Investment banks are the intermediary organisations that serve a variety of services such as handling of mergers and acquisition, underwriting of new stock issues, and acts as a financial advisor. They act as a middleman between issuer and investor and helps clients raise capital through equity and debt offering. Some of the investment banks are Goldman Sachs, JP Morgan Chase, Morgan Stanley, Credit Issue, etc.
Functions of investment banking firms are:
- Advisor : An investment bank serves as an adviser to any company and assists in the best possible way to raise capital, including selling bonds and shares, if necessary. Financial analysts analyse various factors, such as earning potential, before selling their stocks or bonds to determine the value of the company. Banks advise the company’s management on how valuable the company is and how the organisation is likely to benefit from merger and acquisition.
- Underwriting stocks and bonds: If an individual decides to raise capital through a sale of equity and bonds, the shares will also be underwritten by one or more investment banks. This ensures that the company purchases or re-sells a certain number of shares – or securities – at a fixed value via an auction.
- Research: Bigger investment firms have analysts who analyse business information and decide how they are likely to benefit from selling or buying. Reports are sold to managers of mutual funds and hedge funds for capital generation.
- Trading and sales: Various firms have a department for trading that can sell bonds or stocks as per the need of their clients.
- Asset Management: Companies such as Goldman Sachs and JP Morgan use their asset management division to handle pension funds, insurance companies and charity accounts.
- Wealth Management: Investment banks also provide funding options for pension and other long-term needs of individuals and families.
- Securitized Products: Enterprises also pool financial assets these days – from loans to receivables from credit cards – or market them as fixed-income securities to shareholders. An investment bank will propose sources of income to be "secured," arrange the assets, and sell them to institutional investors.
