Investment Banking 101: What It Is and How It Works
As you settle into your commerce tutes and discuss career goals with your cohort, one phrase tends to come up more than any other: investment banking. Unlike your everyday commercial banks that hold deposits and hand out loans, investment banks work behind the scenes on the economy’s biggest financial moves. Here the numbers have far more zeroes, the stakes are higher, and the jargon can intimidate even the most well-read students. So, what exactly is investment banking, and why does it dominate business school chatter?
What Does an Investment Bank Actually Do?
Put simply, an investment bank is a financial institution that serves as an intermediary for large, complex financial transactions. Its job is to connect organisations that need capital with investors who have capital, and to advise companies on strategic moves such as mergers and public listings. Think of an investment bank as a corporate matchmaker, valuation expert, and deal negotiator all rolled into one. Whether a tech start-up wants to sell shares on the ASX or two large retailers want to merge, an investment bank guides the process, prices the deal, and finds the right buyers.
The Main Business Lines
Most investment banks split their work into a few core areas:
- Capital Raising (Underwriting): Helping companies issue new shares or bonds. The bank evaluates risk, prices the securities, then distributes them to institutional investors.
- Mergers & Acquisitions (M&A) Advisory: Valuing targets, structuring offers, and negotiating terms when firms buy, sell, or merge with one another.
- Sales and Trading: Buying and selling stocks, bonds, and other assets on behalf of clients, or occasionally the bank itself, to provide market liquidity.
- Equity and Credit Research: Producing analysis and recommendations on industries and listed companies to support the bank’s other divisions.
Each line brings in fees or trading revenue. Instead of earning interest on loans like a retail bank, an investment bank is paid to complete deals quickly, accurately, and at the best price for its clients. Note that these are not the only business lines; they are simply the most common across banks, and the exact structure of divisions varies from firm to firm.
Bulge Bracket, Middle Market, and Boutique Banks
Typically, investment banks are sorted into the following three buckets:
- Bulge Bracket: The household names, such as Goldman Sachs, JP Morgan, Morgan Stanley, and UBS. These banks operate around the world and offer every service under the sun, handling multi‑billion-dollar deals.
- Middle Market: Firms like Jefferies, Houlihan Lokey, and Macquarie work on transactions in the tens or hundreds of millions, often focusing on specific regions or mid‑sized companies.
- Boutique: Smaller, specialist advisors like Lazard, Moelis & Co., or a local industry-focused shop. Though they may not provide every service, their deep expertise means they still land newsworthy deals.
These buckets shape the type of clients, deal sizes, and culture you’ll encounter, yet each group fulfils the same fundamental purpose of advising and raising capital. No bank is objectively “better” than any other as with the right skills and interests, you can build a fulfilling career wherever you decide to work.
Why the Hype?
Investment banking commands attention on campus for a few reasons. Firstly, it sits at the heart of major corporate events that shape industries, so there is a built‑in prestige to working on deals splashed across the AFR. Secondly, pay can be generous, especially as you rise through the ranks. Finally, the learning curve is steep. Analysts are exposed to high level strategy, valuation, and negotiation early and throughout their careers. The flip side is long hours, tight deadlines, and intense pressure: an environment that suits some but not all.
Conclusion
At its core, investment banking is about moving capital and providing advice where they are needed most. By helping firms raise funds, buy competitors, or enter new markets, investment banks keep corporate Australia, and the world, ticking over. Getting your head around what investment banks actually do, how they make money, and who the main players are will help you make sense of the big financial stories you see in the news. It can also make class discussions and conversations at networking events feel a lot less intimidating. Even if you never plan to work in investment banking, understanding the basics is a useful skill for anyone interested in finance.
As you settle into your commerce tutes and discuss career goals with your cohort, one phrase tends to come up more than any other: investment banking. Unlike your everyday commercial banks that hold deposits and hand out loans, investment banks work behind the scenes on the economy’s biggest financial moves. Here the numbers have far more zeroes, the stakes are higher, and the jargon can intimidate even the most well-read students. So, what exactly is investment banking, and why does it dominate business school chatter?
What Does an Investment Bank Actually Do?
Put simply, an investment bank is a financial institution that serves as an intermediary for large, complex financial transactions. Its job is to connect organisations that need capital with investors who have capital, and to advise companies on strategic moves such as mergers and public listings. Think of an investment bank as a corporate matchmaker, valuation expert, and deal negotiator all rolled into one. Whether a tech start-up wants to sell shares on the ASX or two large retailers want to merge, an investment bank guides the process, prices the deal, and finds the right buyers.
The Main Business Lines
Most investment banks split their work into a few core areas:
- Capital Raising (Underwriting): Helping companies issue new shares or bonds. The bank evaluates risk, prices the securities, then distributes them to institutional investors.
- Mergers & Acquisitions (M&A) Advisory: Valuing targets, structuring offers, and negotiating terms when firms buy, sell, or merge with one another.
- Sales and Trading: Buying and selling stocks, bonds, and other assets on behalf of clients, or occasionally the bank itself, to provide market liquidity.
- Equity and Credit Research: Producing analysis and recommendations on industries and listed companies to support the bank’s other divisions.
Each line brings in fees or trading revenue. Instead of earning interest on loans like a retail bank, an investment bank is paid to complete deals quickly, accurately, and at the best price for its clients. Note that these are not the only business lines; they are simply the most common across banks, and the exact structure of divisions varies from firm to firm.
Bulge Bracket, Middle Market, and Boutique Banks
Typically, investment banks are sorted into the following three buckets:
- Bulge Bracket: The household names, such as Goldman Sachs, JP Morgan, Morgan Stanley, and UBS. These banks operate around the world and offer every service under the sun, handling multi‑billion-dollar deals.
- Middle Market: Firms like Jefferies, Houlihan Lokey, and Macquarie work on transactions in the tens or hundreds of millions, often focusing on specific regions or mid‑sized companies.
- Boutique: Smaller, specialist advisors like Lazard, Moelis & Co., or a local industry-focused shop. Though they may not provide every service, their deep expertise means they still land newsworthy deals.
These buckets shape the type of clients, deal sizes, and culture you’ll encounter, yet each group fulfils the same fundamental purpose of advising and raising capital. No bank is objectively “better” than any other as with the right skills and interests, you can build a fulfilling career wherever you decide to work.
Why the Hype?
Investment banking commands attention on campus for a few reasons. Firstly, it sits at the heart of major corporate events that shape industries, so there is a built‑in prestige to working on deals splashed across the AFR. Secondly, pay can be generous, especially as you rise through the ranks. Finally, the learning curve is steep. Analysts are exposed to high level strategy, valuation, and negotiation early and throughout their careers. The flip side is long hours, tight deadlines, and intense pressure: an environment that suits some but not all.
Conclusion
At its core, investment banking is about moving capital and providing advice where they are needed most. By helping firms raise funds, buy competitors, or enter new markets, investment banks keep corporate Australia, and the world, ticking over. Getting your head around what investment banks actually do, how they make money, and who the main players are will help you make sense of the big financial stories you see in the news. It can also make class discussions and conversations at networking events feel a lot less intimidating. Even if you never plan to work in investment banking, understanding the basics is a useful skill for anyone interested in finance.
