What are the different divisions in investment banking?

By Indeed Editorial Team

Published 6 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Banks are an integral part of a country's economy due to the nature of services that they offer businesses. Over the years, there has been a development of monetary exchange and advancement in the banking system. It's important that you understand the different types of banks available and the divisions in those banks. In this article, we discuss the various divisions in investment banking, the IBD's services, investment banking subcategories and working as an investment banker.

What are the major divisions in investment banking?

The key divisions in investment banking are the product and industry groups. The two groups depend on each other or other banking divisions. The investment banking division (IBD) is a section within a bank that provides advice and management services to complex financial transactions. It acts as an intermediary between investors and companies that require capital. IBD's crucial functions are to raise capital for its clients and execute mergers and acquisitions. The following are the categories of the IBD:

Investment banking product group

The subdivision focuses on financial products like equity capital markets (ECM), M&A, debt capital markets (DCM), corporate restructuring, private placement and various types of financing. This financing includes assets, leveraged and public. The bankers execute transactions relating to the product and services of their expertise in different business sectors. Here are the common products:

  • Debt capital market (DCM): A more market-based group focusing on investment-grade debt that fund everyday transactions. Bankers raise funds by trading debt securities.

  • Leveraged finance: Bankers analyse clients' capital structures to determine the amount and the type of debt that is appropriate. They focus on leveraged loans and high-yield bonds. They undertake leveraged buyout evaluation (LBO) and credit statistic work.

  • Restructuring: They take on liquidations, bankruptcies and distressed sales. They modify capital structures for companies so that they can thrive. Restructuring bankers' goal is finding agreeable bespoke solutions for both the creditors and the debtor.

  • Equity capital markets: The bankers help a company raise capital. Bankers advise and execute deals relating to equity such as IPOs, follow-on offerings (FOs) and convertible bond issuance.

  • Mergers and Acquisition: Bankers advise companies and execute transactions when companies want to sell, acquire smaller companies and divest specific assets or divisions in other corporations.

Investment banking industry /coverage groups

This is dependent on what type of clients the groups serve. The bankers cover all companies in a specific industry that they have expertise in. They also do more pitching and tend to have relationships with company management. A banker in a particular sector undertakes different types of deals within the sector. The industries include:

  • health care

  • technology, media and telecommunication (TMT)

  • financial institutions groups (FIG)

  • natural resources

  • real estate

  • consumer and retail

Financial sponsors group (FSG) is a unique coverage group that serves only private equity firms. They deal with pension funds, venture capital, pension funds and sovereign wealth funds. Such firms own multiple portfolio companies across several industries.

Related: What is financial modelling for businesses? (With examples)

Who are investment banking division clients?

The government is one of the clients of the division as the IBD assists in raising money, trading securities and buying or selling government corporations. The division also works with institutions that manage individuals' wealth to provide research and advice on portfolio diversification and trade securities. Companies require IBD's services to raise additional capital, sell business units, make acquisitions and for general corporate finance advice.

Services of the investment banking division

Investment banks provide a wide range of services that includes M&A, underwriting, sales and trading, equity research and asset management. On the other hand, an IBD offers only M&A advisory services and underwriting. Here's more information on the services:

Mergers and Acquisition (M&A) services

M&A happens when company owners want to sell the business, when they want to acquire or merge with another business or when they want to be a subsidiary organisation. The investment bankers offer advice to clients on joint ventures, takeover defence, buyouts and hostile takeovers. They play an integral role in helping companies find, evaluate and complete mergers and acquisitions of businesses. The banks have networks and relationships that allow them to represent either the 'buy-side assignment' or the 'sell-side engagement'. The bankers undertake the following steps in the M&A process:

  • acquisition strategy and criteria

  • target search

  • acquisition planning

  • valuing and evaluating

  • negotiation and documentation

  • due diligence

  • purchasing and sale contracting

  • financing and implementation

Related: Investment banking Q&A: how do investment banks make money?

