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Technology Information:
Investment Banking Basics Everyone Should Know
By: Andre Savoie
An investment bank is an institution that helps companies and government raise capital in the financial markets. They underwrite and act as agents in the issuance of securities. They also help companies involved in mergers and acquisitions and in divestitures. They provide services in market-making and in trading financial instruments like derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. One important difference is that they do not take deposits.
An adviser must be a licensed broker-dealer to provide investment banking services. The adviser is subject to Securities and Exchange Commission regulation, and the institution may work on both the "sell side" and "buy side" of investment instruments.
The most traditional role for investment banks is, believe it or not, known as investment banking. This is the side of the organization that is primarily involved in helping companies raise funds and giving advice on mergers and acquisitions.
The less traditional role is selling and trading of investment vehicles. Traders buy and sell financial instruments to make money on those sales. The sales force of investment banks will call on institutions and high net worth individuals to recommend trading ideas. The buy-sell wishes of a client is communicated to the trading desks where trades are made or where new products to meet a client's need may be created. Trades can also be more speculative and not specific to a client or client wishes.
Research is an important function of investment banks where companies are analyzed and buy-sell recommendations about those companies' financial instruments are made.
Other functions they may be involved in:
- Global transactions
- Investment management
- Merchant banking
- Commercial banking.
Global investment banking is now a very large business with recent gains as high as 22% a year. The United States remains the primary source of investment banking income, although the sub-prime crisis resulted in large losses for some banks.
Today, investment banks are largely vertically integrated, and the financial crisis of 2008 also pushed investment banks into converting to bank holding companies to make them eligible for emergency government assistance.
As the financial crisis continues to evolved, so may the form and substance of investment banking worldwide, making what an investment bank might look like in five or ten years unpredictable.
About the Author
Internet Consultant at WSI (We Simplify the Internet) who help companies take advantage of opportunities to grow their business online. This may include search engine optimization, paid search advertising or newer tools such as social media optimization. My focus is on helping companies find the strategy that best fits their needs and budget and then establishing goals for each marketing campaign.
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