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Definition of Investment Banking
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Definition: An investment bank is a financial intermediary that specializes primarily in selling securities and underwriting the issuance of new equity shares to raise capital funds. This is different from a commercial bank, which specializes in deposits and commercial loans.
Investment banking is a special segment of banking operation that helps individuals or organisations raise capital and provide financial consultancy services to them.
They act as intermediaries between security issuers and investors and help new firms to go public. They either buy all the available shares at a price estimated by their experts and resell them to public or sell shares on behalf of the issuer and take commission on each share.
Description: Investment banking is among the most complex financial mechanisms in the world. They serve many different purposes and business entities. They provide various types of financial services, such as proprietary trading or trading securities for their own accounts, mergers and acquisitions advisory which involves helping organisations in M&As,; leveraged finance that involves lending money to firms to purchase assets and settle acquisitions, restructuring that involves improving structures of companies to make a business more efficient and help it make maximum profit, and new issues or IPOs, where these banks help new firms go public.
Let's understand how an investment bank earns money by providing acquisition advisories.
Think of company ABC buying another company XYZ. ABC is not sure how much company XYZ is really worth and what will be the long-term benefits in terms of revenues, costs, etc. In this scenario, the investment bank will go through the process of due diligence to determine the value of the company, settle the deal by helping ABC prepare necessary documents and advising it on the appropriate timing of the deal.
Here the investment bank works on the buy side and some other investment banks may be working on the sell side to help XYZ. The bigger the deal size, the more commission the bank will earn. Bank of America, Barclays Capital, Citigroup Investment Banking, Deutsche Bank, are some of the largest investment banks.
Important to know,so called FinTech companies like WireCard are NOT BANKS, the same with so called eBanks that also go into IPO, again these are also FinTech companies, that look like a bank, present themselves as a bank, but are NOT real regulated and protected Banks
Firms in connection with investment banking industry are to distinguished into three categories-bulge bracket banks, middle-market players, and boutique banks. When it comes with boutique banks, they are often further divided into regional boutiques and elite boutique banks.
Like Wirecard, they are a Payment Gateway, the intermediate between a consumer, a credit card company (like VISA) a merchant and ultimately deposit funds into a real Bank. The big difference is, they are not protected under a countries Bank laws and regulations ( in Europe BAIT or BaFin), the customers funds are not insured, money flow cannot be controlled as they are pure digital, have no physical location, like a bank counter. They are NOT required to report on large transactions under the money laundering laws,matter of fact transactions are digital, meaning not transparent.
By nature, investments in such companies shares if they are listed, are of very high risk, although the dividends and shar profits can be very high and manigfold, but as high the profits the higher the risks.
Investment banking is one of Wall Street's most coveted roles. It is also one of the hardest. It is no surprise that the average day in an investment banker's life is long and stressful. Those who manage to survive the adjustment period often go on to have long and financially rewarding careers.
A day inthe life of an Investment Banker (observed by an Isaan IT expert working as IT security consultant with Banks
According to a former investment banker and author of How to Be an Investment Banker: Recruiting, Interviewing, and Landing the Job, the typical investment banking associate or analyst "can routinely expect to work 90-100 hours per week or even more. A typical workday during the week might be 10:00 a.m. until 2:00 a.m."
The Role of an Investment Banker
Investment banks help companies and governments raise capital by issuing stock or borrowing money. They also act as advisers and go-betweens on mergers and acquisitions.
The capital markets are a fast-paced, high-stakes, and highly regulated environment. Companies in other industries need investment bankers to handle financial deals while they are otherwise occupied. Who Needs Them
Investment bankers are hired by young companies planning to go public, big companies planning mergers and acquisitions, and established companies that want to raise money for major expansions. The professional bankers are the link between the company and investors.
For example, in 2019, Goldman Sachs handled the purchase of Tableau Software by Salesforce, the sale of Ultimate Software to a private equity consortium, and the sale of Symantec's enterprise business to Broadcom. Social Skills Wanted
These firms also have trading and sales divisions, but the traditional role of an investment banker involves meeting with clients, preparing offers, running financial projections, and working on pitchbooks, the sales books created to draw in new clients.
What separates investment bankers from most others in the financial industry is the requirement for excellent social skills. Plenty of business students can perform the technical functions of an investment banking associate, but few have the stamina and the social graces to deal effectively with clients. Having the right personality goes a long way.
A new associate who gets past the initial chaos and jitters of the job settles into a functional routine. The mornings are usually filled with emails, text messages, and office meetings.
The messages can be a nightmare, quite literally. There are stories of analysts at JPMorgan waking up in a panic during the night to check their phones because they run the risk of being fired if they do not respond to every one of them within 15 minutes. The messages may come from clients, co-workers, or senior bankers who want every status report, presentation, and calculation double- and triple-checked.
A Late Start
Fortunately, the workdays start rather late. This is partly because the New York capital markets are not open at 7 a.m., but it is also because most bankers were at the office until midnight the night before.
An associate may have time to shower, eat breakfast, and even work out before heading to the office. Since the vast majority of investment banking jobs are located in cities, many face a long commute.
Morning work is often slower and more methodical than evening work. From about 9:30 a.m. until lunch, associates and analysts work on company analyses and make adjustments requested by senior staff, who have spent the previous evening reviewing the day's work. On slow days, a junior banker may have time to catch up on the news and sports, but there is not much opportunity for social media since most investment banks put up firewalls to block distracting websites.
Unless the day is very busy, lunch is a leisurely 45-minute or hour-long stretch at a local deli or the company cafeteria. These are usually spent with co-workers on the same level. The hierarchy tends to be rigid.
The associates usually return to their desks to find updated models and presentations from their team's analysts. The associates review these documents and make corrections or recommendations before sending them back to the analysts.
This is a stressful process for associates, who desperately want to prove they can contribute to the deal, and analysts, who know what the managing directors or directors need and don't have a ton of time for revisions.
The Live Deal Afternoon work is focused intently on the active deal. Many investment banking teams are assigned one deal at a time, or the "live deal," and senior bankers are meticulous about details. Initial public offerings (IPOs) and merger and acquisition (M&A) deals involve millions or even billions of dollars, and the firm cannot afford to make mistakes.