If you want to work in banking, you have to talk like a banker. That means learning jargon, technical terms, and slang. You’ll pick up a lot of it on the job, especially the more technical terms, but you’ll do a lot better in an interview if you show some insight and initiatives. Here are some things you’ll definitely want to know:
Advisory: Part of the Investment Banking Division. Similar to M&A, but with slightly more emphasis on providing advice and less on providing finance. Often the main or only business line of specialized boutiques.
Analyst: The most junior rank in a bank. At this point, you’re basically on a graduate program – expect to break out to associate by your second or third year.
Associate: The second most junior rank in a bank. Associates are either promoted from the analyst program or recruited directly from a business school’s MBA program.
Back office: The staff who are responsible for settlement, administrative tasks, and maintaining IT systems. Some back office jobs, particularly in IT development, can be very well paid, but in general they do not earn as much as the front office.
Bank: As a general definition, a corporation that takes customer (individuals and other corporates) deposits and lends the money in its custody to other customers. In an investment banking context, it’s any institution which provides investment banking services – which includes, for instance, boutique banks, that do not take customer deposits (and are therefore not really banks at all).
Bloomberg: A company that specializes in market intelligence. Its best-known product is the Bloomberg Terminal, a computer program that allows access to information (such as pricing) on pretty much any financial instrument you could possibly imagine. Also known for its news service (Bloomberg News).
Bond: A loan to a government or company that has been split up to be traded on the market. Bonds are made up of small payments throughout its life (coupons) plus the final, full payment on the value (principal). To give an example: the US government borrows $100m for ten years. That loan is split into a million $100 bonds. Those bonds all pay a small coupon until the ten years are up, at which point the government pays back the $100 on each bond. These are the bread and butter of a Debt Capital Markets (DCM) team.
Boutique: A small, independent investment bank that offers a range of services usually limited to M&A advisory or restructuring.
Brokerage: A company which matches buyers and sellers of securities, making money either out of charging a percentage commission, or out of the spread.
Buy side: These are investment firms that acquire corporations or bonds as part of their regular business. Includes private equity firms, hedge funds, and asset managers, among others. Contrasted with the “sell-side”, which is only involved in investment banking business.
Capital Markets: The part of the Investment Banking Division which is responsible for helping corporate clients to raise money from the bond and equity (capital) markets. Capital markets bankers need to gather feedback from investors, decide on the price of securities and liaise with Sales & Trading to get the securities sold.
Cash market: As opposed to “derivatives market”, the market in which “underlying” securities are bought and sold rather than derivative claims on them. Not to be confused with “money market”.
Compliance: The middle office team responsible for ensuring that other parts of the bank comply with all relevant laws and regulations. Compliance officers are responsible for arranging training, monitoring activity, and providing advice to employees.
Corporate finance: The team in a corporation that deals with finance. This means day-to-day budgeting and accounting, as well as liaising with investment banks to both raise capital and assist/execute a merger or acquisition.
Coverage: A team in an investment bank specializing in a particular sector (such as technology or healthcare). These teams often work across both advisory and capital markets.
Credit: In FICC divisions, “credit” refers to fixed income products other than government bonds and money market instruments, where the credit risk of the issuer is a major driver of the value of the security.
DCM: Debt Capital Markets.
Derivatives: Contracts between two parties which agree to exchange amounts of money based on something else. Most often, the “something else” (known as “the underlying”) is a securities price, so you have “equity derivatives” based on share prices and “rates derivatives” based on interest rates. This isn’t necessarily the case, though; there are “weather derivatives” which pay out based on average temperature or rainfall, and “credit derivatives” which pay out when a company defaults.
Director: The rank between Vice President and Managing Director. Directors will generally have significant management responsibility or be expected to look after clients of their own.
Distribution: The final stage of a capital markets transaction, coming after underwriting. This is the stage in which the securities are sold to investors.
ECM: Equity Capital Markets.
Equities: Shares; securities which represent part-ownership in a company. In an investment bank, the word on its own refers to part of the Sales & Trading division, which will generally trade equity derivatives as well as cash equities, and may include the Research and Prime Brokerage operations as well.
Execution: The activity of actually making a transaction happen once it has been agreed with the client. In Sales & Trading, this means finding a buyer to match the seller (or vice versa) at the best price possible. In IBD, it means carrying out the legal and administrative work to make the deal happen, and potentially conducting meetings to ensure that it has support from investors.
FICC: Fixed Income, Currencies and Commodities. One of the two main parts of a Sales & Trading division, and responsible for trading all instruments which aren’t equities or equity derivatives.
FIG: Financial Institutions Group, usually one of the largest teams within Investment Banking. FIG teams concentrate on providing capital markets and advisory services to other banks and insurance companies.
Front office: Refers to banking staff who either make decisions on applying the firm’s capital or have direct contact with clients. Front office jobs are usually (but not always) best paid, and often require regulatory authorization.
Hedge Fund: An investment fund marketed only to other institutional investors and very rich individuals. Hedge funds typically charge higher fees than retail mutual funds and have fewer restrictions on their investment strategies.
Institutional investor: A pension fund, mutual fund, hedge fund or sovereign wealth fund, investing in securities. The normal client of a Sales & Trading desk.
