What is the Need of an Investment Bank?

The need for investment banks is extremely large. For instance, the division of banking is

responsible for the formation of capital for companies, governments and other entities. Also,

investment banks act as an intermediary between investors and corporations. They perform

several activities such as negotiation and structuring of mergers and acquisitions and many

more.

The involvement of investment banks in the meeting of sellers and investors, also add

liquidity to the stock market.

The actions taken by investment banks promote business growth, which in turn boost the

economy. As said earlier, investment banks help companies issue stocks for the first time in

the form of an IPO, make it public and allow it to trade in the capital market. They also help

companies in finding large scale investors for corporate bonds to arrange debt financing.

Investment Banking offers a variety of functions by which they play a major role in uplifting

the economy. Here are some of the functions performed by these banks

1. IPO Launching
IPO launching – Launching an IPO cannot be done without the investment banks. An IPO or

initial public offering is a way through which private corporations raise capital by issuing

their shares to the public. 

By issuing SME IPO’s, they gather public attention in which in turn help companies to not

just create capital but also do build branding. 

Going public is important for any company and therefore they select a wealthy investment

bank based on few merits: quality of work, reputation, experience and more. 

The foremost thing an investment bank does is draft a financial statement for the IPO which

comes in an underwriting agreement. 

Then, the next thing is that it files a financial statement with the SEC.

The investment bank now waits to take the approval of the SEC. Once the offer comes, it sets

an offer price. 

After issuing the shares, the investment bank starts an aftermath stabilization analysis and

monitors the performance of shares in the public market. 

The investment bank then receives a commission for its service from the organization.

1. Underwriting
Underwriting is a process where bankers sell stocks or bonds to investors so that they raise

capital. For instance, a corporation takes on financial risk for a fee. 

The first process of underwriting comes in when the investment bank first makes a prospectus

with a price range. On seeing the price range, investors finalize a firm price. 

In the next process, a book of demand is built where the prices that are already set are

cleared. Finally, the funds are allocated. Here, we call it a firm’s commitment.

1. Merger and Acquisition

If a company wants to do a merger, firstly it goes to an investment bank. The investment

bank. An investment bank needs to perform several things during merger and acquisition:

Investment banks help in raising funds for the merger company.

Investment banks deliver the best strategy for the merger.

These banks firstly analyse the merging company, gather all the necessary information, find

out its actual value and present it to you. 

1. Risk Management

Investment banks also help in minimizing the risks associated with the business. A business

is associated with many risks such as business risk, investment risk, compliance risk, legal
risk, operational risk and more. Investment banks here figure out all these risks, try to

minimize them and find out how they will affect the bank. 

Market risk is the most important factor an investment bank needs to figure out. For that, they

need to keep an eye on critical factors such as credit risks. Investment banks set up a strong

team whose major job is to do a risk assessment.

1. Research the Stock Market

Research is the primary objective for any job and so is investment banks. That’s the reason

investment banks do thorough stock market research such as analyzing a company’s

performance, reading the financial statements, and more. Also, they always keep an eye on

the stock market which in turn helps you make a profit by giving advisory services such as

sales and trade.

Investment banks perform various stock market research such as fixed income research,

qualitative research, equity research, macroeconomic research. 

1. Merchant Banking

Some investment banks offer merchant banking services in several areas such as financials,

legal, marketing, and managerial divisions.

 Merchant banks do several things:

 Raising capital for a client
 Project management 
 Lease services
 Maintaining and Managing Public Issue of a company.
 Special assistance to small companies and entrepreneurs.