Investment banks play a vital role in the smooth functioning of financial markets across countries and geographies. They help raise capital for a country’s economy apart from helping wealthy investors such as corporations, governments, and high-net-worth individuals generate good ROI on their hefty monetary investments in the financial markets. The primary role of investment banks is to offer expert investment advice to businesses and federal agencies on how to procure financing and manage their financial tasks.
Other vital roles an investment bank plays, comprise asset management for big investment funds and managing wealth of rich individuals who invest big in the trade markets. A few big global names among investment banks comprise JPMorgan Chase, Goldman Sachs, Credit Suisse, Citi, & Barclays.
Investment Banking Industry: Functions & Significance
When private companies decide to go public to raise funds, they need to hire an investment bank to get issued an IPO against their name in the stock markets. Investment banking professionals help corporations set things and processes needed to list a private company on stock exchange. In return, they charge a fee (commission) for the facilitation of the same.
Facilitating Mergers and Acquisitions (M&A) for Businesses
M&A activities cannot be performed without assistance from the investment banking industry. It is division of corporate finance that deals with two businesses coming together, or one business buying the other. The formal process, or the paperwork involved with such financial activities, is taken care by the investment bankers. It involves studying the balance sheets of companies, performing financial modelling, and identifying the risks involved.
Risk Analysis & Management
Risk management is executed at every stage of an investment by the banks, internally. Stated below is how banking professionals manage risks associated with an investment made by corporations and individuals:
- Risk management, as the name entails, is managing financial risk involved with liquidity, loans, currency, etc.
- Investment banking firms help corporations and wealthy individuals recognize the potential areas of loss.
- The kind of risks investment bankers manage for businesses, comprise legal & compliance risk, operational risk, investment risk, and business risk.
Market research is among the most crucial facets of the investment banking industry. Market researchers at investment banks help companies make investment decisions based on reports submitted by them to the potential investors. Research reports provide for a fairly good understanding of the worthiness of a company that listed on the trade or stock exchange.
Research is done by performing a detailed analysis of the performance reports posted by a company. Balance sheets of businesses are analysed and dissected to find out their monetary worth, and basis that, advise is offered by investment bankers to their VIP clients.
Financial Consultation to Merchants
Merchant banking is something that comes under the private activities of investment banks wherein the bank offers consultancy to its clientele. The consultancy primarily pertains to matters of marketing, financing, and legal assistance. Banks in this role, act as financial engineers to businesses.
Below stated services are offered by investment banks under merchant banking:
- Broker services for stock exchange markets
- Portfolio management
- Project management
- Leasing support
- Special financial services for entrepreneurs and small businesses
- Handling public issues of a firm
- Ensuring conformance with federal regulations for a firm running an industrial project
There exist a plethora of other financial services an investment bank extends to its clients (investors) under merchant banking. In return, it charges a consultancy fee.
The core existence of investment banking lies in its ability to manage big monetary investments for its wealthy clients. Banking professionals guide businesses in making right decisions pertaining to portfolio management, purchase in the trade markets, and managing securities. Bankers prepare reports on business performances, and leveraging those, crucial decisions are made on financial securities. Investment advice is offered by banking firms to their clients based on their specific objectives, amount of investment, time duration, and risk appetite.
Requisite Skills to Build an Investment Banking Career
Investment banking is an ideal career option for finance students having an inclination towards stock markets and national economy. A good understanding of the functioning of economy is a mandate for those seeking a career in investment banking.
Here are a few vital skills to becoming an investment banker:
- Strong analytical & mathematical skills
- Taxation, bookkeeping, and accountancy
- Understanding of global economy
- Knowledge of the fundamental concepts of economics and key concepts, e.g. mutual funds, stock markets, etc.
Other critical skills to possess as a potential investment banker are emotional intelligence, relationship building, communication abilities, and team work.
We wish the aspirants best of luck for all their future endeavours. Work hard, be dedicated, and acquire as many industry-relevant skills as possible. You can enrol into investment banking certification programs online to gain banking skills fast.