Underwriting services

Underwriting is the process of assessing risk and establishing a market for financial transactions that's fair and stable. Underwriters in IBD examine applications for loans and initial public offerings (IPO) and approve or decline them after research and evaluation. Investment banks aid their clients in raising capital through the sales of stocks or bonds.

For companies attempting an IPO, the bankers market the company to investors and work with colleagues in the sales and trading division for a successful deal. Before listing in the stock exchange, the division offers internal preparation and market materials for a successful deal. The underwriters may undertake the IPO either through:

  • First commitment: The underwriters purchase the entire issue and assume full financial responsibility for unsold shares.

  • Best efforts: An underwriter commits to selling as much as they can and returns any unsold shares to the issuer.

  • All or none: Underwriters can't sell the issue at the offering price and they call the deal off.

Financial advisory services

Investment bankers scrutinise markets and give clients advice considering the present state of global economic affairs. They offer advice to unit trusts, hedge funds, private equity funds and mutual funds. The information they give is crucial in helping companies structure deals. They analyse credit risks like bond issuance and loan syndication to help their clients maximise profits.

Related: What does an investment banking analyst do?

Working in investment banking

There are many career opportunities that the investment banking divisions offer. The roles of the banks fall under the front, middle and back-office. You can choose where to work by considering your skills and academic qualifications. The front office divisions include equity research, asset management, commercial banking and sales and trading. The middle office performs evaluating, analysing and mitigating risks examples are operations, Tech support and risk management. The back-office roles are human resource, marketing, actuarial consulting, finance and administration.

Qualifying to be an investment banker

Summer internships allow you to acquire hands-on experience in the different investment banking departments. A promising student may get full-time job offers after completing an internship. The minimum requirement for top investment banks is a bachelors degree with a focus on mathematics or economics. Some employers may require further professional qualifications like a Corporate Finance Qualification. Graduates with a bachelors degree work as analysts, while those with masters work as associates.

Related: How to become an investment banker

Skills of an investment banker

Having particular skills improves the chances of succeeding as an investment banker. It's important to be conversant with job descriptions and specifications to gauge if you can succeed in a specific position. The following are some of the key skills that bankers showcase:

  • strong numerical and analytical skills

  • communication and interpersonal skills

  • networking, excellent teamwork and leadership skills

  • commitment, dedication and energy

  • project and time management ability

  • ability to work in stressful situations

Job titles across the investment banking division

In investment banking, you can easily progress from the bottom of the job hierarchy to the top. Analysts in a particular department carry out activities of winning and closing deals. They're experts in building financial models. Associates perform the same roles as analysts, but they have a small team under them. A director or vice president role entails being responsible for a team of analysts and associates.

A vice president plays an active role in executing deals and updating clients on transactions. A senior vice president deals directly with clients and acts as a bridge between them and the bank. A managing director spends most of their time meeting potential investors and soliciting new clients. They're responsible for the profitability of the bank and they're aware of all deals and factors that may affect the bank's operations.

How much do investment bankers make?

Investment bankers get an above-average remuneration, with the managing director being the highest paid in the division. The national average salary of an IBD analyst is £65,052 per year. Other than the basic salary, bankers receive stubs, end-of-year and signing bonuses.

Related: How Much Does an Investment Banker Make?

Salary figures reflect data listed on Indeed Salaries at the time of writing. Salaries‌ ‌may‌ ‌‌vary‌‌ ‌depending‌ ‌on‌ ‌the‌ ‌hiring‌ ‌organisation‌ ‌and‌ ‌a‌ ‌candidate's‌ ‌experience,‌ ‌academic‌ background‌ ‌and‌ ‌location.‌

Related:

  • How to Become a Retail Banker: a Step-By-Step Guide

  • What to expect from an investment banker degree (and FAQ)

  • What does a corporate investment banker do? (Main duties)


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