Business Analysis is relatively matured professional field having adequate research done in last decade and having clear industry standards defined by few institutes for business analysis and also brought more clarity to business analyst role. Obviously, the next level for a business analysts would be creating a niche for themselves in the field.
This blog provides guidance on what business analyst need to know to build a successful career in investment baking domain. This blog provides high-level information about investment banking domain for a business analyst who is new to the domain.
Although Investment Banking domain is vast, but his article helps you in selecting and understanding the major area(sub-domain) you wish to focus on in future.
Please note that this blog throws only high-lights over the domain information for your understanding and further reading highly recommended to understand and master the topic.
History:
The investment banking has not started with some act 1933 or with one of the old banks...The New York Stock Exchange originated in May 1792 under a buttonwood tree at 68, wall street.
Investment Banks have changed drastically since last century that offered services mainly focused on raising capital and straggles in merger and acquisitions. Currently they wide range of products and services to issuing and investing clients. This including strategic advice, buying and selling investments products, raising capital, offering public and private investment market place, Trading securities, advising corporates on merger and acquisition, launching IPO and much more...to broad client base, from high net worth individuals to big business houses.
Let us understand the financial products and services...
Products:
Financing(Capital Raising):
Relationship Management and strategy:
There are various roles such as Super Banker, Coordinator of Product Specialists, Tandem RM (a generalist and an M & A banker), Functional RM (product specialists work as RMs for middle market clients) and so on...depending on the internal structure of the bank the role and responsibilities could change.
Trust generated through long term, transparent, fruitful association is only factor to strengthen the relationship.
Trading and Capital Market Activity:
Three different trading models:
Products:
Over-the-counter
Quote Driven Market: is based on quotation determined by market makers or dealers and investment bank plays vital role in quote driven system.
Order Driven Trades: are auction markets in which prices of the trade is determined by the publication of ordered shares. The stock exchanges such as NYSE, Bombay Stock Exchange or London Stock Exchange provide the platform for buyer and seller and the facility of electronic transmission of the trade and its execution.
Floor based Exchanges: The exchange house highly regulated market that lists registered instruments like stocks, bonds and derivatives and allows face-to-face broker meetings for conducting trading business.
Strategies in Trading: The trading strategies largely based on following few factors:
Does research data needed on trading the equity that is publicly traded? why it is needed when all the information stated in public is correct(?) catch 22. In any way, the financial analyst are expected to provide information about investment and potential appreciation of the same using various financial models including complex system that helps the analyst to calculate the information using market data and provide the potential value that may not be absolute. Some time the calculation method or formula could be wrong that could have serious impact on forecasting the portfolio value.
The analyst and investor may use various data such as S & P calculation and credit rating to present P/E (Price/Earning) data is used to calculate P/E(Price/Estimated) value.
In addition, there are other methods to estimate the prices such as Discounted-Cash-flow or automated system using Monte-Carlo prediction tool...
Equity Offering:
Following are the various equity offering mechanisms.
Managing IPO is one big and challenging project for the investment banks...The IPO of Google or Alibaba were complex and highly challenging.
Fixed Income Business:The government and large corporates issues bond to raise funds. These bond are traded on global financial stocks. They are one of the key part of asset class in investment portfolio.
Bank typically help the government or large corporations to formulate the strategy of issuing, pricing, and distributing the securities. The bank also provide services to the buyer to arrange finance to buy these securities.
Types of Bond
Bond
The Domestic Bond Market
The foreign Bond Market
The Euro Bond Market
The Euro Dominated Bond Markets
Public and Private Issuers
Government Bonds(Treasury bill or Treasury notes)
Corporate Bonds
Issuing of Bonds:
Following are the different way bonds can be issued.
New products:
Zero Coupon convertibles: The are convertible at the holder's option and do not pay a coupon. They are highly discounted and are known as zero coupon instruments. They are convertible bond, liquid yield option notes or LYONs.
Perpetual Debt: The perpetual debt issued by financial institutions has no maturity date, but pay regular interest. The issuer can buy them back.
