Ever Wonder What The Hell Investment Bankers Actually Do?

by Paul Hudson

Most of you know or, in the very least, had a conversation with an investment banker. They are easy to pick out from amongst a crowded bar- they will be the ones wearing an Armani suit, a Rolex watch, a Hermes tie and shoes that cost more than your car.

When you ask them what it is that they do for a living, they will answer with a slight smirk, “I’m an investment Banker.” And that’s about as far as the conversation will go. Investment banking, to many, seems like a mysterious career that they hear is very difficult to get your foot into, probably even more difficult to keep your foot in, but allowing for compensation that makes playing footsie well worth the trouble.

As with all mysteries, it is better to break them. Here is an explanation of what an investment banker really does from an ex-investment banker.

NPR has caught up with an investment banker and asked him the simple question of what he actually does. Below is his answer:

I can't put it better than the senior banker who once asked me why I had chosen to "become a traveling money salesman." I've dined out on that phrase ever since, and probably owe him royalties, though I'm not going to sweat it since he's quite rich. Investment bankers are traveling salesmen (and women), which explains why many of them are so ornery so much of the time. It also explains why, while in popular perception investment bankers are arrogant jerks wearing Hermès ties, actual individual bankers tend to be perceived by their clients as obsequious and needy. Because they're selling something. Specifically, they're selling money to companies. Say a company wants to get money to build a factory or hire more workers or whatever. It can get that money by issuing stock or bonds. "Issuing bonds" just means "borrowing money from strangers." "Issuing stock" is more existentially complicated, but "giving people partial ownership of your company in exchange for cash" is good enough. Issuing stocks or bonds requires finding someone to buy them, and most companies aren't good at selling stocks and bonds, so they hire investment bankers as middlemen to help them find people looking to invest money. (Incidentally, "investment bankers," as the term is used in the industry, work at investment banks that employ trading and sales staffs, who make trades and sell stocks and bonds to investors. These people are not normally called "investment bankers." In fact, the large majority of people at investment banks are not "investment bankers." Confusing, I know.) When a company decides to issue stock or bonds, investment bankers perform "due diligence" to make sure the company's accountants will say that the company's financial statements say what they say they say. Then they write up a prospectus explaining the risks and benefits of buying the stock or the bond. Finally, investment bankers hand the prospectus to the sales and trading staffs at their bank, who go out and convince mutual funds, hedge funds, rich people, and moderately less rich people to buy the stocks and bonds, while the investment bankers stand around saying helpful things like "good luck!" and "try to sell more stock!" and "hurry!"

So there you have it. That is what investment bankers actually do beyond their glorious title.

Paul Hudson | Elite.