Investment banking

An investment
banking is a financial
institution that assists
individuals,
corporations and
governments in
raising financial
capital by
underwriting or acting
as the client’s agent in
the issuance of
securities or both.
Who are an investment bank's main clients?
Corporates: operating companies in sectors including energy,
retail, construction, technology, etc. and other financial services
organisations.
Funds: investment vehicles which pool investors' assets and
follow a particular investment strategy
Sovereigns: governments, but also quasi-governmental
institutions
High net worth individuals: Usually defined as per terms of an
organization.
The bank itself: some of a bank's trading and investment
activities are conducted not for an external client but to make
profits for itself, or to protect the bank against risks.
 What do investment banks do for their clients?
( Role of Investment Bank)
• Giving advice: advising clients on buying and selling companies,
raising money, economic risk management
• Investment management: advising on and managing the
investment of assets.
• Providing financing: making loans to and purchasing the shares
of corporates.
• Trading: buying and selling shares, debt products, commodities,
derivatives and related products on behalf of clients and to make
money for the bank.
• Research: Monitoring industry trends and economic
developments for the bank's own purposes and for clients.
Activities of a Typical Investment Bank
• Raise equity capital (e.g., helping launch an IPO or creating a
special class of preferred stock)

• Raise debt capital (e.g., issuing bonds to help raise money for
a factory expansion)

• Insure bonds or launching new products (e.g., such as credit

default swaps)

• Engage in proprietary trading where teams of in-house

money managers invests or trades the company's own money
for its private account.
How do investment banks make money from
offering these services to their clients?
• Fees: charged for advice, providing finance, keeping money
available for clients, arranging financing for clients from other
parties, trading services, investment services, and research.

• Dividends: income from investments made in shares.

• Interest: income from loans made.

• Investments: profits from investments made.

• Trading: profit made from buying and selling securities.

The Buy Side vs. Sell Side of an Investment Bank

• The sell side typically refers to selling shares of newly issued

IPOs, placing new bond issues, engaging in market making
services, or helping clients facilitate transactions.

• The buy side, in contrast, worked with pension funds, mutual

funds, hedge funds, and the investing public to help them
maximize their returns when trading or investing in securities
such as stocks and bonds.
Investment banks are divided into three categories
• Front Office Investment Bank Services - helping companies
in mergers and acquisitions , corporate finance , professional
investment management.

• Middle Office Investment Bank Services - include

compliance with government regulations and restrictions.

• Back Office Investment Bank Services - handles things

such as trade confirmations, ensuring that the correct
securities are bought, sold, and settled for the correct
amounts etc.
 Need for Investment Banking
• Provision of finance: IB provide money and access to other
sources of money. Without this money, these businesses
couldn't function.
• Advice: IB advise corporates, on the best ways to use their
money and to conduct transactions, which helps to foster
economic growth and stability.
• Risk management: Allow companies and governments to
effectively manage risks, ensuring that the effect of these
issues on the real economy is minimized.
• Information: IB provide analysis of corporate activity and
economic trends which assists the financial sector, government
policy makers, businesses and ordinary people.
 How are their activities regulated?
• Capital adequacy
• Activities undertaken
• Trading on their own behalf
• Insider dealing
• Money laundering
• Transparency
• Pay
 Activities in Mergers & Acquisitions?

Negotiatio
n terms
and
Managem closing
ent documents
Documen meetings
Assessmen tation
t of the
Preparing current
Vital a list of valuation
market prospecti is done to
intelligenc ve targets know the
e price
expectatio
ns
 Principal tasks of the investment bank in
IPO
• Assess the company's suitability for listing.
• Participate in drafting the prospectus and coordinating due
diligence.
• Determine the price and underwrite the offering.
• Liaise with regulatory authorities.
• Oversee settlement, including underwriting and the exercise of
any over-allotment option and price-stabilization mechanisms,
as required.
• Market the offering and book building (if required).