Glossary of Investment Banking

Tuesday, April 10, 2007

Glossary of Investment Banking


The analyst is the lowest form of life in the banking organization. In a desperate attempt to stop being the lowest for of investment banking existence (remember, interns do not officially exist), analysts are often classified into ranks. Analyst 1 is thus an analyst who has been in banking for one year, Analyst 2 for two and Analyst 3 for three. There are no Analysts 4 in a bull market. By the time an analyst gets to be an analyst for the fourth year in a row, a number of life changing transformations happen. The first one is the metamorphosis into Associate. The second is jumping ship and going to work for one of the sorry companies the analyst has been working for. The third is moving to a private equity house or a hedge fund. The fourth, which is preceded by being called a dumbass, is getting fired. Note that option four only happens in a bear market. In a bull market, getting fired is replaced by proportion to associate.


The associate is the next lowest form of i-banking existence following the analyst. Most associates in London are promoted analysts, so they usually know the shortcuts and tricks analysts pull because that's exactly what they used to do. The good associate will not give a fuck, whereas the bad associate will. All associates are bad associates. Associates are always keen to get on the good side of important people (the “ass” in associate in not there by chance – it’s in fact part of the job description – kissing ass is what they do). See Posturing.

Bear Market

State of the market when the 18 year old sobers up and realizes that i-bankers have charged him a lot of money to make very poor investments. To set things straight, the 18 year old hires more i-bankers to sell off his "non-core" investments and restructure, creating more fees for i-bankers.


Bullshit per Minute. The industry norm measuring a banker's ability to awe clients. The more bullshit a banker utters in the course of a limited time period 9a minute) the more (s)he is able to amaze the client. This effect is achieved by ensuring the BPM is above the cutoff threshold, beyond which a client does not have the opportunity to think in between individual pieces of bullshit uttered, and thus does not have the ability to realize that what is being thrown at them by the banker is complete rubbish.


Big Swinging Dick. Also known as a master of the universe. Term broadly used to refer to a financier of some rank that is more feared than respected in the banking community. BSD status is not a proxy for competence. Quite often, BSD status and incompetence go hand in hand. See Posturing.

Bull Market

State of economy where investors are bullish and are willing to deploy capital into transactions that generate fees for i-bankers. Corporations behave like a drunk 18 year old on speed that had just gained full access to his trust fund. Fortunately for the bankers, the 18 year old cannot make decisions for himself and has more than enough cash to pay bankers to make (poor ones usually) for him.


Can be a variety of corporate entities spanning from public corporations, provide companies, governments, private equity funds, and even individuals. What all these entities / people have in common is that they are all foolish enough to hire an investment bank to do something that they can very easily do themselves. In most cases, with the quality of advices usually provided to clients in a bull market, clients are the suckers who would be better of not having hired anyone and not having obtained the poor and often wrong advice. The result of too many clients being created by too many entities / people hiring investment banks is a bear market when the shit hits the fan.


Officially stands for Human Resources. Also called Human Capital, but universally known as HR. These are the people that hire, fire and administrate the armies of bankers in the city. These are the people responsible for pressing the send button on the mailmerge responses university students get that read "After careful consideration, we have decided not take your application further". After careful consideration my arse. They really couldn't be bothered to read all the applications, so randomly picked the number of slots they needed, and the emailed the rest of the applicants. See Competence and Luck.


The lowest form of investment banking life in existence. Correction, the intern does not qualify as a form of life. The intern is the i-banking equivalent of plankton at the bottom of the ocean. It's tiny, insignificant, plentiful, but without it, the great investment banking machine would grind to a halt. For all official purposes, and not the least for headcount, the intern is the invisible resource that quite literally does not exist.

Leveraged Finance

Eevery self respecting i-bank has a leveraged finance team that caters to private equity buyers' need for debt (see definition of LBO). Here's how it works. Private equity guys want to buy a company using as little cash of their own (real money). They hire an i-bank to do the “advisory” on the project. They then tell the i-bank to push their leveraged finance team to lend crazy amounts of money (funny money or other people’s money) to them so they can actually make the acquisition work. They then sit on the company and weather out a downturn, waiting for another crazy private equity guy top come along and but the same company from them in the same way.


Stands for Leveraged Buyout. That's L for leveraged, B for buyout and erm, that's it? What does the O stand for? Overpaying. LBO's are a means for private equity houses to nuy very very expensive companies using other people's money. Here's how it works. You buy company A for 100. You only put 20 of your own money and borrow the difference of 80 from banks. You own the company for five years (the period required for a bear market to come and go) and sell the company for an even more inflated 150 to another private equity investor. Result, you pay 20, and walk away with 70 (150 that the other investor pays you minus the 80 you borrowed to buy the company in the first place) in 5 years! Also known as OPM or Other People's money. Also see Kruelberg Kretin Capital Partners.


A staffer is the illegitimate love child of an associate and an MD. Unlike with mammals, this creature is conceived by excessive proximity of the associate's head to an MD's ass (also known as brown nosing or ass kissing). There are numerous theories as to the physiological processes that create an associate. Much like the pre Columbus belief that the world is flat, the move from simple associate to staffer is officially a matter of achievement and merit. As the physiological explanation of what a staffer is demonstrates, it is the MD's love of getting their ass kissed by a particular associate that creates the staffer. The process is thus more ass kissing then merit related.


The textbook definition of valuation is determining the fair value of a company. As there is nothing fair in i-banking, this definition can of course not hold. Valuation is thus the art of making a selected valuation look fair. Here's how it works. The MD will come to the analyst and tell him to make the value equal £10 billion. The analyst will make this happen (no matter what). The MD will review the work (sole focus will be whether desired number has been generated). If yes, analysis will go to client. If no, analysts will be called in, re briefed and told to go back, do the work again, check for mistakes (which the MD knows are there) and come back when the value is £10 billion. Simple. See A Belated Introduction to Investment Banking.


Anonymous said...

Fantastic! How about definitions of some of the technical terms, like DCF, LBO, cashflow?

Investment Banking Monkey said...

Thanks for the suggestions. I've uploaded the definition of an LBO. More technical terms will follow. Pop in a comment on what you want to see and staffing permitting it may appear.

Anonymous said...

Love the definition of clinet. Which bank do you work for again (so I don't ever hire you guys :)

Anonymous said...