One of the most popular films in all of Hollywood is the infamous Wolf of Wall Street. Within the movie, we get to see the sporadic millionaire character played by DiCaprio running an investment bank with suspenders shouting through phones in a chaotic atmosphere. However, this exaggerated Hollywood interpretation is far from the truth of investment banking today.
What is Investment Banking?
Within investment banks, clients such as large corporations or government agencies will approach an institution offering an amount of capital. This financial institution must then invest this capital and gain returns for its client, and keeps a % of the profit as commission. This can generate an astronomical amount of revenue. Consider a bank with a clientele of 10 large corporations, each averaging a $10bn input. A typical investment bank will create a 10-20% return on its investment. If the bank only kept 1% of that, they’d be making over $1bn annually. Real investment banks have a much, much larger clientele.
Investment banking also entails the helping of mergers and acquisitions for other companies. An acquisition is simply when one company entirely takes over another company, meanwhile, a merger refers to two different firms combining and forming one larger company. Banks are able to set up a secure and effective way for mergers and acquisitions to occur and are able to take a % commission of the cost of the process.
Thus, we have seen that investment banks have multiple sources of revenue, all of which can generate billions with large enough investments. But what’s it actually like working as an investment banker?
A Day in the Life of An Investment Banker
There tends to be a very common misconception that investment bankers work dreadful, long hours. Whilst the latter may be true, the work can be less intimidating than it seems.
Morning- The early hours tend to be the most hectic. An investment banker has to check hundreds of emails, texts and messages from potential clients, supervisors and co-workers. Doesn’t seem that bad, right? Wrong. Bankers must reply to these messages with punctuality and accuracy, often requiring status reports, triple-checking calculations and delivering presentations. The fate of a banker’s position often relies on prompt replies to these messages, making the morning quite frantic.
However, the plus side is that work may start later in the day depending on the geographical location. For instance, some markets, such as the New York Stock Exchange, only opens at 7 AM, so if you are living in the UK, you will have some time to relax and get things together before going to the office.
Afternoons- After an hour-long lunchtime spent at a café or utilizing the bank's leisure facilities, a banker will return to the office with an updated analysis framework and presentations. Their job will now be to review these documents, looking for any mistakes or highlights that could make or break a deal.
Evening- After having dinner, most likely at the office, there are two tasks that are usually to be completed. The first is equity research. This would be researching various stocks and markets and add any interesting or potential stocks that would be worthwhile investments to the recommendation book. The second task involves adding comments to materials made by co-workers. These comments tend to build on the rigorous analysis made by other bankers and help strengthen any arguments for buying or selling certain stocks.
Is Investment Banking for Me?
There’s one piece of information I’ve decided to keep till the end. That is, the salary. Most people see the amount of money investment bankers make and immediately have a strong desire to acquire the role. This is the main reason investment banking is one of the most competitively applied-for roles in all of the financial sector. So along with the information presented to you above, here are some more details that could help you answer this question.
In the US, investment bankers can start off at a $100,000 salary and work their way up to $300,000 with a few promotions. Taking into account bonuses, an investment banker can make between $130,000 - $1,000,000 a year. However, keep in mind the long work hours. Numerous resources point to 90 hour work weeks not being uncommon. Most investment bankers must work on weekends and work late into the night. Along with this, holidays are often shorter for bankers that have to keep trading in order to meet company quotas.
All in all, the decision is up to you. If you are prepared to give up lots of time and energy for one of the highest-paying salaries out there? If so, then investment banking might be for you. Whilst reading this article, if you found yourself interested in any of the tasks such bankers do, then this might be the role for you. However, don’t let the numbers fool you. A high salary with a lack of freedom may not be worth it. As Jim Rohn once said, ‘Time is more valuable than money. You can get more money, but you cannot get more time’.
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