What is Investment Banking and Services offered by Investment Bankers


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Investment Banking Definition:

An Investment banking is a bank who provide consulting services to governments, organisations, individuals, corporate for raising capital investment, mergers and acquisitions, trading into equities, currencies, derivatives, commodities, fixed income instrument, etc. For corporations, investment banks plays important role by offering advisory services on when and how to launch securities into open market. Apart from consulting services most of the Investment banks also act as an agent for almost all the services.

Most important difference between commercial banks or retail banks with investment banks is that, Investment bank does not take participates in accumulating deposits from their clients. Investment banks also participate in other services like cash management, professional management services for securities, custody services, and banks also offer capital exchange for equities shares and many more.

Mostly Investment banking financial institutions deals in two categories know as sell category and buy category. Under sell category, Investment bank participates in trading activities for securities, currencies, derivatives or promotes research, underwritings. The buy category of investment bank provide consulting or advisory services to government or institutions related to buying investments, mutual funds, equities, hedge funds, unit trusts, life insurance, etc.


Investment Banking Activities:

Investment banking diversified services are mainly dedicated to high net worth individuals, corporate or government or other large institutions. Due to these varieties in services for different entities, operations of investment bank, investment management, Banking activities are divided into front office operations, middle office operations and back office operations.

Wiki Finance pedia - e-learning course on Investing wikipedia Chapter - What is Investment BankingFront office operations:

Front office operations of investment banks mainly involves generating and converting leads, sales, marketing, trading, advising organisations on acquisitions, fund raising, mergers, etc.

Middle office operations:

Middle office operations of investment banks involves managing risk, track and analyze fund flow of the organisations, funding structure management, liquidity risk management, capital funding, etc.

Back office operations:

Back office operations of investment banks involves verifying trades data, analyze reports, development, support and up-gradations of varies web based software application, mobile based software applications and many more.


List of top 10 Investment Banks or Investment Banker of the world in terms of revenue as of 2015.

RankBank NameFoundedRevenue
1J.P. Morgan & Co.2000Approx. US$ 94 billion
2Bank of America Merrill Lynch2009Approx. US$ 85 billion
3Goldman Sachs1869Approx. US$ 40 billion
4Morgan Stanley1935Approx. US$ 34 Billion
5Citigroup1812Approx. US$ 77 billion
6Deutsche Bank1870Approx. EUR 32 billion
7Credit Suisse1856Approx. CHF 25 billion
8Barclays1690Approx. EUR 25 billion
9Wells Fargo1852Approx. US$ 84 billion
10UBS1854Approx. CHF 64 billion

Criticism:

Financial crisis in year 2008 has led to remarkable collapse in the history of investment banks. History reveals bankruptcy of large investment banks. For example: Lehman Brothers, rescue from bankruptcy of Merrill lynch, survival strategy of Goldman Sachs and Morgan Stanley by converting to traditional bank holding to accept troubled asset relief program (TARP).

This crisis has led to criticism of business model followed by investment banks. Investment banking has come under various criticisms for vivid reasons like conflict of interest, over pay packages, participating in both sides of transactions. Investment banks are always questioned for enormous salaries paid to those who work in this sector. For example: Merill Lynch & Co. CEO Stanley O’Neal was paid USD 172 million as a pay package from 2003 to 2007. James Cayne of Bear Steams Co. with pay package of USD 161 million in 2008 before it was sold to JPMorgan Chase & Co.

 

  

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About Kiran Mehta

A greek, passionate blogger and traveller who loves to travel around the world to enhance knowledge and to share information thru various writings.

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