Investment banking is a division within the bank, which focuses on capital creation for other organisations. Holding the responsibility to underwrite new debt and equity securities, facilitating mergers and acquisitions, and also brokering trades for companies or private sectors. Investment banking also offers guidance to issuers regarding placement of stocks.
The common services and approach adopted by investment banking in the past, might not be amongst its best features today. Now is the time of not only adapting to change but creating the change. Business, as usual, might not be enough, hence with time, one can see the shift in the approach of investment banking. To create new capabilities, the banking sector is looking outside the box, it is looking at ways the ecosystem can be enhanced, so they are considering expansion in digital technologies, which can, in turn, open avenues and create utilities.
According to data collected through various research, to keep up with the evolution of financial services landscape, to be successful, banks will be forced to change the way they perceive themselves and their clients and will need to evolve their approach with the fundamental realisation to Simplify, Digitise and Innovate themselves.
Simplify so that cost can be managed and clients have a hassle free interface, basically offering convenience.
Digitise, well that is the need of the hour. For smoother internal and external customer interaction and retention.
And lastly Innovate, any system that has stood the test of time over years has done that only for its ability to adapt, however, if an industry is capable of bringing about the change, it can guarantee success and immortality. With the options that are present today, excessive availability to data, advanced research function, distributed ledger technology, with the accelerated speed at which the world is changing, investment banking needs to ground its existence by coming around it with flexibility and gumption.
There are many disruptors in this path and banks will have to tailor and channel pioneering products with innovative strategies to combat the same.
Some philosophies will need to be realigned……
The way profitability was perceived might need to be relooked, as the financial landscape continues to grow, banks will have to shift focus from margin driven products and profitability to volumes driven profitability.
The traditional components of diversified portfolios will need structured products so that it can offer tailored coverage to otherwise tough to acquire asset classes and subclasses. For the modest level of investment banks, this territory of structured by-products will become essential.
A confluence of disruptors is Blockchain, which will force the financial services transaction to digitise and securely distribute.
One can see timely intervention from the use of independent pricing vendors by a financial institution, to control competition, and create a sense of transparency and calm in transactions.
Banks will need to play to win, by creating the talent which can adapt to the digital upspring in operations and other critical customer dependent and focused departments.
It’s time to realign strategies keeping up with the changing ecosystem with the approach towards utilities. It is predicted that the year 2017-2018 will be the year of transition for investment banks.
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Technology and Deal Making – Robot investment banker?
If there was one part of Investment Banking that hasn’t changed since Barbarians at the Gate was written is Corporate Finance Advisory. Go into any M&A or Equity Capital Markets advisory office and, apart from the increase in Reuters and Bloomberg terminals, not much has changed. Pitches are often still on that dreaded power point and called the ‘deck’. The ‘deck’ as we know it also hasn’t changed focusing on showcasing skill followed by analysis of Industry and then company leading to the proposal or pitch. The IM, or information memorandum, hasn’t changed and financial modeling for all practical purposes still runs into a million sheets that some poor analyst has given up every weekend for; using macros is considered being technologically advanced. So when news came out that a team of programmers had descended on wall street’s most uptight offices- Goldman Sachs, analysts began to shift around in their leather chairs with a certain amount of unease. Technology usually means someone is going to be replaced by a machine.
A team of 75 programmers, internally referred to as “strats”, have begun developing been developing technology that hopes to make deal making more productive. These strats are now part of equity underwriting and leveraged buyouts teams. They are analyzing client data to understand how firms can offer better advice. What advice has worked and what hasn’t; algorithms that could possibly evaluate a book building process to glean why some offerings do better than others when everything else holds equal. But how can automation do deals? Isn’t deal making about relationships? Endless rounds of golf and board room relationships? The current management speak is trying to reassure bankers that technology will only take out the grunt work. But junior bankers know what happened when technology hit trading.
Another cause for concern is whether the criteria to become an investment banker is going to be affected as well. Will bulge brackets now look to MIT instead of Harvard and Wharton? What does that mean for twenty-something-year-olds who just finished an expensive MBA and need to pay off a gigantic loan? Will a tech geek take their job?
It is believed that technology is going to lead to a 10 percent reduction in Investment Banking staff over the next few years. Kognetics, a software company that uses artificial intelligence to assist deal makers say that almost a quarter of routine Investment Banking activity can be automated. ‘Sellside’, an application developed by ‘strats’ for Goldman that compiles deal information, is already making some analysts uneasy. But I think it’s quite some time away before an algorithm can decide which two companies should merge. But going by the failure rate of mergers these days, perhaps an algorithm might have better luck.
