What Does An Investment Banker Do And Why You May Need One (2024)

Investment bankers are among the highest-paid people on Wall Street, and the title comes with a sense of allure for the average investor. But what does an investment banker do, exactly? Investment bankers play a key role in making the financial markets come together.

In this article, we’ll take a closer look at the roles on investment bankers and what this profession entails.

Investment Bankers: A Middleman For Companies

The best way to think of an investment banker is as a middleman. They essentially serve as the interface between a company that wants to raise funds, perhaps by issuing stocks or bonds, and the investment firms, traders, and the public that wants to buy the stocks or bonds being issued.

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Bond And Stock Issuances

In the event that a company wants to sell bonds, for instance, an investment banker has several roles to play. They help the company plan the terms of the bond issuance, deciding on terms such as the interest rate to be paid, the maturity date of the bonds, and other details. The investment banker working on the issuance will also manage all of the SEC (Securities and Exchange Commission) requirements around the new bonds. Finally, they’ll help the company price the bonds and assist in selling them to buyers like investment firms, mutual funds, and other financial institutions.

The process for issuing stock, whether for an IPO (initial public offering) or a secondary offering, is similar. For an IPO, the investment banker is the person responsible for the company’s prospectus, which is the public document that describes everything potential investors need to know about the company’s financial outlook.

Underwriting Investments

Another important role of the investment banker is to underwrite deals like bond and stock offerings. The investment banker, representing their institution, may buy all of the stock being offered as part of an IPO before the shares are offered publicly. The company receives the funds from the IPO, while the investment banker takes on the responsibility of selling the shares (and the risk if they don’t sell).

In this case, the investment banker can markup the shares before making them available to the public. This is one key way that investment banks make money from IPOs and other offerings.

Mergers And Acquisitions

Investment bankers can also play a role when a company wants to merge with or acquire another. An investment banker can advise their client about the pricing of the offer and other terms of the deal, which involves coming up with an estimate for the value of the company. In addition, investment bankers may help to coordinate funding for the merger or acquisition if needed.

Investment Bankers: Due Diligence

Much of an investment banker’s time is spent on due diligence. The various tasks that an investment banker assists with – stock and bond offerings, underwriting, and mergers and acquisitions – all involve looking extremely closely at a company’s financials. An investment banker needs to come up with a reasonable valuation for a company based on its revenue and profit, its assets, and its future outlook. On top of that, an investment banker is responsible for ensuring that everything a company says in its financial statements is true.

This process of due diligence can be a massive undertaking considering that investment bankers often work with large, multinational companies with varied revenue streams. There are typically millions or billions of dollars on the line and tight oversight from the SEC in the deals that investment bankers work on, so there is absolutely no room for error.

Investment Bankers: Networking

The role of an investment banker isn’t just technical. Investment bankers need to be able to network with executives at a client company and shepherd them through the often stressful process of raising funds. They also need to be able to interface with the company’s board.

Just as important, investment bankers spend a lot of time working with other people in the financial establishment. Many deals, such as IPOs, typically involve teams of investment bankers from different institutions. While one investment banker might lead the IPO, all of the involved institutions will make their own assessments of a company before underwriting a deal and these assessments need to be reconciled.

Finally, investment bankers play a significant role in helping to sell stocks or bonds. That means they need to act as salesmen to investment firms, mutual funds, and other major investors.

Conclusion: Investment Bankers Responsibilities

The position of an investment banker is somewhat revered both inside the financial world and out. Investment bankers play critical roles in facilitating corporate finance as we know it by making deals like bond issuances, stock offerings, and mergers and acquisitions possible.

Investment bankers are more than just analysts, too. They play an active role as middlemen between companies looking to raise money and institutional investors, and have to act as salesman in the closing stages of a deal.

Although their work can be stressful, investment bankers are highly compensated. Investment banking salaries start in the mid-six figures and stretch into the millions of dollars per year.