What is Investment Banking? What Does This Type of Banking Offer?

One of the most important questions a beginning investor should ask is, “What is investment banking?” The short answer is that it describes a financial institution that underwrites corporations and government sectors that issue bonds, treasury bills, and stocks. The financial institution handles acquisitions, mergers, and corporate restructuring. Investment banks work mainly with corporations, and not with individual investors or small businesses.

How investment banking works

This type of investing works when the client purchases assets from the bank. The bank then must invest clients’ money and use it toward business ventures. Clients expect that their purchased asset capital will grow and gain dividends. The main job of investment banks is to advise corporations about funds and raising money. Some do this by selling the company’s equity and others do so by offering advice about debt issues.

What is investment banking? Two Different Types

There are basically two types of investment banks. The first type issues bonds and stocks to corporations and government entities for a pre-specified amount. The financial institution then invests the money from the clients and buys stocks and bonds. The client will receive payments from the profits made on these stocks and bonds. In addition to stocks and bonds, some clients prefer to invest in construction and property development.

Another type of investment bank is known as the “merchant bank.” These financial institutions provide capital to businesses in loans rather than shares. Usually, this type of investment banking is only done between big-name corporations and banks. New businesses and financial institutions usually are not considered to be merchant banks or companies, because the investing is done based on the security of shares.

What is investment banking? What are examples of investment banks?

Investment banks have a huge network of financial contacts. They also possess market knowledge, understand legal processes, and know all about comparable markets that will give clients a chance to come out on top over their competitors. For these reasons, it is easy to see why so many companies choose to involve themselves in investment banking.

Some of the major global investment banks include: Barclays Capital, ABN Amro, Brown Brothers Harron & Co, Bear Stearns, Banc of America Securities, Wells Fargo, and JP Morgan Chase. A bulge bracket firm is a term to describe banks that comprise 15,000 to 50,000 employees throughout the world.

Smaller firms are known as boutique investment banks, and have between 500 and 3,000 employees. These days, boutique investment banks are starting to make their mark on the technology industry. Many of these smaller investment banks tend to narrow down their niche securities, and many of them have been merging their resources with the tech industry.

What is investment banking for career-oriented individuals?

Since an investment bank can have thousands of employees, it is not surprising that many people are interested in working for one. There are many job and career opportunities for all types of investment banks. Bulge bracket firms can pay six or even seven figures to employees with the right type of ability and commitment.

Smaller investment banks can pay good salaries to employees, too. Those who are attracted to leadership will love working for investment banks. However, a lot of responsibility and commitment is needed, so investment banking career seekers should make sure they understand everything that will be required of them.