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A financial institution that carefully accepts deposits and grants loans is a bank. The business of protecting money is what we call Banking. It is not just protection but also generates interest that yields profit for the bank and customers. Nation categorizes banks into different types based on the services they offer. Investment Banking is just one of them. So, What is Investment Banking?
What is Investment Banking?
Investment Banking organizes large and complex transactions. It focuses on raising capital in the public markets and requires more schooling and works to expand to a corporate finance role. It runs private equity and debt capital placements and conducts Merger and Acquisition deals.
Investment Bank:
- It doesn’t take deposits
- It doesn’t provide loans
- Has a few hundred core customers or less
- Provides a very bespoke service
- Doesn’t provide transactional day-to-day services
- Provides strategic advice to companies
What do Investment Banks do?
An investment bank plays the role of a bridge between large enterprises and investors. Its primary role is to advise businesses and governments on how they can meet financial challenges. It helps them in finding may be from stock offerings, bond issues, or derivative products.
It helps clients in:
- Financing
- Research
- Trading and Sales
- Wealth Management
- Asset Management
- IPOs
- Mergers
- Securitized Products
Investment Banks Play the Role of Advisor
- Recommend the best way to raise funds
- Merger and Acquisition Scenario
- Investment Banks Underwrite Stocks and Bonds- They create documentation that goes to the Securities and Exchange Commission before the company can sell shares.
Investment Banking Services
An investment bank caters to the financial requirements of clients. There are various services Investment bank offers:
1 Underwriting
Underwriting is raising capital from the direct market. It is a primary service that banks provide. It includes initial public offerings and debt financing.
In Underwriting, Investment Banks:
- Analyze the Capital Requirement
- Target Market
- Market Conditions
- Investor Perception and Confidence
- Economic and Political Conditions
- Launch public issue based on evaluation- They deposit a certain capital percentage in under subscription case.
2 Transaction Advisory
Its primary role is to evaluate the transaction feasibility and assist in the negotiation between the parties. It charges a fee or a fixed percentage in exchange.
Transaction Advisory includes:
- Facilitating mergers
- Acquisitions
- Leveraged buyouts
- Consolidation
- Sales and Trading
Investment Banks manage investment and broking for corporates and high net-worth clients.
They suggest profitable ideas for clients. The product can be equity, debt, commodities, derivatives, or a mix. They evaluate the profitability and conduct due diligence. In exchange, the bank charges a commission on the transaction.
3 Research
The Research Department of Investment Banks focuses on creating high value for clients. The research function supports their profit centers and focuses on specific financial products or services.
These services are in response to What is Investment Banking.
Types of Investment Banks
There are three categories of Investment Banks:
1 Regional Boutiques Bank and Elite Boutique Banks
The smallest investment bank in terms of size and average deal size is a Regional boutique bank.
Smaller firms and organizations based in the areas or the local and state governments are clients of this bank.
Features:
- Services: It offers limited services as its size is small. It focuses on a specialized area, such as specific industry acquisitions and merger handling.
- Location: It caters to particular regions only.
- Deal Size: Average $50 to $100 million or less.
Elite Boutique Banks are not the same as Regional Boutique Banks.
Features:
- Services: The only similarity is the scope of services banks offer. Elite Boutique Banks provides a partial range of investment banking services, focusing on mergers and acquisitions, restructuring, and asset management services.
- Location: Elite Boutique Banks need a global presence. These banks have a sizeable national and international presence. They operate in various places.
- Deal Size: Average $ 1 Billion. It also manages smaller deals.
Middle-Market Banks
Middle-Market Banks lie between Regional Boutique and Bulge Bracket Banks.
Features:
- Services:
a. Raising Equity and Debt Capital
b. Financing and Asset Management Services
c. Restructuring Deals
- Location: More reach than regional boutiques but don’t have a bulk bracket bank international reach
- Deal Size: It commences at the regional level and escalates to the bulge bracket level. The average is $50 to $500 million.
Bulge-Bracket Banks
These banks have a global presence. They are the most prominent and easily recognizable investment banks. They are excellent regarding employee strength, number of offices, and notable corporate clients. Clients of these banks are on the Fortune 500 list of companies.
