What Is Investment Banking?
What is investment banking? This is the first thing you might be thinking. Well, answering to this question, Investment Banking is a division of banking that specialises in assisting individuals and businesses in raising capital and providing financial advice. They act as a bridge between companies and investors, as well as assisting new companies in going public. They either buy all available shares at a price determined by their experts and resell them to the general public, or they sell shares on behalf of the company and receive a commission on each share sold.
What do Investment Banks do?
Investment banking is one of the most complicated financial systems in the world. They serve a variety of purposes and corporate concerns. They offer a variety of financial services, including proprietary trading (where they trade securities for their own accounts), mergers and acquisitions advisory (where they assist companies in M&As), leveraged finance (where they lend money to companies to buy assets and settle acquisitions), restructuring (where they improve a company’s structure to make it more efficient and help it make the most profit), and new issues (where these banks help new firms go public).
What is an Investment Banker and What does he do?
Next question arises: what is an investment banker? Investment bankers are financial experts who assist firms, governments, and other organisations in planning and managing significant projects. They save their clients time and money by spotting project hazards before they proceed. Investment bankers should, in theory, be experts with their finger on the pulse of the present investing environment. Businesses and organisations turn to investment banks for guidance on how to effectively plan their growth, and investment bankers customise their recommendations to the current situation of the economy utilising their knowledge.
Divisions Of Investment Banks
The two common divisions within investment banks include:
- Industry coverage
- Corporate finance
Industry Coverage
Investment banks that perform industry coverage services frequently divide their staff into groups and assign each group a market or industry area to cover. The managing director leads the industry coverage staff, whose job it is to keep up with current news, trends, and competitors in their field. These groups generally form smaller teams to handle various tasks for individual clients. The major goal of these organisations is to find new clients and maintain existing ones within their market niche. They handle client proposals and ideas, as well as industry reports and transaction execution.
Corporate Finance
This sort of investment banking focuses on securing funding for new or continuing initiatives for their clients. Corporate finance investment bankers are constantly looking for new ways to raise capital for their clients. They may, for example, assist companies in obtaining financing through securities underwriting. They are also in charge of issuing securities between corporations, handling initial public offerings, and carrying out mergers and acquisitions.
Types Of Investment Banks
There are typically three types of investment banks: bulge bracket banks, middle-market banks, and boutique banks. Boutique banks are often further divided into regional boutiques and elite boutique banks.
Bulge Bracket Banks
The bulge bracket banks are the world’s largest multinational investment banks, with names like Goldman Sachs, Deutsche Bank, Credit Suisse Group AG, Morgan Stanley, and Bank of America to mention a few. The bulge bracket firms are the most numerous in terms of offices and staff, as well as in terms of handling the most significant transactions and corporate clients. Fortune 500 companies use these organisations for full-service underwriting, mergers and acquisitions, sales and trading, asset management, advising, and other related activities.
Elite Boutique Banks
Elite boutique banks have a substantial presence, processing multibillion-dollar transactions across multiple regions or even nations. They do, however, have fewer staff than the bulge bracket banks and may opt to specialise on a certain sector or service (not to say they can’t or won’t offer a wide variety of services). Well-known elite boutique banks include Evercore, Greenhill & Co., Lazard, Moelis & Co., and PJT.
Regional Boutique Banks
The banks referred to as regional boutique banks are the smallest of the investment banks, both in terms of firm size and usual deal size. Regional boutiques often employ a few dozen to a few hundred people. Most regional boutiques, due to their modest size, do not often provide all of the services provided by bulge bracket investment banks, and instead specialise on a single area, such as handling M & As in a certain market sector.
Middle-Market Banks
Middle market banks are smaller than bulge bracket banks, but larger than regional boutiques. Some middle market banks provide a comprehensive range of services, while others focus on a specific niche. The majority of them are involved in transactions of $50 million to $500 million. Banks like Cowen Group, Houlihan Lokey, Lincoln International, KPMG Corporate Finance, and William Blair & Co. belong to this group, while the distinction between regional and middle market can be blurry at times because middle market banks handle regional business.
