To put it simply, investment bankers
are the middlemen between investors and bankers when it comes to stock. An
investment banker performs a number of services that help both the investors
and the company in question. This is why they are so important to the financial
market. Here are some things they do:
- Buy and re-sell stock
This form of investment
banking does not follow the traditional manner. These investment banks
purchase stock from companies who have just had their IPO (initial public
offering). In the next step, these companies sell it in the market at a higher
price to what they had previously bought it for. This is a major risk, but due
to their expertise, they are usually successful at it. Some of the largest
corporations in the world are investment banks including JP Morgan, Morgan
Stanley, Deutsche Bank, Barclays, and others.
- Providing advice to clients
The clients of an investment banker
include corporations, pension funds, hedge funds, the government of its country
and other large financial institutions. Investment banks provide advice as to
what is the ideal step that should be done. The Chinese wall is a concept where
there is a discord between the advisory and trading divisions of the bank. It
is crucial that they maintain their independence otherwise they will not be
giving appropriate advice to their clients.
- Help find investors for debt financing
Debt financing is a way of raising
capital for projects through corporate bonds. Corporate bonds are much harder
to come about, as compared to government bonds. Therefore, investment bankers
are needed to find a client for these corporate bonds.
- Financing large projects
Traditional banks are usually much
smaller than investment banks. This is due to the fact that they do not
undertake projects as big as investment banks do. The only way that large
projects get funded besides an IPO and selling stocks is through an investment
bank. This is why they are so crucial for the functioning of the economy.
- Asset management and brokerage service
Finally, investment banks also help
regular investors. This is because they take money from a client and use it to
help those clients make more money. This is done in two main ways. The first is
that they select stocks. The second is that they secure mutual funds for their
clients as well.
As you can see, investment banking
is crucial for the economy and this is the reason why becoming an investment
banker is such a lucrative proposition.
