How Investment Banking Works in Canada

Commercial banks are where everyday Canadians go to cash cheques, apply for loans, or seek financial advice. But what about when big businesses need a loan or advisory services? That’s where investment banks come into play. Investment banking provides specialized financial services to large institutional clients with complex banking needs. Understanding the world of investment banking can help you better comprehend global financial news or even consider a career in this field.

What is investment banking?

Investment banks specialize in providing banking services to corporations and governments. These services typically include helping companies issue their stock on public exchanges and facilitating mergers and acquisitions. In Canada, major commercial banks like BMO, CIBC, Desjardins, National Bank, RBC, Scotiabank, and TD Canada Trust offer investment banking services. Additionally, there are boutique banks that focus solely on investment banking services such as Blair Franklin Capital Partners, Capital Canada Limited, and Evans & Evans.

What do investment banks do?

Investment banks excel in complex financial services. Some investment banks in Canada also offer everyday banking services like bank accounts and credit cards alongside their commercial and investment banking divisions. The range of investment banking services varies, but some common offerings include:

  • Mergers and acquisitions: Investment banks are hired to facilitate and provide advice during the complicated process of purchasing or merging with another company.
  • Equity research: Investment bank equity research teams analyze stocks for institutional investors.
  • Debt management: Investment banks provide insight and support to help companies better manage their borrowing needs or restructure existing debt.
  • Underwriting: When a company wants to sell its stock on a public exchange, it needs to work with an investment bank. Investment banks assess the company’s worth, ensure regulatory compliance, and oversee the stock’s offering process.
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Investment bank’s role in an initial public offering

An initial public offering (IPO) is the public launch of a company’s stock. An IPO benefits both the company and its new shareholders: it raises capital for the company’s growth and offers potential profitability to new shareholders. Investment banks, also known as underwriters, guide the company throughout the IPO process.

Here’s a simplified breakdown of how an IPO works:

  1. The company and the investment bank agree upon the underwriting terms and associated fees. This can involve the underwriters buying all the company shares or potentially selling as many shares as possible without a guaranteed amount the company raises.
  2. Investment banks ensure the company’s IPO complies with regulatory bodies such as the Ontario Securities Commission.
  3. Once approved by regulators, the company and investment banks pitch the offering to potential market investors.
  4. The underwriters determine the IPO stock prices based on various factors, including the company’s projections, market situation, industry trends, and forecasts.
  5. Investment banks and syndicated investors close the deal and settle the fees.
  6. The IPO is launched on the public stock exchange, allowing new investors to purchase shares.

Commercial bank vs. investment bank

The significant distinction between commercial banks and investment banks lies in their clientele. Commercial banks primarily serve the general public, providing everyday banking products and services such as bank accounts, credit cards, and home loans. Conversely, investment banks focus on offering underwriting and advisory services to companies, institutions, and government entities. In Canada, the “Big Six” commercial banks (BMO, CIBC, Desjardins, National Bank, RBC, Scotiabank, and TD Canada Trust) also provide investment banking services. Globally, there are renowned investment banks like Goldman Sachs, Morgan Stanley, and JPMorgan.

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What is an investment banker?

Investment bankers are the financial advisors and analysts who provide investment banking services. Their responsibilities can vary, but generally, investment bankers:

  • Advise on corporate mergers and acquisitions.
  • Develop client proposals, presentations, marketing materials, and financial models.
  • Conduct industry research and analysis.
  • Evaluate and develop business opportunities for corporate clients.
  • Draft prospectuses.
  • Conduct due diligence investigations.

Investment banking career path

Investment bankers, also referred to as analysts or associates, may work with different teams or specialize in specific industries or market sectors. Strong analytical and communication skills are highly valued in this field, and some positions may require long hours in a fast-paced environment. Investment banking associates can progress to senior consultant roles or account management. Others may choose to specialize in particular services offered by investment banks, such as underwriting or advising on mergers and acquisitions.

Investment banker salary in Canada

According to Wall Street Prep, the average base salary for an investment banking analyst employed by the Big Five banks in Canada is $85,000. Investment banking associates typically earn higher salaries ranging from $100,000 to $125,000. Additionally, investment banking associates may receive average annual cash bonuses ranging from $130,000 to $200,000.

How to become an investment banker?

The specific job requirements for an investment banking position may vary depending on the investment bank or firm. However, here are some general steps to consider:

  • Education: A bachelor’s or master’s degree in Business, Finance, Math, Engineering, Economics, Science, or Technology is typically required for most investment banking positions. Pursuing a Master of Business Administration (MBA) can also be beneficial. Some universities offer specialized Investment Banking programs through their graduate business schools.
  • Additional skills and credentials: Completing certification as a Chartered Accountant or Chartered Financial Analyst can enhance your qualifications.
  • Industry experience: While not always mandatory, having industry experience can significantly boost your chances of breaking into the investment banking field.
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Financial courses for continued learning

In addition to obtaining relevant degrees, completing financial courses can give you a competitive edge. Consider pursuing one or more of the following courses:

  • The Canadian Securities Course: Offered by the Canadian Securities Institute, this virtual course covers Canadian investment regulations, financial instruments, market analysis, and more. Cost: $1,220 to $1,620 CAD.
  • The Wealth Management Essentials: Also offered by the Canadian Securities Institute, this course covers investment management, retirement planning, tax minimization strategies, investment portfolio monitoring, and more. Cost: $1,625 to $1,725 CAD.
  • The Certified Investment Management Analysts Course: Recognized by the Investments & Wealth Institute, this course focuses on portfolio theory and construction, risk management, global capital markets, and more. Cost: $2,995 to $5,995 USD for the course, including application fee and initial certification fee.

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