Investment Banking

Dictionary meaing of Investment Bank means that a bank which deals with the underwriting of new issues and advises corporations on their financial affairs. The short answer is that it describes a financial institution that underwrites corporations and government sectors that issue bonds, treasury bills, and stocks. The financial institution handles acquisitions, mergers, and corporate restructuring. Investment banks work mainly with corporations, and not with individual investors or small businesses

Two Different Types of Investment Banks

The first type issues bonds and stocks to corporations and government entities for a prespecified amount. The financial institution then invests the money from the clients and buys stocks and bonds. The client will receive payments from the profits made on these stocks and bonds. In addition to stocks and bonds, some clients prefer to invest in construction and property development. Another type of investment bank is known as the merchant bank. These financial institutions provide capital to businesses in loans rather than shares. Usually, this type of investment banking is only done between big-name corporations and banks. New businesses and financial institutions usually are not considered to be merchant banks or companies, because the investing is done based on the security of shares

How investment banking works?

This type of investing works when the client purchases assets from the bank. The bank then must invest clients money and use it toward business ventures. Clients expect that their purchased asset capital will grow and gain dividends. The main job of investment banks is to advise corporations about funds and raising money. Some do this by selling the companys equity and others do so by offering advice about debt issues.

Types of Investment Banking firms A bulge bracket firm is a term to describe banks that comprise 15,000 to 50,000 employees throughout the world. Smaller firms are known as boutique investment banks, and have between 500 and 3,000 employees. These days, boutique investment banks are starting to make their mark on the technology industry. Many of these smaller investment banks tend to narrow down their niche securities, and many of them have been merging their resources with the tech industry

Major Global Investment Banks Banco Santander, Bank of America, Barclays, JP Morgan Chase, Citigroup, Deutsche Bank, Goldman Sachs, Kotak Mahindra, Merrill Lynch, Scotia Capital, UBS, and Wells Fargo.

Functions of investment banker

The important functions of merchant bankers are: Management of Debt and Equity Offerings: This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The undergoing tasks include instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund and listing on stock exchanges. Placement and Distribution: The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual funds, insurance products, and commercial paper, to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors; private equity funds pension funds, financial institutions, etc. Corporate Advisory Services: Merchant bankers offer customized solutions to their clients financial problems. Financial structuring includes determining the right debt-equity ratio and the framing of appropriate capital structure theory. Project Advisory Services: Merchant bankers help their clients in various stages of the project undertaken by the clients. They assist them in conceptualizing the project idea in the initial stage. Once the idea is formed, they conduct feasibility studies to examine the viability of the proposed project. Loan Syndication: Merchant bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly, they analyze the pattern of the clients cash flows, based on which the terms of the borrowings can be defined. Then the merchant banker prepares a detailed loan memorandum, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate. The banks then negotiate the terms of lending on the basis of which the final allocation is done.

Providing Venture Capital Financing: Merchant bankers help companies in obtaining venture capital financing for financing their new and innovative strategies.