Investment Banks

Investment Banks

Investment banks are different from both central banks and commercial or retail banks. Investment banks do not take deposits, but their function is to raise capital for governments, corporations and individuals. The financial capital is raised by underwriting or acting on behalf of the client in the issuance of securities. Underwriting means either guarantee insurance or to buy all the outstanding shares, which remained unsold. Further, investment banking similarly includes a lot of mergers and acquisitions (M&A). According to Forbes, the top ten best investment banks to work for are: The Blackstone Group, Goldman Sachs, Morgan Stanley, J.P. Morgan Investment Bank, Centerview Partners, Evercore Partners, Houlihan Lokey, Greenhill & Co., Perella Weinberg Partners and Credit Suisse.

Furthermore, investment baking has two main lines of business, the sell side and the buy side. The sell side corresponds to trading securities for cash or in exchange for other securities. The buy side represents investment advice, when equity funds, mutual funds and hedge funds are involved, among other things. In the United States, an advisor who provides investment banking services must be a licensed dealer-broker in good standing with the SEC (U.S. Securities Exchange Commission) and the FINRA (Financial Industry Regulatory Authority).

Sparkling Flowers. Illustration: Elena

Moreover, an IPO is an Initial Public Offering of a company that goes public by selling its shares and thus raising capital. Historically, the first company to go public and sell stock was the Dutch East India Company. The company traded on the Amsterdam Stock Exchange. Today, typical activities of investment banks include underwriting issuance of securities, secondary market offerings, brokerage, mergers and acquisitions (M&A), securities research, proprietary trading and asset management. Further, corporate finance is a significant part of investment banking, with banks providing advice to corporations on raising financial capital, as well as mergers and acquisitions (M&A).