How Investment Banking Works in Canada
Commercial banks are where the average Canadian goes when they want to cash cheques, apply for loans or speak to financial advisors. But what happens when a big business needs a loan or the help of an advisor? That’s where investment banks come in.
Investment banking provides financial services for large, institutional clients with complex banking needs.
Gaining insight into the world of investment banking can help you better understand global financial news or decide if you want to pursue a career as an investment banker.
What is investment banking?
An investment bank specializes in banking services for corporations and governments. These services typically include helping companies issue their stock on public exchanges and facilitating company mergers and acquisitions.
In Canada, investment banking services are offered by BMO, CIBC, Desjardins, National Bank, RBC, Scotiabank, and TD Bank, among others. There are also boutique banks that specialize in investment banking services, like Blair Franklin Capital Partners, Capital Canada Limited, and Evans & Evans, to name a few.
What do investment banks do?
Investment banks specialize in complex financial services. They may also offer everyday banking services like bank accounts and credit cards if they’re equipped with commercial and investment banking divisions. Many Canadian investment banks fall into this category.
Investment banking services vary, but some of the most common offerings include:
Mergers and acquisitions. The process of purchasing or merging with another company is complicated. Investment banks are hired to help facilitate and advise.
Equity research. Investment bank equity research teams are responsible for analyzing stocks for institutional investors.
Debt management. When companies need to borrow money or restructure existing debt, investment banks can provide insight and support to help them better manage their liability.
Underwriting. When a company wants to sell its stock on a publicly traded exchange, it needs to work with an investment bank. Investment banks assess the company that wants to go public, decide how much its stock is worth, ensure regulatory rules are followed and more.
The role of investment banks 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: selling shares raises capital for the company’s growth and new shareholders have the opportunity to earn a profit by selling the shares for more than they paid to acquire them.
How does an IPO work?
When a company decides to go public, it usually needs one or more investment banks, also known as underwriters, to guide the process.
The company and the investment bank agree upon the type of underwriting and the associated fees. There are two possible outcomes of the agreement:
A firm commitment: The underwriters may decide to buy all the company shares in exchange for an agreed-upon amount of money. The company goes public and the underwriters try to make profit from the share sales on the market or to the major investors.
A best efforts commitment: The underwriter aims to sell as many shares as possible without guaranteeing the amount it will raise.
Investment banks ensure the company’s IPO is legally compliant with the applicable provincial regulators, like the Ontario Securities Commission.
Once approved by regulators, the company and investment banks can start meeting potential market investors to discuss the offering.
After the investor pitches, the underwriters determine the IPO stock prices based on the company’s future projections, market situation, industry trends and forecasts.
Investment banks and syndicated investors close their deal and settle the fees.
The IPO is launched on the public stock exchange. The private company is now considered to be public and new investors are able to purchase shares on the public market.
Commercial bank vs. investment bank
The biggest difference between a commercial bank and an investment bank is the clientele.
Commercial banks serve the general public, providing bank accounts, credit cards, home loans — day-to-day banking products and services. Online-only banks, like Simplii Financial and Tangerine, and credit unions, like Desjardins and Meridian Credit Union, also provide everyday banking services.
In contrast, investment banks offer underwriting and advisory services specifically for companies, institutions and government entities.
The Big Six commercial banks that also offer investment banking services are:
BIG SIX COMMERCIAL BANKS | INVESTMENT BANKS (SUBSIDIARIES) |
|---|---|
BMO Capital Markets | |
Scotiabank Global Banking & Markets | |
CIBC Capital Markets | |
RBC Capital Markets | |
TD Securities | |
National Bank Financial Markets |
Global investment banks include Goldman Sachs, Morgan Stanley and JPMorgan, among others.
What is an investment banker?
Investment bankers are the financial advisors and analysts that provide investment banking services. The day-to-day responsibilities of an investment banker 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 called analysts or associates — may work with a diverse spectrum of teams or may specialize in specific industries or market sectors. Strong analytical and communication skills are favoured, and some positions may require long hours in a fast-paced environment.
Investment banking associates may move up into senior consultant roles or account management. Others may opt to specialize in one of the many services offered by investment banks, like underwriting or advising company mergers and acquisitions.
Investment banker salary in Canada
The average base salary for an investment banking analyst employed by the Big Five banks in Canada is $85,000, according to Wall Street Prep, a provider of investment banking training programs. Investment banking associates’ salaries are typically higher — in the $100,000 to $125,000 range. Average annual cash bonuses for an investment banking associate may range from $130,000 to $200,000.
How to become an investment banker?
Since you could pursue an investment banking job as an analyst or an associate, based on your experience, and the work may differ based on the investment bank or firm you decide to work with, the specific job requirements may vary.
A bachelor’s or master’s degree in business, finance, math, engineering, economics, science or technology is an initial requirement for many investment banker positions.
A Master of Business Association (MBA) may also be beneficial. Some universities offer specialized investment banking programs through their graduate business schools, like the University of Toronto’s Rotman School of Management.
Additional skills and credentials may be required. Once you fulfill the education requirements of the position, completing your certification as a Chartered Accountant or Chartered Financial Analyst may help.
Industry experience may not be a strict requirement but tends to be preferred and could help you get your foot in the door.
Financial courses for continued learning
In addition to obtaining a bachelor’s or master’s degree in a relevant field, completing one or more of the following financial courses may help give you an edge over competitors:
The Canadian Securities Course is offered by the Canadian Securities Institute. This virtual course requires approximately 135 to 200 hours of study and covers Canadian investment regulations, financial instruments, market analysis and more.
Cost: C$1,220 to C$1,620.
The Wealth Management Essentials is offered by the Canadian Securities Institute. This virtual course requires approximately 110 to 160 hours of study and covers investment management, retirement planning, tax minimization strategies, investment portfolio monitoring and more.
Cost: C$1,625 to C$1,725.
The Certified Investment Management Analysts Course is offered by the Investments & Wealth Institute. This US course is offered virtually and in a virtual/in-person hybrid setting. Recognized by the Investment Industry Regulatory Organization of Canada as an accredited professional development course, it focuses on portfolio theory and construction, risk management, global capital markets and more. Candidates may be looking at a time commitment of about 6 to 9 months.
Cost: US$5,995 for the course, plus a US$395 initial certification fee.
Frequently asked questions
How do investment banks in Canada work?
How do investment banks in Canada work?
Investment banks provide specialized financial services such as loans and advisory services to large businesses, corporations and governments. These banks may also raise money for their clients by issuing securities, such as bonds and shares. Investment banks earn profit by charging commissions and fees.
What do investment bankers do?
What do investment bankers do?
An investment banker is a financial advisor with investment expertise serving large businesses and corporations. Their role primarily includes helping clients raise capital, negotiating mergers and acquisitions, and evaluating business opportunities.
To be successful, an investment banker is expected to be informed about industry trends, proficient with analysis and projections, and socially adept for effective client interactions.
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