The concept of Investment banking changed dramatically during the pre global crises of 2007. The market forces operating at that time pushed the banks from their traditional low-risk role of advising and intermediating to a position of taking higher risk for their own account and on behalf of their clients. But post global crises i.e. since 2009,the nine surviving global firms that encompass investment banking and deposit-taking business and thus are operating all around the world are JPMorgan, Bank of America, Citigroup, Credit Suisse, UBS, Deutsche Bank, Barclays, Goldman Sachs and Morgan Stanley. Developing, Marketing and trading of a large range of securities and other financial tools such as equities in the form of stocks or shares, commodities, currencies and bonds all form a part of investment banking. Derivates such as futures, swaps and options can be used to trade all of these. Thus, client can manage the risk through these instruments. These instruments also help in providing investment opportunities to the client. Let us study the concept of investment banking in detail.
Explain the concept of Investment banking in detail?
Investment banking means helping the capital market in the movement of financial resources from investors to issuers. For Example: if an Organization wants to expand its business then what possible ways are there available, An Investment bank can help in that. Whether should be merged with big organization in the market or borrowing from bank, advised by an Investment Bank. Hence Investment Banks are kind of Financial Advisory Institutions. Now there has been a huge transformation in the investment banking system to suit the technological needs of the financial world. In simpler words, Investment banking refers to a bank that deals with the underwriting of new issues and advises corporations on their financial affairs. It also helps in aiding the sale of securities, facilitating mergers and other corporate re-organizations and acting as brokers to both the individual and institutional clients.
Investment banking doesn’t only consists of capital market activities but also includes research into macro economic trend. It also provides the detailed analysis of the performance and reasons that have an affect on various sectors of the industry. To elaborate further, research and advisory services that are being offered by the bank to its client for some transactions such as mergers and acquisitions are also included in investment banking.
What functions do the investment bankers perform?
Investment banks cater to the needs of group of stakeholders-companies, government, individuals and non-profit organizations thus helping them raising the funds on the capital market. They perform the following functions for its customers:
• They serve as trading mediator for clients.
• They lend and invest in assets of the bank.
• They advise their clients on the matter relating to mergers and acquisitions.
• They research and develop different opinions on securities, markets and economies.
• They issue, sell, buy and trade stocks and bonds.
• They also assist their clients in managing the investment portfolios.
What is the difference between Investment banking and Investment management?
In Investment banking, bankers raise money by selling securities to companies and government whereas investment management refers to portfolio management of stocks, bonds and other securities. Investing management focuses on business decisions such as marketing and distribution, global growth, and technology integration whereas Investment banking focuses on the matters relating to mergers and acquisitions, bonds and stock, and investment portfolios.
What are the principle businesses of Investment banks?
Principle businesses of Investment banks are:
• Investment Banking Business that arranges financing for corporations and government such as debt, convertibles and equity. It also advises on the mergers and acquisitions transactions.
• Trading Business that includes client trading and principal investment. Client trading involves selling and trading securities on behalf of investing clients’ operates on two business units – Fixed income, currency, commodities and Equity. Principal investing focuses on equity in investments, bonds, convertibles, and derivatives. At some firms, principal investing is included in Investment banking business.
• Asset management Business that offers equity, fixed income and money market investment products and services to individual clients and institutional clients. In case of alternative investment products, the firm co-invests in private equity and real estate funds.