Investment Banking is a financial service company or division of a bank that offers advisory services to individuals, government, and corporations in relation to capital raising, underwriting, merger, and acquisition, etc. It acts as a bridge between companies and investors.
Joseph Stone Capital says that investment bank acts as a full-service organization and offers several services to their customers like market-making, equity research, derivatives trading, asset management, and FICC services, while the investment banking department of a bank only offers underwriting and merger and acquisition services.
It has two types of services, namely Buy-side and Sell-side. In Buy-Side advisory services to firms who are interested in buying the investment like insurance firms, Pension funds, etc. are provided and in sell-side, services regarding the trading of equity, derivatives, promotion of securities, etc. are provided.
Here are the roles and objectives of investment banking:
- When companies issue IPO, an investment bank can buy all the shares from the company and sell it in the market as a proxy company. It aids the company in contracting out the IPO to the investment bank itself. It offers advisory services in relation to underwriting services and mergers and acquisitions.
- Investment Banks serve as an intermediary between investors and corporations. It assists corporations by pricing securities resulting in maximization of revenue. Investment banks help their clients in meeting regulatory necessities while raising capital.
Objectives
- But these days, there is no definite limit on the activities that fall in the purview of investment banking. Besides underwriting and merger & acquisition-related advisory services, investment banks also offer diverse kinds of auxiliary services to their clients like market-making, equity trading, derivative trading, assistance in the analysis of risk associating with managing big projects, and facilitation of transactions.
- In the past, the primary purpose of investment banking was to link the gap between investors, individuals, and corporations, government bodies that needed funds to grow and run their businesses.
In a growing economy where all the companies wish to increase capital via stock and shares, investment bank with their skill helps these companies by offering underwriting services, so that businesses can increase their revenue while staying within the regulatory necessity. They offer other ancillary advisory services too to their clients. Thus, in short, these organizations play a key role by assisting individuals, corporate, and government bodies.
With their know-how, they help in the development of the national, local, and international economy as a whole.
Functions
Following are the functions as per Joseph Stone Capital
- It aids organizations in raising capital.
- Acts as a mediator between investors and the company.
- Offer ancillary services like derivative trading, equity, market-making, facilitating transactions, promotion of securities, etc.
- Offer advisory services for underwriting and merger
From the above points, it can be said that investment banking is an integral part of the global economy. Investment Banking personnel with their expert help in the growth of the economy and offer a number of services to their clients. Though there are some limitations, the benefits in this case specifically are overshadowing all the cons.
