ADD ADVICE TO FAVCorporate finance
Investment banking, corporate finance, merchant banking – the names may change, but, whatever you call it, this is the glamorous centre of the investment banking world and it accounts for about 60% of all graduate hiring.
Corporate finance is also the most demanding area of investment banking; you work around the needs of the client, not the opening and closing of the markets. Consequently, the rewards are high.
What’s involved in corporate finance?
Corporate financiers help their clients grow by assisting them to raise money or helping them acquire or divest themselves of other businesses. As it is difficult to grow out of profits alone, companies that wish to expand need to raise money, and they can do this in one of two ways.
First, they can issue shares (equity capital). Purchasers of the shares receive money from dividends and will benefit if the shares go up in price. Alternatively, companies can issue bonds (debt capital). Bonds are promises to pay both a fixed amount of interest for the life of the bond and to pay back the initial investment at the end. For this reason they are known as fixed income.
Discovering the correct price for a bond or share issue is where a lot of an investment bank’s expertise lies. It is both complex and crucial, because investment banks are making money on the fees they charge, and because they underwrite the issues. If investors are not interested, the bank will lose money. In fact, the whole area of issuing stocks and bonds is sometimes known as underwriting.
Job descriptions
Skills for corporate finance
The core skill required of analysts (the bottom rung of the investment banking career ladder) is a knowledge of accounting. ’Everything that an analyst does is based on the fundamentals of accounting,’ says Anand David, Global Head of Recruiting, with Swiss investment bank UBS.
’There are three areas they focus on. First, there is financial statement analysis. The advice we give to clients, mostly corporations but sometimes governments, is based on an analysis of their financial statement: the amount of cash they have, the sort of management structure they have, etc.
’The second thing we do is value the company. What’s the value of that company in the market relative to its peers within its own industry or sector, and what does that mean with regard to that sector? Do they need to raise more cash or are they in a position to buy back stock? Are they ripe for acquisition or are they ready for acquiring?
’The third part is modelling. Having done the analysis and the evaluation you then build models, which should ideally tell you what to do with regard to pricing.’
What you can earn
Within corporate finance, an analyst can expect to earn £35,000 to £50,000 and an associate £50,000 to £75,000. A vice president (a relatively lowly position in an investment bank) will be on £75,000 to £120,000, excluding bonuses.
