How to establish your own Investment Bank?
The term investment bank refers to credit institutions that specialize in the investment banking business. The primary areas of responsibility of the investment banks are, in addition to the asset management of customers, the support of companies in raising capital, and trading in securities and many other services as described below.
Investment banks were originally developed as a counterpart to commercial banks. The business activities of the investment banks are mainly in the asset management of their customers, the trading of securities, and the support of companies with the IPO.
Historical development of investment banks
The historical development of investment banks, which began in the USA in the 19th century, is more than complex. Already at that time, there was a separation between the lending and deposit business, which was based on business policy decisions.
The separation of the specialist banking system towards the end of the 19th century was weakened in particular by the growing involvement of asset managers in the securities business and later also in commercial banking. Now the Commercial Banks got into the securities business and the number of new banks rose rapidly. This competitive pressure ended in the "Great Depression" in 1929-1933, which overturned the entire banking system.
1932: Glass-Steagall Act
The so-called Glass Steagall Act, which was concluded in 1932, was intended to reorganize the entire banking system. The aim of the act should be to restore a secure banking system, to protect it from distortion of competition, and to avoid conflicts of interest that arose from the dual role of banks as shareholders and lenders. A strict separation of commercial and investment banking could thus be enforced. Banks were now forced to limit themselves to either the lending and deposit business or the securities business.
When this separation was lifted in 1999, the investment banks continued to be subject to less stringent regulations than the commercial banks. Since the end of the 1980s, there has been an increasing number of takeovers of investment banks by universal banks to offer customers the entire financial spectrum and to guarantee greater guarantees on issues.
Business activities of the investment bank
First of all, it must be noted that not all of an investment bank's services can be assigned to investment banking. For example, the area of client asset management mentioned at the beginning belongs to asset management (management of own investment products and advising institutional clients) and private wealth management (private asset consulting for wealthy clients).
Asset management in particular is usually run through its subsidiaries and is usually treated as an independent company. The areas of asset management are assigned to the so-called buy-side - this is where it is decided which products are to be bought for investments.
Sell-Side: Mediator between buyer and seller
This buy-side is opposed to the sell side, i.e. the actual investment banking. Advisory and transaction services take place in this area and products such as stocks are sold on the market. An investment bank supports companies and institutional customers in the procurement of capital (debt and equity), the IPO and offers advice on company mergers or the sale of business areas. Also, it takes care of the organization of trading in securities and derivatives for customers.
In contrast to a commercial bank, investment banks can act much more freely, as they are not bound by fixed regulations. They run the securities business, while the commercial banks deal with the deposit and loan business.
Investment bank services
In primary markets, they focus on issuing debt and equity.
Support of investors looking for investors and brokerage through advice on buying and selling M&A.
On secondary markets, they are responsible for advising clients and executing orders when trading securities.
They take on asset management in the form of special funds as well as investment advice and research.
As “market makers” they trade in securities and standardized goods such as foreign exchange by specifying the buying and selling prices.
As a market maker, you continuously set bids and ask prices for certain securities and act at your own risk. In this way, they increase profits and increase liquidity in the market. This makes it easier for other market participants to trade.
Companies find support in restructuring existing debt and equity structures as well as in negotiating reorganization plans.
For companies, investment banking creates the opportunity to raise money for investments through stocks and mutual funds. The investment bank earns money through the commission on the success of these activities.
The basis for this is a broad network with which the bank can develop the best possible solutions for the customer. The solutions are presented to the customer and implemented according to the order. This could be starting a large company, funding large projects, or merging companies. However, there is a risk of skidding due to excessively risky activities on the stock exchange.
Further activities of your own Investment Bank can include the following services:
The Activities of your own Investment Bank & Capital Trust can include the issuance of personal or commercial assurety financial guarantees, investment banking services, credit union services as well as Trust services including but not limited to: credit ratings, bond ratings, holding bond assets in trust, opening investment & trust accounts, taking deposits from clients across the world, disburse loans, invest client's assets on the stock market and provide all Trust and Investment Banking Services as well as credit rating and bond rating services as the Trustees find necessary. The Trustees are responsible for the management of the business and affairs of the Investment Banking Trust.
This further includes that (1) property (real, tangible, and intangible) is held, managed, administered, invested, and/or operated; or (2) business or professional activities for profit are carried on by one or more trustees for the benefit of the trustor entitled to a beneficial interest in the trust property.
Investment banks as employers
Investment banking in the classic sense consists of the Investment Banking Division (IBD) as well as Equity Capital Markets (ECM) and Debt Capital Markets (DBM). It is therefore made up of various corporate business areas, all of which have different task profiles and requirements for the employees working there - so there is not just one investment banker, but various professional profiles.
The different work areas
Roughly three areas of activity can be identified, which can be classified according to the extent to which market risks are assumed. Together they form a value chain - from the issue to its placement in the customer portfolio.
1. Investment Banking Division (IBD)
Mainly advisory services are offered here, but no securities are traded or placed on the market. The bank does not assume any risks here but offers M&A advice in this area. The consultants can use a market analysis to help customers with potential acquisitions or with the search for potential buyers if a company or a part of it is up for sale.
Companies are assessed and audited. The consultants also support negotiations by being in close contact with buyers, sellers and lawyers. Other advisory services such as financial restructuring or rating advisory also fall into this area.
2. Equity Capital Markets (ECM) and Debt Capital Markets (DCM)
These areas deal with measures to raise capital for companies. They usually work very closely with the IBD departments of the bank, as ECM bankers use the information from the IBD team to prepare for IPOs or capital increases, etc. They accompany the issuing process through to the final price setting for an issue.
The tasks of the DCM team are comparable with this, but they specialize in debt and not equity. They ensure that new corporate bonds are placed on the market and large loans are syndicated. Both areas are much closer to the market than M&A advisors. The investment bank needs its trading book for these transactions, as shares that have not yet been sold are transferred to its book for a short time, which means that the bank is exposed to changing risks.
3. Sales & Trading:
The bankers in this area can be divided into four groups: Sales, Trading, Structuring, and Sell-Side Research. They are all focused on the secondary markets. Here they work with stocks, bonds, derivatives, and other financial products that are traded on the stock exchange or OTC (over-the-counter). In the sales area, the bank's products are sold directly to customers. Structuring provides a number of these products that are tailored to the customer's risk and return profile. The positions traded by Sales are covered by flow traders, who in turn ensure that the customer business is channeled through to the market. Risks assumed by the investment bank are passed on to other market participants.
Prop Traders handle the bank's proprietary trading transactions. In doing so, targeted risks are taken. The sales team is supported by sell-side research. Analysts from the areas of equity research, credit research, and macro research examine the future prospects of stocks, bonds, and currencies and pass this information on to the sales teams and the structuring teams so that new products can be developed on this basis. In this area of investment banking, risks are taken and held.
Are you interested to establish your own Investment Bank & Capital Trust?
Have you have been thinking about establishing your own Investment Bank & Capital Trust or Licensed Investment Fund without a lot of bureaucratic “red tape”, with electronic payment capabilities– and for a budget you can aﬀord?
You have done your research across the world, compared service providers only to discover that they are either too expensive or simply not worth your time?
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The management team of BancorpTrust has been in this industry since 1990 and has a track record of successful Investment Bank establishments for over 3 decades.
For a confidential consultation on how to establish your own Investment Bank or Offshore Bank & Capital Trust, please contact: