Investment banks involve themselves in raising equity from the market and mergers and acquisitions of corporates. The investment bank helps companies to raise funds through the debt and equity market. It is involved in the sales and trading of government bonds, money market instruments and corporate bonds. The investment bank differs from the traditional bank in that in does not take money for 'safekeeping'. It specializes in advising you on making your money grow by weighing different investment opportunities. Investment banks have now gained a bigger playing field by providing private financial services too.
Investment bank services
An investment-banking house purchases new security issue from a corporation house at one price and sells the issue in smaller lots to the investing public at a higher price. This price covers the expenses of the sale and a profit. An Investment bank helps corporations in raising funds from the public in both equity and debt. Investment banking involves mergers, acquisitions and disposals. This necessitates wide-ranging relationships with corporations, financial institutions, governments and institutional investors worldwide. Its gamut of operations involve:
- Raising debt and equity capital
- Advising, overseeing and facilitating mergers and acquisitions
- Providing valuations and fairness opinions
- Forging joint ventures and strategic alliances
- Underwriting of Initial Public Offerings (IPO)
- Sales and trading of stocks listed on stock exchanges
- Management of funds of life insurance companies and pension funds
- Advising companies on their funds requirements - equity, debt, convertibles and derivative securities
- Conducting research on finance markets and industry conditions so as to give pertinent and relevant advice on investments.
Career in investment banking industry
A career in the investment banking industry is a popular choice for many. A competitive industry, investment banking offers attractive salaries and quick growth potential. Graduates from leading universities and business schools can find a good opening in an investment bank.
The 'bulge banks' of the investment banking industry provide full range of banking and investment services to the major financial regions of the world - The US, Europe, Asia and Latin America. Investment banks such as Merrill Lynch, Morgan Stanley, Goldman Sachs and Salomon Smith Barney form a part of the bulge bracket. Others in this category are Chase Manhattan and Deutsche Bank and Credit Suisse First Boston.
Then, you can also find more regionally focused investment banks offering a wide range of services. These are very often off-shoots of the parent bank that have been created to leverage their existing client base to develop business. The Gramm-Leach-Bliley Act or the Financial Services Moderniztion Act of 1999 revolutionized the investment banking industry completely. The barriers between commercial banking and investment banking have become blurred and there is heightened convergence between the banking, insurance and the securities industries. A study of the Investment banking industry estimates that global revenues from investment banking will increase manifold in this decade and contribute significantly to the World GDP. Europe is earmarked to becoming the leading player in the global revenue growth. June 2004 saw Morgan Stanley and Goldman Sachs reporting sharp upswings in their second-quarter earnings. This was seen to be a result of a surge in the investment banking business and robust trading profits. It is also indicative of a recovering economy.
A recent trend that is being noticed is that investment banks are outsourcing some of their financial analysis and research overseas. J.P. Morgan and Morgan Stanley have set up their subsidiaries in India to handle basic financial modeling services along with comparable analysis.