Believe it or not, even investment bankers find it difficult to describe what exactly investment banks do! This has to do with the sheer complexity and enormity of the financial transactions involved.
In simple words, an investment bank is an intermediary between organizations such as ABC Steel that need money and individuals and institutions that need to invest. Broadly speaking, an investment bank is an institution that:
– Helps organizations or governments to raise money by issuing and selling securities such as stocks and bonds
– Provides a range of advisory services on complex transactions such as mergers and acquisitions
– Offers a range of structured products and services to institutional and individual investors to help them manage their assets and wealth
Role of an Investment Bank
Investment banks could play different roles in a financial transaction. Some of the most common roles played by them are:
– Principal Trader
– Broker or Agent
– Prime Broker
As an underwriter, an investment bank purchases all new securities of a company and resells them to the public. For example, ABC issues 20,000,000 shares for $10 each. An investment bank directly purchases all these shares from ABC and sells it to the public at a higher price, say $15 each. The investment bank also bears the cost of the sale.
As a principal trader, an investment bank buys shares from other investment banks and investors and keeps them in its inventory. It may sell these shares at a higher price in the future. The term ‘principal trading’ simply means that the trader of securities is also its owner or principal.
For example, after ABC Steel’s shares are sold to the public, an investment bank may purchase some of these shares from the market. It may sell these shares later when the price rises.
Broker or Agent
As an agent or broker, an investment bank buys and sells securities on behalf of a company. The key here is that the investment bank does not own these securities. It only trades in them for a commission.
The important thing to remember here is that the brokerage or agency represents buyers or sellers who are the principals or owners of the securities.
A prime broker offers a range of services to professional investors, including:
– Administrative and operational support for trading
– Lending of securities
– Management and safeguarding of securities
Without a prime broker, it would be difficult for professional investors to trade with several different brokers and manage their cash and securities from one centralized account.
Investment banks provide a range of advisory services on complex transactions such as mergers and acquisitions. They also advise companies on the different options to raise capital. They provide high net-worth individuals with customized wealth management services.
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Investment Banking basically refers to that stream of banking, which primarily focuses on capital financing for every type of organization out there. Then may it be a global or a local business, any private individual run firm as well as governments. This field is said to cater to a number of diversified financial requirements, like equity or debt, bonds, mergers and acquisitions, portfolio management and so on. This field is considered to be one of the most dignified and challenging fields to make a career out of. This is exactly the reason why so many finance aspirants have their heart, set on becoming an investment banking professional. To achieve their goal, many individuals try to get an edge for themselves by taking up various esteemed certification courses that are offered by the sterling institute, Imarticus Learning.
Every Investment Banker as well as any aspiring professional wishes to work in one of the top Investment Banks all over the world. While there are a number of criteria, which put an Investment Bank in the coveted big league. Various factors like the revenue numbers, global reach, employee headcount, income etc prove to be most decisive when it comes to determining whether a bank fits in as one of the Top Investment Banks.
Here’s a list of the top 6 full-service investment banks on the global scale.
1. Goldman Sachs
Apart from being one of the oldest banking firms, founded in 1869, this prestigious bank, offers a wide range of services, which are spread across four divisions, which include investment banking, institutional client services, investing and investment management. It also has a reported revenue of around $34.210 billion, which probably could be more today.
2.JP Morgan Chase
It is said to be one of the largest, investment banks and has reported net revenues, up to around $96,606 million. This organization has branches in around 60 countries and has about 260,000 employees working under them, offering a varied set of services.
This UK based bank was founded in around 1896 in London and has recorded earnings, of around 28,444 million Euros. This banking organization has a strong presence in retail and commercial banking, in addition to being a key player in the field of investment banking.
4. Bank Of America Merrill Lynch
This entity recently took over the erstwhile Merrill Lynch, following the economic crisis in America. It offers a wide array of services which include, investment banking, mortgage, trading, brokerage as well as card services.
5. Morgan Stanley
Since its inception in the year 1935, this global firm has employed about 55,794 employees, spread across multiple countries. Apart from offering the usual services,
it is also known to offer diversified services like prime brokerage, custodian, settlement and clearing and so on.
This erstwhile organization has reported revenue of around, EUR 31,915 million and is also known to be one of the largest financial services firms in Europe. This bank is very well known for its global presence and ongoing operations in around 71 countries as well as its omnipresence on the international trade and finance market.