Subordinated Debt: These are unsecured debt or preferences shares offering interest rates 2 to 5 percentage points.The junior bond are low on the priority of payment. interest is paid in the form of cash flow after the interest on senior bonds are paid, if money is left. They are used to finance pools of assets in a securitisation.
Mezzanine Finance:
High-yield Bonds
Structured-Financed Products
Collaterlized debt obligations
Credit Derivatives
Project Finance
Strategies in Fixed Income
The next blog will have more details on following topics:
Merger and Acquisition Business
Strategies of M & A
Hedge Fund and lather native Investments
- Part time MBA in Finance or CFA (when I was working in Investment Bank in Manhattan, many of my colleagues were doing it). I would prefer CFA over MBA as it is intense and highly focused.
- Short term courses in Investment Banking Operations provided by universities or reputed institutes. for example - Executive Diploma/Certificate in Investment Banking - HKU or Investment Banking Operations Certificates (website: IOC) and many more in USA and UK. Many courses are provided online and classroom mode.
- Self-study through books written by well-known authors, reputed websites such as wikipedia (check the reference sections), Investopedia - Educating the world about finance and more sources.
Please do not attend certification courses that are provided by private institues having no affiliation as they have no value later stage in your career i.e. mid-level and above.
This blog provides guidance on what business analyst need to know to build a successful career in investment baking domain. This blog provides high-level information about investment banking domain for a business analyst who is new to the domain.
Although Investment Banking domain is vast, but his article helps you in selecting and understanding the major area(sub-domain) you wish to focus on in future.
Please note that this blog throws only high-lights over the domain information for your understanding and further reading highly recommended to understand and master the topic.
History:
The investment banking has not started with some act 1933 or with one of the old banks...The New York Stock Exchange originated in May 1792 under a buttonwood tree at 68, wall street.
Investment Banks have changed drastically since last century that offered services mainly focused on raising capital and straggles in merger and acquisitions. Currently they wide range of products and services to issuing and investing clients. This including strategic advice, buying and selling investments products, raising capital, offering public and private investment market place, Trading securities, advising corporates on merger and acquisition, launching IPO and much more...to broad client base, from high net worth individuals to big business houses.
Let us understand the financial products and services...
Products:
Financing(Capital Raising):
- Capital Financing(Individuals/Financial Institutions),
- Capital (Corporates)
- Bond underwriting (Governments)
- Principal Advisor (Proprietary)
- Market Maker Broker (Individual/Financial Institutions)
- Risk Management (Corporates)
- Government Dealer (Governments)
- Proprietary Trading (Proprietary)
- Sales and Research (Individual/ Financial Institutions)
- Merger and Acquisition: (Corporates)
- Privatisation Investment Partnership (proprietary)
Relationship Management and strategy:
There are various roles such as Super Banker, Coordinator of Product Specialists, Tandem RM (a generalist and an M & A banker), Functional RM (product specialists work as RMs for middle market clients) and so on...depending on the internal structure of the bank the role and responsibilities could change.
Trust generated through long term, transparent, fruitful association is only factor to strengthen the relationship.
Trading and Capital Market Activity:
Three different trading models:
- Over-The-Counter (OTC) market against organised exchanges
- Quote Driven market against order-driven markets
- Floor-based exchanges against electronic markets
Products:
Over-the-counter
- Equity-based products and activities include cash equities, equity options, warrants and swaps
- Interest-rate products include fixed-income securities, government agencies, money markets and repos, swaps, futures, forwards-rate agreement (FRAs), options, caps and floors.
- Currency related activities: customer-driven and discretionary foreign-exchange trading, cross-currency transactions, currency derivatives (currency options, forwards, futures and swaps)
- Credit-based products include investment-grade, junk bonds and credit derivatives
- Mortgages include liquid products, asset-backed products, and structured products.
- Commodity-based products and activities include commodity futures, options and forwards typified by underlying assets such as power assets, metals, oil products and so on...
Quote Driven Market: is based on quotation determined by market makers or dealers and investment bank plays vital role in quote driven system.
Order Driven Trades: are auction markets in which prices of the trade is determined by the publication of ordered shares. The stock exchanges such as NYSE, Bombay Stock Exchange or London Stock Exchange provide the platform for buyer and seller and the facility of electronic transmission of the trade and its execution.
