What Is Investment Banking?

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A Wall Street saying goes that “capital tends to gravitate towards the most well-treated areas.” Investment banks assist companies in raising capital by opening the financial markets and helping them function more efficiently. This helps businesses grow while individuals grow and the whole society expand.

Investment banks offer a wide array of services. Some, like research divisions, study the potential of a company and then write reports that include suggestions to purchase, hold, or sell. Others provide M&A or merger and acquisition, advice, helping clients navigate the purchase or sale of businesses. They also provide “broker-dealer services” that permit institutions to swap securities like stocks, bonds and commodities in exchange in exchange for cash or other securities.

Certain investment banks specialize in certain types of transactions. Certain investment banks specialize in specific types of deals. These include IPOs followed-on offerings, follow-on offers or bonds issued by corporations and governments. They may also provide advice on spin-offs and leveraged buyouts which involve the sale of business units by a firm to its shareholders.

Some investment banks have a significant Sales & Trading division (S&T) which trades publically traded securities such as bonds, stocks as well as commodities and other financial instruments, for their own accounts as well as for institutions like mutual insurance companies, funds, private equity fund, etc. This is a crucial aspect of the business as it provides a revenue base when other activities, like M&As or IPOs aren’t as successful. They also provide “market-making” services, which are essential to the functioning of the financial markets. They act as intermediaries between the parties who want to buy or sell securities, and ensure that there are enough buyers for every transaction.