Jared Chung
CareerVillage.org TeamWhat does an Investment Bank do other than "investment banking"?
Investment banks do a lot more than just "investment banking". Could you please describe what investment banking really means, and what other things investment banks do? #finance #investment-banking
3 answers
Deepti Sanghvi
Deepti’s Answer
1. Capital Markets
Underwriting: Investment banks underwrite securities by buying them from issuers and selling them to the public or institutional investors, facilitating capital raising for governments, corporations, and other entities.
Debt and Equity Offerings: They help companies issue new stocks and bonds, including initial public offerings (IPOs) and secondary offerings.
2. Sales and Trading
Market Making: Investment banks provide liquidity to financial markets by buying and selling securities on their own account, acting as market makers.
Sales: They sell securities to institutional and retail investors, often providing research and investment advice.
Trading: They engage in trading of securities, derivatives, commodities, and other financial instruments, both for clients and for their own accounts.
3. Mergers and Acquisitions (M&A)
Advisory Services: Beyond executing transactions, investment banks offer strategic advice on mergers, acquisitions, and other types of financial transactions.
Valuations and Negotiations: They help in valuing assets, crafting deal terms, and negotiating deals.
4. Asset Management
Managing Assets: Investment banks often manage assets for a variety of clients, including institutions, high-net-worth individuals, and retail investors.
Fund Management: They may operate or provide services to mutual funds, hedge funds, pension funds, and other investment vehicles.
5. Retail and Commercial Banking
Consumer Banking Services: Some investment banks have retail banking divisions that offer personal banking products like checking accounts, savings accounts, and loans.
Commercial Banking: They provide services to businesses, including business loans and treasury services.
6. Research
Market and Equity Research: Investment banks employ analysts to produce research reports on markets, industries, and companies. This research supports investment decisions for internal traders and external clients.
Economic Research: They also conduct macroeconomic research to analyze global economic trends and advise on investment strategies.
7. Risk Management
Assessing and Mitigating Risks: Investment banks actively manage financial risks by analyzing market conditions, portfolio exposures, and the economic landscape.
Consulting Services: They offer risk management consulting to clients, helping them understand and mitigate financial risks associated with their businesses and investment strategies.
8. Advisory Services for Government and Institutions
Financial Advisory: They provide advice to governments and large institutions on large-scale financial projects, including infrastructure projects, public-private partnerships, and financing strategies.
Regulatory Compliance: Investment banks also help clients navigate complex regulatory environments across different markets.
9. Technology and Innovation
Fintech Solutions: Many investment banks invest in or partner with fintech companies to develop new financial technologies, enhancing transaction efficiency and client services.
Blockchain and Cryptocurrency: Some are involved in developing and using blockchain technology for various applications in financial services.
10. Private Equity
Investing in Companies: Investment banks may have divisions that deal with private equity investments, involving buying stakes in private companies and managing those investments towards profitable exits.
Investment banks are thus integrated financial service providers that support and facilitate a wide range of financial activities in the global economy. Their roles are crucial in ensuring efficient capital markets, advising major corporate strategies, and managing investment portfolios across a spectrum of assets.
Justin Pollack
Justin’s Answer
Let me add to Isabelle's comment. At a more basic level, much of the work inside the Investment Banking Department involves understanding a client company's operations and then making suggestions regarding the financial elements of its business. For example, if you were advising McDonald's, you would be expected to understand and develop a spreadsheet that demonstrates how the company generates sales and what types of costs are involved in operating the business. You would also need to understand who are McDonald's customers and who supplies the company with food and supplies. In essence, you would study the entire business.
From there, you would help McDonald's address its concerns. Perhaps they want to understand how to raise money to pay for hundreds of new stores in Asia. For that, you might suggest issuing new stock or bonds. If they agree, your team would help find investors who want to buy those stocks or bonds. Or maybe they want to get into the growing sandwich market. You might discuss what would happen if McDonald's bought the entire Panera Bread Company or Jimmy John's.
All of these elements involve finance, but the great part of investment banking is you start by understanding what a company does in the first place.
Isabelle El Khoury
Isabelle’s Answer
Jared,
It depends on the size of the bank you are thinking of. Let's say for example you are looking at the top banks in the USA (e.g. Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America Merrill Lynch), IB would be divided into different sub-divisions.
1. Mergers and acquisitions: as it suggests, you would advise clients on a variety of deals: mergers, acquisitions, sale, restructuring (sometimes) or on potential strategic deals (e.g. client has a lot of cash and doesn't know what to do with it - you would suggest companies or paths to follow)
2. Capital Markets: helps clients issue debt or equity or derivatives in the market
3. Sales and Trading (may be lumped into IB): sale and trading of stocks, fixed income, currencies, commodities on behalf of clients.
Banks tend to have multiple other divisions that include research, asset management (for funds), private wealth management (for individuals).
Hope this helps