Investment banking is a banking operational section that specializes in helping different individuals to raise capital or funds for specific purposes. Investment banks usually act as intermediaries between investors and various security providers. Apart from this, these banks also help in providing financial consultation to different bankers and clients, as well as helping new companies go public with their IPOs.
Unlike regular commercial banks, investment banks don’t ask for deposits in exchange for funds or financial advice. Instead, these banks survive on commissions charged on various securities and bonds. An investment bank performs different functions, and the following are some of them.
Merger and Acquisitions
Investment banks specialize in advising buyers and sellers on the latest business and property valuation in the market. Apart from this, they also specialize in pricing, negotiations, transactions, and procedural implementation of the acquired property.When a particular company wants to sell securities, the first step to take is to consult and hire an investment bank. In return, the investment bank determines the values and the risks that the said security is likely to face. When a deal has been reached and all the risks evaluated, the investment bank releases the bonds to the public for purchase.
Commercial and Retail Banking
Before the repelling of the Depression-era Glass-Steagall Act which only allowed commercial banks to lend money, open savings and checking accounts, investment banks only had the freedom to advise on M&A, underwrite securities and provide brokerage services. Since the act was repealed in 1992, investment banks can now offer retail brokerages and commercial lending services to different banks and clients.
Equity Research and Sales Trading
At a set fee or commission, investment banks match up sellers and buyers when it comes to purchasing or selling of bonds and securities. Additionally, the sales trading branch of the investment bank facilitates the trading of underwritten securities into the market.
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Martin Lustgarten is an investment expert with decades of unmatched experience in his field of expertise. Born in 1959 in Austria, Martin currently resides in Florida where he continues to help dozens of people realize their investment dreams.