There are three divisions:
i. Trading– It earns profit from market outperformance
ii. Advisory– It earns from transaction services and client capital generation.
iii. Retail– It gains from loan dispersal to businesses and consumers.
- Services:
a. Mergers and Acquisition Services
b. Financing
c. Equity Research and Issuance of Reports
d. Asset Management Services
e. Generate revenue from cross-selling financial services
- Location: These banks operate on an international level. They have domestic as well as Global Presence.
- Deal Size: Multi-billion dollar deals. Sometimes, worth a few hundred million due to the economy or for a particular client.
Banking Clients
Investment Bankers advise their clients on their capital raising and M&A needs. These clients are from around the world.
Clients:
1 Government– These banks work to raise money, trade securities, and buy or sell crown
corporations.
2 Corporations– Bankers work with private as well as public companies and help them go public (IPO):
- Grow businesses
- Make Acquisitions
- Sell business units
- Provide research
- Raise additional capital
- Generate corporate finance advice.
3 Institutions—Banks manage other people’s money to help them trade securities and provide research. They work with private firms to help them acquire portfolio companies and exit those positions by selling to a strategic buyer or IPO.
Investment Banking Skills
Besides Education and Experience, there is a need for various Investment Banking Skills:
- Financial Skills
- Analytical Skills
- Teamwork
- Discipline and Self-dedication
- Communication
- Resilience
- Interpersonal Skills
- Leadership Skills
- Project and Time Management
- International Outlook
- Entrepreneurial Skills
- Work Ethics
- Networking Skills
Careers in the field of Investment Banking
Investment Banking, as we know, are institutions that connect to raise capital for governments, corporations, or other institutions. It is a good career choice if a candidate is interested in convincing an investor to invest in companies and raise capital.
The most common Job Titles are:
- Analyst
- Associate
- Vice President
- Director
- Managing Director
- Head
Salaries in India
The average Base Pay in India is Rs. 7 lacs-20 Lacs.
Best Institute for Investment Banking Course
Henry Harvin’s objective is to advance the professional journey of Content Professionals by upskilling them with critical skills. These skills are imparted through action-oriented solutions that subject matter experts carefully handicraft.
The Investment Banking Operations Course offered by Henry Harvin yields numerous benefits:
- Learn from the latest Industry trend Curriculum
- Earn globally recognized Certification
- Improve yourself in the Banking field
- Learn basic and advanced Fundamentals of Investment Banking Operations
- Create, implement, and manage the online section of a Business
- Develop and implement a Create Reports in Investment Banking Operations Course
- Learn how to grow and Optimize model performance with Finance Market
- Gain knowledge in basic Banking and Cash Equities much more
- Adapt to the changes and revolutions in the Banking Sector around the world
- Understand Current Trends in Asset Management, Reconciliation
Conclusion
Investment Banking helps companies make financial decisions and maximize profits. It also provides various other services, such as underwriting, that help raise capital and complete mergers and acquisitions. It is a popular financial institution and an excellent career option.
Recommended Reads
- Top 20 Investment Banking Companies in India
- How to Become an Investment Banker in India
- Top 40 Investment Banking Interview Questions and Answers
- 25 Most Frequently Asked Banking Interview Questions and Answers
FAQ’s
Q.1 What is Investment Banking?
Ans. It helps governments, companies, and institutions in raising money.
Q.2 Mention the types of Investment Banks.
Ans. There are a total of three types of Investment Banks:
- Regional and Elite Boutique Banks
- Middle-Market Banks
- Bulge Bracket Banks
Q.3 Which degree yields the maximum benefit for Investment Banking?
Ans. A Bachelor’s degree in finance, economics, or business, along with a minor in finance.
Q.4 What is Underwriting?
Ans. Underwriting is a service when an individual or an institution takes financial risk for a fee.
Q.5 Mention the benefits of Investment Banking.
Ans. There are multiple benefits of Investment Banking:
These banks manage their clients effectively and give them knowledge about the risks and benefits of investing money.
They play the role of an intermediary between the company and the investor by assuring a rise of financial capital.
These banks investigate the deal and project, ensure the safety of the client’s money, and minimize risks.
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