By Siddharth Arora, Carnegie Mellon University
As a college student interested in finance in general as a freshman or sophomore, I was haunted by the question and hated when somebody asked me that. Not only did I not know about what exactly working at each of these divisions meant, but most people who I spoke to in either industry had an extremely biased opinion and confused me even more. It’s been about two years since then, and after a lot of thought and a couple internships, I decided to pursue investment banking (IBD as I’ve explained below).
INVESTMENT BANKING DIVISION (IBD)
Investment bankers (fancy name for anyone working in IBD) are basically like financial consultants to companies (mostly Fortune 500) and advise them on mergers and acquisitions (M&A), capital raising via both debt and equity to fund growth etc. As an investment banker, you will underwrite equity and debt (bond) offerings, help firms devise and implement financial strategies, analyze their financial needs (such as how to structure balance sheets and when and how to proceed with funding initiatives), and work with the sales and trading departments to determine valuations for new offerings.
PROS: Extremely steep learning curve, you gain expertise in the industry group (like energy, healthcare, real estate etc) or product group (M&A, Capital Market, Leveraged Finance) you work in. You get to understand how different companies are run, what CEOs are thinking and can rip apart financial statements like no other and get great modeling experience. The exit options are extensive– you can go into Private Equity, work for a hedge fund, or corporation in a strategic or financial role, or even be an entrepreneur.
CONS: You spend a tonnage of hours hunched behind computers (read excel), will probably work an average of 80-90 hours a week and have to compromise a lot on your social life. Working on weekends isn’t uncommon.
SALES & TRADING (S&T)
Securities sales and trading are high-profile, high-pressure roles in the industry. Traders keep one eye on their Bloomberg screen, a phone over each ear, and a buyer or seller on hold every minute the market's in session. If you're on the sales side, you'll need exceptional customer service skills; as a trader, you'll need to be able to handle huge risk—and stomach huge losses. Traders make money by trading securities and are the ones who transact trades for the brokers and their clients. Traders are primarily responsible for taking a position in a security issue and buying or selling large amounts of stocks or bonds using an employer's (or their own) capital.
PROS: Great working hours (average work week: roughly 60-70hrs), less hierarchical structure, upside for bonuses is limitless if you’re really good, Fast paced, ability to advance in the firm without the need of an MBA/graduate degree, good lifestyle, you work independently, usually with little supervision and very little interaction with management—provided you succeed.
CONS: High-risk and High-pressure career, getting used to cold-calling, limited exit opportunities, practically no downtime, no long coffee breaks (unlike banking), and no time to run errands.
CONCLUSION
Remember that if you like fast-paced, deal-oriented work, are at ease with numbers and analysis, have a tolerance for risk, and don't mind putting your personal life on hold for the sake of your job, investment banking (both IBD and S&T) may be a great career choice. But if this doesn't sound like you, a job in investment banking could turn out to be a bad dream come true. Research as much as you can to make a smarter decision.
