What are all the departments in an Investment Bank and why are they important?
Who cares about infrastructure / corporate / back office teams in an investment bank?
‘We are a technology company’ the ex-CEO of Goldman Sachs once said at a town hall.
In the old Lehman Brothers building (25 Bank Street), now JP Morgan’s building, there were 33 floors of which only two were trading floors for Investment Banking and Capital Markets. Out of the 5,000 employees in the building, the majority were non-revenue generating or support staff. These departments were Treasury, Risk, Operations, Finance, Technology, HR, Compliance, Legal and Real Estate. Investment Banking is a high cost business, the cost to revenue ratios are amongst the highest for an industry which has been running for over a century.
The so called ‘back office’ departments, which are costs to the business, also follow the same promotion hierarchy as the front office i.e. Analyst, Associate, Vice President, Director, Managing Director and Partner/Senior Managing Director. Although the pay scales are somewhat polarising, back office staff can be remunerated very well. There are full and life long careers available in the back office for accountants, lawyers, programmers and non-graduates.
How does it all come together?
Investment Banks are notoriously private and their businesses are managed using proprietary technologies, business processes & data flows. Even with technical advancements and FinTech solutions that are available, there are still bespoke processes or data flows to support business goals and objectives.
The back office departments are central to supporting the business, here are some examples where the business is supported by the back office teams:
- Real Estate manage the physical locations of offices and have been instrumental in ensuring the offices are covid-19 compliant
- Human Resources will support the hiring process for hiring managers, create and manage induction of new employees and deal with any issues with current employees as well as manage the employee handbook and policies for remote working and maternity / paterinity leave
- Client on-boarding teams will be responsible for managing the overall on-boarding process as well as co-ordinating with other teams with regards to account opening, internal configuration checks & legal agreements. Typically this includes a set of regulatory KYC (Know Your Client) requirements to ensure the bank is not dealing with any sanctioned individuals or companies
- Legal teams typically maintain a set of proprietary legal positions for contracts required to trade with clients (e.g. ISDA, GMRA etc.). The Legal teams will also handle any Legal issues for the firm and work heavily with external counsel
- Operations generally handle all aspects of trade management, including transaction validation, settlement management, reconciliations, regulatory reporting and network management
- Finance support the front office by validating their methods for pricing & valuation, however also act as accountants for the firm’s financials maintaining the bank’s official Profit & Loss (P&L) and balance sheet. Treasury departments sometimes sit in Finance too to ensure trading desks are adequately funded
- Technology, usually one of the largest divisions in most large IBs, perform a wide range of tasks & services. Including management of Data Centres, IT equipment / infrastructure, development of trading / position / financial / operational software, quality assurance, testing and software performance. With a new digital age upon us, some technologists are even moving into the front office to help the financial evolution into Blockchain and other Financial Technologies (FinTech)