Written by Reshma Krishnan, Imarticus Faculty
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Trends are Bound to Influence Investment Banking This Year
In The News
The last six months of the year 2016, were telling of the fact that things would be positively looking up for the field of Investment Banking. It was believed that this change would be led by most of the US banks as a majority of FICC revenues would begin to be recovered. While there are many experts waving the pessimistic flags, especially of the decline of the
Investment Banking owing to all the modern regulatory burdens and digital disruption. In spite of this, a majority of us are of the belief that optimism should be the word of the day. While it is truly considered that the entire industry would have to revamp itself, but it is also true that the Industry has been historically very successful at this.
Many have begun to realize the importance of some clear and innovative line of thinking and the need for new and correct business models. These business models are held as the key factors for ensuring future success, which is why the implementation of these needs to happen real quickly. Experts seem to have identified a few important trends, which would be acting as themes that Investment banking as a field would likely focus on in 2017. There will be a lot of profitability in store for banks, mainly as a result of the FICC business driving revenues that was out of fashion previously. We have all seen and read about all the significant cuts that have taken place and there are more such to come. Offshoring is one trend that is on the rise again as many top Investment Banks are relying on nearshore and offshore teams, in order to deliver the complex functions.
The cost and income ratios are going to undergo serious improvements in the year 2017 and things are looking really up for the US banks, especially after the tough year they seem to have had. Organizations will be seen focusing on eliminating their weaknesses and focusing on improving their strengths. In trying to survive in the competition, there will be many seemingly hard decisions that banks will be expected to make. Misplaced regulation is bound to act as a drag on the global economy and is likely to cause a real impact of structural reforms and regulation designed to improve transparency. Unlike the earlier days, developing the traits of patience will be a key factor in the future. Being the early bird will not pay, as much as waiting for the guidelines would be helpful, in evolvement and learning of lessons.
More and more banks are likely to focus on client strategies and will develop their servicing strategies towards a smaller universe of clients. There will be a lot of encouragement in terms of scientific approach when it comes to customer service and feedback on behalf of the banks. There are very strong chances of the CRM technology to be made more user-friendly as well.
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Investment Banking Soon to be Taken Over by Artificial Intelligence
Every finance aspirant, at one point or another, envisioned themselves as one among the many professionals in crisp suits and black pencil skirts, walking along the hallowed hallways banks like Morgan Stanley. While some individuals choose the more tried and tested route to achieve this aspiration, like pursuing their MBA, there are many others who make use of new and innovative ways to achieve their ambition. These ways include pursuing of intensive professional training courses, which are becoming popular by the day. Courses offered by Imarticus Learning are gradually becoming the go-to courses, chosen by those especially who wish to become Investment Bankers.
One of the most exciting areas of work, in the field of Investment Banking, is working in the front office. This area is usually what most of the exciting Investment Banking movies revolve around and it’s here that the real game is played. The ‘front office’ is divided into Sales and Trading, Corporate Finance and Research. It may be seen that the recent times have been experiencing a great amount of technological change in these three sub-fields of Investment Banking. Artificial Intelligence and business process automation are two of the many analytics technologies, with the help of which these three fields are attempted to be deconstructed.
Let’s begin with Sales and Trading, roles in this sphere are popularly known as the alpha roles in Investment Banking. The professionals working on these positions were considered to be the leaders of the wolf pack and they were very capable of getting away with just about anything. This has changed as the ‘nerds’ have steadily begun to replace them. This shift is the result of technology specifically, computer engineers taking up the positions. Goldman Sachs reportedly had over 30% of computer engineers as their traders. Recently another big gun, JP Morgan hired their Global Head of Machine Learning from Microsoft. What is surprising about this recruitment, is that the professional has absolutely no background in finance whatsoever.
When it comes to Investment Banks, a huge chunk of their work is carried on by the Mergers and Acquisitions Departments and the IPOs. It is common knowledge that artificial intelligence has already begun to make its presence felt in the field of accounting. Similarly, Corporate Finance is not being left behind as there are a number of well-paid analysts, managing the sweaty work for their Managing Directors. The field of IPOs is also being transformed, much similarly to what the CFO of Goldman Sachs has to say. He says, “Goldman Sachs has already mapped 146 distinct steps taken in IPOs offering stock and most of them are begging to be automated”. It won’t be long before stock market is made up of all the secondary markets created by FinTech companies.
Anyone who is a finance aspirant would be expected to know the difference between ‘active funds’ and ‘passive funds’. The million dollar ideas of all of those Portfolio Managers who build active products come from paid research teams at various Investment Banks. In the recent times, this basic financial commentary is speedily automated. With technologies like the blockchain technology and banks teaming up with software companies, it seems that the entire banking sector is set to undergo an overhaul, courtesy of AI and Data Science.
