55 million, and in return the investors who bought the bonds will receive the periodic income from his royalty payments for the next 10 years.
Investment Banking Goes International
Investment banking firms are usually divided into Tier 1 and Tier 2. Tier 1 banks, the largest and most profitable investment banks, are often referred to as the bulge bracket. This includes well-known names like Goldman Sachs, Merrill Lynch, JP Morgan, Citi, UBS Morgan Stanley and Credit Suisse.
In the UK, Merchant Banks were the institutions that raised capital for the corporations. They began in the late 18th Century as intermediaries for traders. Over time, they added more services, including private banking and asset management.
Following the 1986 “Big Bang”, when UK financial markets were deregulated, many of these Merchant Banks were allowed to diversify their business and add or merge with stock brokerages.
In the last two decades, many of the smaller Merchant Banks, unable to compete or keep up with technological change, have merged with larger international Investment Banks. As a result, the top investment banks in the US and the top investment banks in the UK share many of the same names:
Top Investment Banks in the US
– Bank of America Merrill Lynch
– Citi
Top Investment Banks in the UK
– Citi
– Bank of America Merrill Lynch
Your Turn
Does a career in investment banking sound interesting? Our next article in this series will look at how an MBA can prepare you for the field.
Top investment banks love to recruit talent from top business schools. But if you’ve been out of school for a while, it can be hard to know where you stand with the b-school applications process.
A free MBA application assessment from Expartus offers valuable insight into the strengths and weaknesses of your application. There’s no obligation, so sign up today to learn how best to leverage your personal brand.
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