University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Activities of Investment Banking
The Investment bank is the financial institution which assists the governments, corporations and the individuals in raising the capital by acting or underwriting as the agent of the client in issuance of securities. The investment bank can also help the companies which are involved in acquisitions and mergers, and offer ancillary services like the trading of the derivatives, market making, foreign exchanges, instruments of the fixed income, equity securities and commodities.
Unlike the retail banks and commercial banks, the investment banks don’t take the deposits. There are commonly two main channels in the process of investment banking. Trading the cash for securities like market making, facilitating transactions or for cash or for the promotion of the securities like research, underwriting is known as the sell side, while correlate with the mutual funds, hedge funds, pension funds and investment public comprises the buy side. Various companies have sell and buy side components.
What are the main activities of the investment banking?
The investment banking is generally split into back office, middle office and front office activities. While the big service investment banks provide all the channels of the business both buy side and sell side. The little sell side investment companies like as the small broker dealers and the boutique investment banks focus on the trading/sales/research and investment banking respectively.
The Investment banks also provide services to both the investors buying securities and the corporations issuing securities. For the corporations, the investment banking provide information on how and when to place the securities on the open market, this activity is very much important to the reputation of any investment bank. Thus, the investment bankers play a key role in issuing the new offerings of the securities.
Other activities of the investment banking:
Apart from the main activities, there are some additional activities, in which the process of investment banking is involved. These are: • Global transaction banking: This part is the division of investment banking which offers custody services, cash management, security brokerage and lending services to various institutions. Hedge funds with Prime brokerage is especially a risky as well as profitable business.
• Merchant banking: This process is also known as the “very personal banking”. The merchant banks provide capitals in exchange for the share ownerships and also provide information on strategy and management. The term merchant banking is also used to define the private equity part of any company.
• Investment management: This service offers professional management of several securities like bonds, shares and of other assets like real estate to meet with certain goals of investment for the profit of the investors. These investors can be institutions like pension funds, insurance companies, corporations and many more or the private investors.
• The investment management division of an investment bank is generally divided into separate groups, often known as Private Wealth Management and Private Client Services.
• Merchant banking is also a name used to describe the private equity side of a firm.Merchant Banking: Past and Present Current examples include Defoe Fournier & Cie. and JPMorgan’s One Equity Partners and the original J.P. Morgan & Co. Rothschilds, Barings, Warburgs and Morgans were all merchant banks. (Originally, “merchant bank” was the British English term for an investment bank.)