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The Importance of Trade Finance
What is Trade Finance? This concept basically revolves around products and services, which are used for ensuring two things. One, that the exporter is paid his dues and the other, that the importer gets the delivery. Distributive trade, one which involves a buyer and seller is usually the one which is involved with the concept of trade finance. One of the reasons for the introduction of trade finance could be the fact that, today’s world is a more connected one and with more connections comes a great amount of financial uncertainty. In such a volatile world, it always serves better to protect oneself against any kind of commercial or political risks.
Trade Finance at its essence, has been existed for thousands of years and it can very well be traced back to the times earlier days, of Silk route. It existed since long ago, from before the times that economic imperialism came into being and England set out to make its colonies. As surprising as it may be to believe, but it existed well before the stock markets came into being. Cut to the present times, where this is a tremendously thriving, multi billion dollar business. This may be a result of the fact that the world has begun to trade on a greater scale, everyday sees more and more commodities being bought and sold in the markets. This results into more and more banks and companies having to lend money, in order to keep the steady flow of the global supply chain.
So now that we know what trade finance is all about, let’s focus on how and why is it so important. Let’s take an example. Imagine yourself to be a coffee trader in today’s times and where else would you find the best in class coffee beans, but in Africa. But, you stay in India, so then how would be able to function as an International buyer? More importantly who will give you money, in order to purchase from the natives in Africa? How will you be able to finance all of your transactions, in another currency in addition to being able to successfully pay all those native traders? The answer to all of these above questions would be a trade finance department. This department of a financing firm would deal with all your financial transactions and thus would ensure the development of your business.
Any good or service at the very basic level, have their own underlying value and a bank is very well able to offer a loan against the collateral value of the good. The bank would be comfortable with offering you financial help, as long as the structure of the deal would be helpful and advantageous to the bank. As a whole, the business of trade finance is not very complicated, but on the other hand the structures which form an essential part of trade finance usually tend to be a bit more complex.
How Are Investment Banks Able To Contribute To The Economy
Investment banks are generally very popular for two very broad roles. Firstly, they are supposed to carry forward the roles required for the smooth functioning, of the financial markets and secondly, they are the sole conductors of trading. Investment banks perform the most critical functions as they cater to the present and future, financial consumption needs across various corporations and firms. As a seasoned finance aspirant, with a minimal experience, would know, these banks differ greatly from commercial banks. The primary goal of commercial banks is service to private individuals, while on the other hand, the investment banks primarily serve various governmental and private organizations.
Today, almost all the economies, are mixed economies on a certain level and as a result of this, depend predominantly on investment banks, so as to raise their funds. One of the major contribution of any investment bank to the economy is, what is known as ‘adding liquidity to the market’, this is basically done by matching potential investors with the potential sellers of stocks. Basically, it is these banks which are supposed to perform as the epicenter, of all functions especially when it comes to the advancement of a company, in financial terms. Those investment bankers, who facilitate in bringing about similar changes, are then given the status of being intermediaries or middlemen, in the more lay man context. The path breaking difference that these banks make, is that they are able to perfectly match those ready to provide investments, with those in search of investments. This then contributes to the growth of businesses and in turn boosts the progress of the economy.
Another way that these banks contribute to the expansion of an economy, is through estimating the current market rates. This is accomplished by collaborations with the commercial banks, earlier these two banks were supposed to be independent of each other. Today, the scenario has drastically changed with commercial banks and investment banks, carry on their functions under the same roof. It is important to be noted, that it was only the country of USA, which had successfully and legally separated the functions of the two banks once.
Today, although the functions of both these banks are technically independent of each other, but it is an established fact, that these interest rates, would definitely influence each other. The field of corporate finance has always had a certain allure for anyone, who has ever belonged to the world of finance. With those influencing stock exchanges, sophistication of all the top banks, as well as all the handsome rewards, that are offered to almost everyone in this field. These and many others are reasons as to why, sterling careers in the field of corporate finance are practically sought after by almost everyone, belonging to the same background. But at the same time, as the competition is high, it requires for an individual to have an edge over their contemporaries. This is why there has been quite a lot of demand for certification programs like diploma in corporate finance or specialization in investment banking and its other branches provided by Imarticus Learning – Professional Investment banking and finance training institute.