Investment Banking Division: Also known as IBD, this is one of the two main divisions in an investment bank. As opposed to Sales & Trading, IBD is concerned with providing financial solutions to issuers of securities rather than to investors. It is often further divided into Capital Markets and M&A Advisory. Note that “investment banking” is also often used as a generic term including Sales & Trading, so it’s important to understand which sense someone is using it in.
IPO: An Initial Public Offering. The sale for the first time of a company’s shares to the general public on a stock exchange. IPOs are run by the Equity Capital Markets team in an investment bank, and they can be extremely profitable transactions.
M&A: Mergers and Acquisitions. Bankers working in Investment Banking Division who provide advice to companies on taking over and buying other companies, either on an agreed or a hostile basis. This includes strategic advice on the actual deal, advice on the valuation of targets and arranging financing.
MD: Managing Director, almost always the most senior regular rank in an investment bank. MDs are generally expected to be able to originate deals and generate revenue for their bank.
Middle office: Generally refers to better[1]paid and more senior back office roles. Compliance and Risk Management staff would be considered middle office, as would senior prime brokerage staff who had contact with clients as well as managing admin tasks.
Money market: The market for short term fixed income securities, used by banks and industrial companies to smooth out differences in the timing of their incoming and outgoing payments.
Origination: In investment banking generally and particularly in capital markets, the process of persuading a client to carry out a transaction with your bank.
Primary/Secondary: The first time securities are sold to the public, this is the “primary” market. Trading in them afterwards is “secondary”. The distinction roughly matches that between Capital Markets and Sales & Trading internally within banks. If a company sells shares without raising new capital (for example, because the founder wants to reduce their stake) this is also called a “secondary” issue.
Prime brokerage: Not to be confused with “Brokerage”. Prime brokerage teams provide services to hedge funds, such as looking after their settlement and back office functions and providing financing to them.
Private equity: Investment funds which buy whole companies or large ownership stakes in specifically negotiated deals rather than shares quoted on a stock exchange. The term includes “venture capital (VC)”, which is focused on new companies and startups) and “financial sponsors” or “leveraged buyout (LBO) firms”, which is focused on taking over existing companies to be sold later on for a profit.
Quant: Short for “quantitative”, this refers to a specialist in applied mathematics working on securities practices. There are “front office quants”, who aim to design profitable trading systems, “middle office quants” who design systems for efficient execution of trades and “risk management quants” who measure probabilities of loss.
Rates: In FICC divisions, “rates” is the opposite of “credit” – it refers to bonds and derivatives where the value is driven by expectations about interest rates and credit risk can largely be ignored.
Research: The teams in Sales & Trading responsible for valuing securities and issuing recommendations to investors as to whether to buy or sell them. As well as company experts, research divisions will usually employ economic forecasters and “strategists” who attempt to forecast bond and equity markets as a whole.
Risk Management: The division responsible for measuring the bank’s exposure to risks based on the securities it holds and the loans it has extended and setting limits on them.
Sales and Trading: One side of the most important divide in an investment bank. S&T divisions, sometimes called “Global Markets”, deal with brokerage activities. Research divisions are generally within Sales & Trading, as is prime brokerage. Sales & Trading is generally further divided into Equities and FICC. Securities: Tradeable claims on future payments. Shares (equities), bonds (fixed income) or derivatives.
Securitization: The process of buying a large number of smaller loans (mortgages or credit card debts, for example) and bundling them into a Special Purpose Vehicle which then issues bonds to the public, effectively transforming the loans into securities.
Sell side: People who work at investment banks, speaking to clients on the buy side. Settlement: The activity of making sure that records are updated, and payments are sent to the right place after a securities transaction has been carried out.
SPAC: A Special Purpose Acquisition Company. Carries out an IPO despite having no actual business, to raise cash in order to acquire an existing company. A technique often used by financial sponsors as a way to get a stock market listing, SPAC teams cross the boundary between Capital Markets and M&A.
SPV: A Special Purpose Vehicle. A “brass plate” company formed by a bank in order to be the legal owner of some assets. An SPV generally has no staff or operations of its own. SPVs are a key building block in Structuring and in Securitization.
Spread: The difference between the price quoted by a brokerage to buy securities (the bid) and the price quoted to sell the same securities (the ask). Buying at the bid and selling at the ask is how brokerages make money. The word “spread” can also refer to the difference between two interest rates.
Structuring: Designing complex securities (usually involving derivatives) to achieve particular goals for either the investor or the issuer – these can include specific tax treatment, particular mixtures of risk and reward, or the bundling up of small loans into a larger security which can be publicly traded. This activity crosses the divide between Investment Banking and Sales & Trading and might be found on either side depending on how a bank is organized.
Syndicate: A specialist team within Capital Markets which handles communication and relationships with other banks in transactions which involve a large number of investment banks – usually to fund a large bond issuance or stock offering.
Underwriting: The practice of buying securities from the issuer, then distributing them to the public. During an underwriting, the bank is at risk because it is holding the securities and so is exposed to movements in their value; it takes a fee to compensate for this. Underwriting is one of the activities managed by Capital Markets teams.
VP: Vice President, the rank above Associate and below Director. VPs usually have five to seven years’ experience and are the most junior of the management roles.
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