An investment bank plays the intermediary role for individuals, corporations, and government agencies. Their services include; raising capital, acting as agent in security issuance procedure, assisting companies in merger & acquisition process. They also provide other ancillary services such as commodities trading, foreign exchange, equity securities, etc.
What is investment banking in simple terms?
So in simple terms, investment banking entails services that assist other groups (individuals, corporations, and government) in large and complicated financial transactions. They make financial and investment recommendations to their clients such as;
- How much a company is worth and also,
- How best to structure a deal in terms of an acquisition, merger or sale, etc.
These services are very vital as it provides the benchmark to rate an investment bank reputation.
The core activities of every investment bank include;
- The front office: this is known as the revenue generating role of any investment banking firm, and it consists of the investment banking duties and markets (markets covers sales & trading and research).
- Then, the middle office: here, the investment banking role include treasury management, internal corporate strategy, and control (this is where the capital flow of a firm is tracked and analyzed)
- The back office: this is where technical and in-house operations happen. It is where data-checks on trades that have been conducted are done to ensure accuracy and accountability.
Amongst investment banking key activities lies corporate financing. This involves raising funds in the capital market for customers. However, most top investment banks are renowned and distinguished for being able to fund individuals, groups and even government agencies.
Risk management is another major activity of an investment bank. Here, they analyze credit risks of their customers on their balance sheet during trades. The credit risks focus mostly on bond issuance, leveraged finance, syndicated loans, etc. Top investment banks like JPMorgan Chase usually engage in revenue-generating activities which also involves credit risk roles such as debt structuring etc.
Investment banking companies
Here are the top ten investment banks in America according to Forbes list of 2016;
- J.P. Morgan & Co.
- Bank of America Merrill Lynch
- Goldman Sachs
- Then, Citigroup
- Credit Suisse
- Wells Fargo Securities
- RBC capital markets
- Morgan Stanley
- Barclay’s investment bank
- And also, Deutsche Bank
In conclusion, investment banking is a critical segment of the economy because of its services to various key players of the economy. Most investors rely on these banks for funds to remain in business. And as for the activities of the banks, they are numerous and encompass major financial services.
This article aims to give readers a brief insight into the activities of an investment bank, and finally, we would appreciate your feedback.