An investment bank may remind you of the bank people work with business loans or the deposit of their paycheck. But the investment bank that we will discuss here is nothing like the corner people usually deal with.
Instead, it is a large financial institution that works primarily in high finance. It appeared after the 2008-2009 financial meltdown. It helps companies access the capital market (like stock and bond market).
Closely examining investment banks
With the help of investment bank services, companies can raise money for their expansion or other needs.
For instance, if a company wants to sell $4 billion worth of bond, for building a new branch in a new continent, then it needs help from the investment bank.
The investment bank will find a buyer for the bonds and handle the paperwork. Investment bank does that together with a team of lawyers and accountants.
Besides, it can also involve in an initial public offering (IPO) when a private market goes public.
Buying and Selling
Investment bank’s services have two sides, the buy, and the sell-side. Some investment banks, however, offer both buy-side and sell-side services.
The sell-side services usually sell shares of newly issued IPOs and placing new bond issues. Other than that, it also engages in market making services or helping clients by facilitating transactions.
Contrarily, the buy-side helps customers with pension funds, mutual funds, hedge funds, and investing. Its main goal is to help them maximize their return every time customers invest or trade in securities like stocks and bonds.
Many investment banks are divided into three divisions.
Front office services typically consist of investment banking such as helping companies in mergers and acquisitions, corporate finance, and professional investment.
Middle office investment banking services include compliance with government regulations and restrictions for professional clients, like banks, insurance companies.
The back-office services include the nuts and bolts of the investment bank. It handles things such as trade confirmation, ensuring that the correct securities are bought, sold, and settled for the correct amounts.