The role of investment banking
What is an investment bank?
Investment banks will not grant you credit or manage your savings. These establishments are the partners of companies for their financial and strategic operations (debt raising, acquisitions, mergers, etc.).
An investment bank is a bank that offers various services to businesses.
It can organize on its behalf’s financial operations such as IPOs, capital increases, or debt rising, for example by preparing the issue of bonds. The investment bank also assists companies in their mergers and acquisitions.
It can help them identify targets, partners, or buyers, assist them in negotiating the conditions and prices of these operations, as well as helping them find the financing necessary for their completion.
Investment banks can also advise their clients on their cash investments or their management of exchange rate and interest rate risks, via financial hedging products. More generally, the work of investment banks is to support companies in their financing and development strategy.
On the other hand, they are not credit institutions strictly speaking: they do not grant loans directly to companies. Investment banking, therefore, differs from retail banking, which is used mainly to manage the savings of individuals and to lend them money.
The merchant bank is not an investment bank either, at least in theory. The latter mainly carries out activities on the capital markets, such as trading or the placement of securities (stocks, bonds, etc.) on behalf of institutional investors (insurers, pension funds, etc.), States, or individuals, very fortunate. However, in practice, many banking establishments exercise both investment banking and investment banking activities, through different departments or subsidiaries.
How does an investment bank works?
An investment bank is a financial intermediary for companies concerning financial operations. Indeed, it only deals with companies.
Its role is not the financing of the company, unlike the investment and financing banks. It is responsible for:
ROLES OF INVESTMENT BANKS
Assemble files concerning IPOs;
Manage capital increases;
Manage takeover bids,
Manage debt issues.
It should be noted that investment banks intervene according to the rules of the central bank, in the long-term financing of companies. It should also be noted that this is not their primary vocation since their main activity is rather to circulate money.
HOW MERCHANT BANKS WORK
The business model of the merchant bank is to charge commissions on the services it performs for its clients.
To provide companies with long-term equity, investment banks are interested in economic agents ready to immobilize large sums over long periods, obviously in order to derive a profit: what is called of investors.
However, in the absence of economic agents with long-term financing capacity, investment banks constitute financial entities whose role is to ensure the financing of large companies as well as to initiate the development of large investment projects.
Most famous investment banks
Among the best-known investment banks are:
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