4 Best Books for Those Interested In Mergers and Acquisitions
While it is no secret that Investment Banking has forever been, one of the most alluring fields, especially with the sophistication and grace that stock exchange and the Wall Street have both gathered, in the recent few years. This is the reason why you’d find almost everyone quoting some of the other famous investment related movie. Investment banking as a field branches out to various sub fields, which include corporate finance, wealth management and to name a few. Of these, mergers and acquisitions have gone on to become one of the most sought-after fields, in terms of career choices. A lot of M&A aspirants are more often than not, on the lookout for getting thoroughly trained so as to master this amazing field. This is why a lot of candidates. Imarticus Learning, which offers excellent industry endorsed, specialization programs on subjects like Corporate Finance, M&A and so on.
While getting professionally trained is extremely important, when it comes to pursuing a career in M&A, it is equally important supplement your knowledge with the help of books. Here’s a list of some of the best books about M&A, which would serve novices as well as professionals, very perfectly.
1. Mergers and Acquisition for Dummies, Bill Snow
This book is like the complete guide of basics, about everything that you must know about the field of Mergers and Acquisition. The contents are such that they have resulted in easing the process of understanding of concepts of M&A for everyone. The writing, which takes on a very lucid manner, makes this book an indispensable guide for a beginner.
2. Mergers And Acquisitions From A To Z, Andrew J. Sherman
This makes the perfect book for anyone, who is looking to start up their own venture, or for any student looking to do some in-depth analysis. This book is the detailed answer to all questions like, whether to buy or to sell, when to buy or sell, how to value an asset or a firm. It basically gives the reader, almost every information possible about the entire process of M&A.
3. The Art Of M&A; Fourth Edition, Stanley Foster Reed, Alexandra Lajoux & H.Peter Nesvold
This book is good enough to be treated as a holy grail when it comes to M&A. This comprehensive book focuses on a number of topics like the process of finding a deal, valuation, finance, merger integration and so on. It not only talks about mergers and acquisitions in detail, but it also talks legal considerations, that one needs to abide by here.
4. Mergers, Acquisitions and Corporate Restructurings (Wiley Corporate F&A), Patrick A. Gaughan
This book is famous for discussing all the recent corporate restructuring case studies, at length, which definitely is the best take away from it. It is more like a narrative on the evolution of M&A, over the years, as well as about the various strategies, that are used by companies to boost their financial growth.
Top 6 Investment Banks In The World
Investment Banking basically refers to that stream of banking, which primarily focuses on capital financing for every type of organization out there. Then may it be a global or a local business, any private individual run firm as well as governments. This field is said to cater to a number of diversified financial requirements, like equity or debt, bonds, mergers and acquisitions, portfolio management and so on. This field is considered to be one of the most dignified and challenging fields to make a career out of. This is exactly the reason why so many finance aspirants have their heart, set on becoming an investment banking professional. To achieve their goal, many individuals try to get an edge for themselves by taking up various esteemed certification courses that are offered by the sterling institute, Imarticus Learning.
Every Investment Banker as well as any aspiring professional wishes to work in one of the top Investment Banks all over the world. While there are a number of criteria, which put an Investment Bank in the coveted big league. Various factors like the revenue numbers, global reach, employee headcount, income etc prove to be most decisive when it comes to determining whether a bank fits in as one of the Top Investment Banks.
Here’s a list of the top 6 full-service investment banks on a global scale.
1. Goldman Sachs 
Apart from being one of the oldest banking firms, founded in 1869, this prestigious bank, offers a wide range of services, which are spread across four divisions, which include investment banking, institutional client services, investing and investment management. It also has a reported revenue of around $34.210 billion, which probably could be more today.
2. JP Morgan Chase 
It is said to be one of the largest, investment banks and has reported net revenues, up to around $96,606 million. This organization has branches in around 60 countries and has about 260,000 employees working under them, offering a varied set of services.
3. Barclays
This UK based bank was founded in around 1896 in London and has recorded earnings, of around 28,444 million Euros. This banking organization has a strong presence in retail and commercial banking, in addition to being a key player in the field of investment banking.
4. Bank Of America Merrill Lynch 
This entity recently took over the erstwhile Merrill Lynch, following the economic crisis in America. It offers a wide array of services which include, investment banking, mortgage, trading, brokerage as well as card services.
5. Morgan Stanley
Since its inception in the year 1935, this global firm has employed about 55,794 employees, spread across multiple countries. Apart from offering the usual services,
it is also known to offer diversified services like prime brokerage, custodian, settlement and clearing and so on.
6. Deutsche Bank 
This erstwhile organization has reported revenue of around, EUR 31,915 million and is also known to be one of the largest financial services firms in Europe. This bank is very well known for its global presence and ongoing operations in around 71 countries as well as its omnipresence on the international trade and finance market.
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How Has Demonetization Impacted The Indian Economy?
India as a country, experienced a most staggering change in its economic history in the month of November, 2016. The Prime Minister of India, nullified two of the highest denomination currency notes of Rs.500 and Rs. 1000. The decision came like a surprise as the entire country came to staggering halt, trying to cope up with this decision. What later ensued was a great amount of chaos mainly because of the grave dis-balance, the economy of India was left in. By doing away with these two notes, the government of India withdrew, almost 86% of the currency value that was being circulated in the economy. This was done without replacing the bulk, that was withdrawn and it resulted in a huge gap in terms of the value of currency, because after INR 100 notes, the next currency note available was INR 2000.
While the government and the banks tried to ease the situation, they was very less that they could do. Even today, when a considerable amount of time has elapsed, since the decision, there is still some level of discontent in the society. With very few ATMs recalibrated and the fact that, the new 2000 rupee note with slim utility, the Indian economy and finance are bound to be affected. Demonetization is basically a step taken to give the economy, a liquidity shock. While the very time and method of it ended up highlight more downsides, than it was supposed to. The process was definitely not as big a shock as the banking sector disaster of the year, 2007, but it nonetheless affected the economic activities, in the most grave way possible.
The term liquidity crunch or liquidity shock, basically refers to the fact, that people would not be able to make use of a currency of a certain denomination, in this regard the 500 rupee note, which was regularly used in the daily transactions previously. It ought to be highlighted that, this bold move was taken in order to do away with all of the counterfeit currency rackets, which in turn resulted into supporting terrorism and related activities. While the Indian society will be impacted in a lot of ways in terms of finance, with the economic growth of the country, being highly affected. Apart from that various other negative impacts include, the welfare loss of all those sections of the society, that solely depended on liquid cash. There are quite a few chances that the entire economy will feel a lull, in terms of the momentum and the purchasing power of the consumers.
Although it may seem that the banks would benefit, more than any other sector, it may be so but only in the short term. The many old notes that are being deposited in the banks, in order to get new notes, will be doing absolutely nothing in terms of their cash reserve ratio. The banks would only benefit when people would start depositing, the new notes, which would result in improvement of their cash reserve ratio. While it is yet to be seen, how the sector of investment banking is affected, it seems that these and the corporate finance professionals, would be sought after quite a lot in terms of gaining advice with how to put the new money, to proper use.
Why A Career In Investment Banking Would Be The Best Decision For You?
A lot of graduates today, decide to pursue higher studies, so as to ensure that they are able to get into the career of their choice. This is the age where just having a generalized degree, does not seemingly cut it.
This has given birth to a whole new aspect of specialization in the society, only those who have specific additional degrees, get the opportunity to kick start their career well. As specialization study, becomes the popular choice there are an array of courses to choose from. The same applies to the field of finance.
Investment Banking has increasingly become a popular career choice and there are a number of esteemed institutions, Imarticus Learning, offer courses in various branches of finance and ensure that your career choice, is the best decision that you would make.
We at Imarticus learning as an institute are instrumental in ensuring that candidates get a slight edge over the other qualified professionals in the field of Investment Banking.
Investment Banking is known to be a very prestigious, competitive field, where the number of qualified candidates, greatly exceeds the job openings. This is the reason why taking up a specialization course makes more sense, because that way you get trained according to the industry standards, thus ensuring that you get the perfect kind of start in this landscape.
Once you have narrowed down on a career and begun your journey towards its, there are a lot of indicators that prove it as the best decision. First of these indicators, would be the fact that you actually possess the perfect combination of academic as well as industry skills. Imarticus Learning ensure, that you develop certain skills, to supplement your academic knowledge, which would serve you at various junctures in your career.
Apart from having the right skill set, various other indicators like having the right kind of connections and contacts, being goal oriented, driven and extremely dedicated towards your work, willing to work a more than 100 hour week and closing high value deals, all of these ensure your entry into the very fabled world of investment banking.
This is one of those careers where if you posses the right kind of skills, nothing can stop you from being on top of your game, all the time. It is a field which not only pushes your limits, but also rewards you very generously. Especially when it comes to salary packages, Investment Banking professionals get the best signing bonuses, hikes and other monetary luxuries, as compared to their peers.
Professionals here argue that it was their best decision, because their time literally is worth every single paisa that they earn. From working long hours, to having mind numbing deadlines, anything and everything seems fine here, mainly because of the sterling rewards that an Investment Banker receives.
It is common knowledge that Investment Bankers, usually make much more than their peers and also receive greater recognition for their hard-work. While some of the professionals here are pure geniuses, others are able to achieve the same through perseverance and the help of esteemed, Imarticus Learning, help ensure they are thoroughly ready to achieve their dreams.