We hear the “investment bank” in the long term on a daily basis. These banks for their role in financial crisis denigrated and criticized the benefits they get and the large compensation packages for their employees. But many people have no idea what they are or what they do. Let’s take a look at the role of i-banks in the financial services industry and the economy played on the loose.
So what is an investment bank? Firstly, they are very different from those of commercial banks, we are all familiar with. They do not take deposits, including retail on the corner. Instead, they are mainly in the purchase, sale and issuance of securities to support – that is stocks, bonds and similar financial instruments.
They help companies and institutions to “buy side” and “sell side” activities. The buy-side refers to the informing of the institutions involved in the purchase of assets and securities. Entities that engage in buy-side activities include private equity funds, mutual funds, hedge funds, pension funds and proprietary trading desks. The sell-side refers to a wide range of activities, including securities trading and processing, the investment bank, in an advisory and investment research.
The main functions of an i-banking services include investment banking – also known as Corporate Finance – Sales and trading and research. Some large investment banks perform other services such as investment management or investment banking, but we’ll take a closer look at the root of three.
Investment Banking (Corporate Finance)
Investment banking can be a confusing term because many people refer to an activity by the i-bank. In particular, however, relates to the investment bank to help companies to raise capital and advising on mergers and acquisitions.
The corporate finance department of the bank group that works with a company to establish an initial public offering (IPO). Or, if a company has outstanding public stocks, they could together a range of monitoring, which is simply an additional issue of shares. The corporate finance department can also help companies to increase capital through private placements, which is often associated with raising capital from private equity groups.
If the ownership of a company trying to sell the entire company, the corporate finance department can also advise M & A transactions can help to identify potential buyers and negotiate a sale of the entire society. Even if a company is to acquire on the market to other companies, this group can advise on acquisitions.
Another service that can offer the corporate finance department is the provision of fairness opinions. In a fairness opinion, is an investment bank to analyze a potential acquisition and make an opinion, whether a reasonable price is offered for the target company.
Sales and Trading
Sales and trading may be able to offer the first service, the i-bank. Often there are two major areas in marketing and trade – institutional investors and private clients. The institutional division buys and sells financial products for institutional clients such as mutual funds, pension funds, etc. The retail division buys and sells financial products for private investors. Traders fall into this range.
Distribution is committed to the negotiation and implementation in the market. Market making involves the purchase and sale of financial instruments to an additional profit on every transaction to realize.
Sales and trading may also engage in proprietary trading. Proprietary trading encompasses a group of traders who do not work with the customer. These dealers are the “biggest threat” to the purchase or sale of a product and not the total load. By managing the amount of risk in the balance sheet, an investment bank to maximize profitability.
The sales and trading department also interacts with the Corporate Finance department provides on the issue of initial public offerings and follow-up. This is the marketing and negotiation, a book that builds from a specific action by calling the institutional and private investors gauge the interest in the offer. They then begin the initial value of the sale price on the date of the offer and sale of new shares to its customers.
Depending on the size of an offer or as a mix of investors to provide these services, many investment banks to issue shares to the public are involved. This group of banks is the union and are responsible for the sale of shares included in the offer.
Search
The research department of the research analyst’s together. These are the people who often appear on news programs and talk about the business of the Company or shares. The role of the research department is to analyze companies and write reports on research that discuss their performance potential. These reports often contain “sell” one “buy” or recommendation.
The research department on its own does not generate much income. What it does is the trading volume of influence, leading to more sales and trading. If an analyst changes his recommendation on a stock exchange, many investors will then act on the recommendation and the sales team always wins and trade transaction costs.
However, there is a conflict of interest between research and other parts of the investment bank. If an investment bank was about to issue new shares of the company for a business problem, for example, analysts might on a strong recommendation set for the stock, just before the offer could, and the bank get a better price and the potential to earn more fees .
Likewise, if the proprietary trading division of their assets, the yield would increase, they would have some analysts recommend stocks that they held for sale. There are a number of areas, which are used in the research department to mislead investors and could earn more profit for the investment bank.
To avoid these conflicts of interest, have the regulators that the investment banks a “Chinese wall” to implement into their business processes. The Great Wall of China provides information on corporate finance, investment banking and sales and marketing activities in order to pass through the research department.
There is also a Chinese wall between corporate finance and sales and operations, as many corporate finance activities with non-public information that could be used profitably execute trading strategies.
A world without I-Banks
Without investment banks, the companies have a much harder time raising capital. Similarly, the public would have a difficult time, their money in something other than a savings account to invest.
Without i-banks would be very large institutions and individuals can become very rich, the same financial transactions every day with an i-bank structure.
In short, these banks significantly accelerate the flow of capital across the economy and allow businesses – grow faster – and our economy. As complicated as all these activities may be, they only scratch the surface of the intricacies of these banks.
But the next time you hear when you know that some investment bankers generate recommended the sale of a company or dollar bills trade costs more, at least you get an idea of ??what they’re talking about.