Floor based Exchanges: The exchange house highly regulated market that lists registered instruments like stocks, bonds and derivatives and allows face-to-face broker meetings for conducting trading business.
Strategies in Trading: The trading strategies largely based on following few factors:
- New players: New exchange houses or expansion of existing exchange houses:
- Supplier choice: Supplier has a choice to list their shares on any exchange place - one or more
- Buyer choice: Buyer has a choice to buy from various market place, not restricted to one. They has option to trade cross-border.
- Multiple options: Some of the investment banks are providing exclusive alternate services to trade and report transactions.
- Increased competitiveness: Empowering the exchanges to create competitiveness.
Does research data needed on trading the equity that is publicly traded? why it is needed when all the information stated in public is correct(?) catch 22. In any way, the financial analyst are expected to provide information about investment and potential appreciation of the same using various financial models including complex system that helps the analyst to calculate the information using market data and provide the potential value that may not be absolute. Some time the calculation method or formula could be wrong that could have serious impact on forecasting the portfolio value.
The analyst and investor may use various data such as S & P calculation and credit rating to present P/E (Price/Earning) data is used to calculate P/E(Price/Estimated) value.
In addition, there are other methods to estimate the prices such as Discounted-Cash-flow or automated system using Monte-Carlo prediction tool...
Equity Offering:
Following are the various equity offering mechanisms.
- IPO
- Auction Mechanism
- Fixed Priced Offering
- Book building Details
- The Pre-filling Period
- Cooling Period
Managing IPO is one big and challenging project for the investment banks...The IPO of Google or Alibaba were complex and highly challenging.
Fixed Income Business:The government and large corporates issues bond to raise funds. These bond are traded on global financial stocks. They are one of the key part of asset class in investment portfolio.
Bank typically help the government or large corporations to formulate the strategy of issuing, pricing, and distributing the securities. The bank also provide services to the buyer to arrange finance to buy these securities.
Types of Bond
Bond
The Domestic Bond Market
The foreign Bond Market
The Euro Bond Market
The Euro Dominated Bond Markets
Public and Private Issuers
Government Bonds(Treasury bill or Treasury notes)
Corporate Bonds
Issuing of Bonds:
Following are the different way bonds can be issued.
New products:
- Zero Coupon convertibles
- Perpetual Debt
- Subordinated Debt
- Mezzanine Finance
- High-yield Bonds
- Structured-Financed Products
- Collaterlized debt obligations
- Credit Derivatives
- Project Finance
Zero Coupon convertibles: The are convertible at the holder's option and do not pay a coupon. They are highly discounted and are known as zero coupon instruments. They are convertible bond, liquid yield option notes or LYONs.
Perpetual Debt: The perpetual debt issued by financial institutions has no maturity date, but pay regular interest. The issuer can buy them back.
Subordinated Debt: These are unsecured debt or preferences shares offering interest rates 2 to 5 percentage points.The junior bond are low on the priority of payment. interest is paid in the form of cash flow after the interest on senior bonds are paid, if money is left. They are used to finance pools of assets in a securitisation.
Mezzanine Finance:
High-yield Bonds
Structured-Financed Products
Collaterlized debt obligations
Credit Derivatives
Project Finance
Strategies in Fixed Income
The next blog will have more details on following topics:
Merger and Acquisition Business
Strategies of M & A
Hedge Fund and lather native Investments
You can any of the following path to again the domain knowledge.
- Part time MBA in Finance or CFA (when I was working in Investment Bank in Manhattan, many of my colleagues were doing it). I would prefer CFA over MBA as it is intense and highly focused.
- Short term courses in Investment Banking Operations provided by universities or reputed institutes. for example - Executive Diploma/Certificate in Investment Banking - HKU or Investment Banking Operations Certificates (website: IOC) and many more in USA and UK. Many courses are provided online and classroom mode.
- Self-study through books written by well-known authors, reputed websites such as wikipedia (check the reference sections), Investopedia - Educating the world about finance and more sources.
Please do not attend certification courses that are provided by private institues having no affiliation as they have no value later stage in your career i.e. mid-level and above.
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