Investment Banking -

Overview, Guide, What

You Need to Know
The investment banking industry facilitates corporate fund-raising activities
to serve various businesses and investors. You can utilize stocks and secure
debt financing with the help of investment bankers. This post will describe
everything you must know about the scope of investment banking and how
it delivers valuable financial services.

What Is Investment Banking?

The meaning of investment banking is a unique category of bank facility
where the value of transactions is many times greater. It is one definition of
investment banking. Clients can use it for business deals involving mergers
and acquisitions (M&A) or initial public offers (IPOs).
Therefore, fund managers and corporations assign the function of an
intermediate institution to the reputed investment banking services. Doing
so assures a highly transparent and mutually beneficial deal lifecycle that
satisfies all the parties involved in the deal. 

Why Use Investment Banking?

While we have explained the meaning of investment banking (IB) concisely,
it is reasonable to wonder whether using it is necessary and important for
the efficient execution of M&A deals or fund-raiser underwritings.
So, an introduction to the scale and significance of investment banks can
help you realize why IB services are essential for high-value transactions.
Importance of Investment Banking
The IB industry creates a reliable, fast, transparent ecosystem for investors,
corporations, and fund managers. Therefore, multiple entities can succeed
in deal execution without additional resources. IB is indeed crucial for
protecting everyone’s interests, as highlighted below.
1. Investor bankers have experience in handling large transactions
by combining several strategies. Therefore, they save time by
analyzing the financial models through standardized professional
solutions.
2. Also, all parties have a better chance of a balanced deal closure
because the investment banking services facilitate the impartial
or objective evaluation of buyer negotiation terms.
3. Besides, investment banks must enforce a strong accountability
culture to maintain and grow their brand. So, the clients can
acquire the best deals and terms.
4. You can stay relaxed so that no external party will access the
confidential data involved in the deal negotiation, evaluation,
 and optimization. Investment banks are committed to keeping
your organizational and stakeholder data secure.

Strategic Benefits of Investment Banks

You might experience some operational and performance efficiencies since
the investment banking services reduce the financial risk burden to you
and your stakeholders. Moreover, it is one of the strategic benefits of
allowing investment banks to guide your M&A deals and capital market
management.
If an organization invests its resources in alternative solutions, it will be
liable to stay relevant to the latest legal and ethical developments in
investment banking regulations. Additionally, there is the risk of neglecting
or delaying your core operations due to unsuccessful deal execution.
You can avoid these undesirable deal outcomes by employing expert
investment bankers to execute the deals and fund-raising programs.
Also Read: PSD2 and MiFID II – Game Changers for the European
Banking Sector

Example of Investment Banking Services

Strategists can leverage the unique business information services (BIS)
available as a benefit of investment banking. It helps to reduce the
overheads of financial modeling, regulatory compliance, and
communication methods. So, the success rate of deal closing increases,
favoring the timely progress of project activities.
For example, business leaders can improve the quality of their valuation
data by assessing it through investment bank facilities. Some clients can use
IB for bankruptcy, damage claims, or litigation assistance.
Corporate use cases of investment banking also address deal evaluation,
company research, investment exit strategy, and buyer-company
screening.

Different Types of Investment Banking

|1| Middle Market Investment Banking
If an investment bank serves clients in multiple states, it is a middle market
IB that handles 50 million to 500 million USD. Mid-market investment banks
are rarely multinational but are experts in one or two primary services. E.g.,
Stifel, Robert W. Baird & Co., etc.

|2| Bulge Bracket Investment Banking

This category of investment bank provides “full services” across all mergers,
litigations, deal evaluations, and fund-development projects. Most of their
clients belong to Fortune 500 corporations, the world’s wealthiest and most
significant enterprises.
Their transactions often include billions of dollars, and no border limits their
scale. i.e., these investment banks are virtually present in every recognized
country. Think of Morgan Stanley or Goldman Sachs if you want to get an
idea of the scale of bulge bracket investment banks.

|3| Regional Boutique Investment Banks

Sometimes, investment banks remain active in a defined geographic area;
thus, their financial portfolio is never as extensive as the mid-market or
bulge bracket IBs. Furthermore, they can focus their resources on a few
service categories. The transactions might consist of 50 to 100 million, while
the staff is often less than fifty.

|4| Elite Boutique Investment Banks

The other variations of investment banking services provide their services to
all industries and narrower sectors. Still, one type of investment banking, an
elite boutique, offers unique services exclusive to only one industry.
An elite boutique investment bank rivals the bulge bracket IBs in dollar
valuation. Yet, its staffing and client acquisition philosophy stays
concentrated on one industry. For example, Rothschild is an elite boutique
IB facilitating investment banking services to the oil and gas industry.
Related: Top Trends that Will Shape Investment Banking in 2022

Clients in Investment Banking

Investment banks serve municipalities and government organizations to
manage their large-value transactions in the public sector. Meanwhile,
private sector players like renowned funds demand the services of
investment banks to expand the wealth of their benefactors/supporters.
Some projects are joint efforts by public and private enterprises. Such a PPP
(public-private partnership) finds the IB industry helpful when negotiating
the terms of engagement.
What Does an Investment Banker Do?
IB employees have a set of duties and responsibilities that vary across the
investment banks. To know what the role of investment bankers
encompasses, you must understand the following components of
investment banking services.
1. Investment bankers help organizations raise capital through debt
or equity solutions via public or private transactions.
2. They must understand mergers and acquisitions (M&A) deals
and know how to handle financial planning analysis (FPA)
projects.
3. IB professionals also learn valuation standards to create reports
for their employers’ clients.
4. These individuals have acute expertise in financial modeling,
feasibility studies, and investment research services.
5. Investment bankers handle pitchbooks and guide all parties
throughout the deal life cycle, including the investment exit
strategy.
Finally, investment bankers must survive and thrive in fast and stressful
work schedules without letting exhaustion, emotion, or personal problems
impact their output.

How to Get into Investment Banking?

You require relevant skills to build a career as an investment banker.
Consider the following skillsets, roles, and job descriptions to understand
the scope of investment banking jobs.
1. Team spirit is essential to succeed in the investment bank and
related departments. You cannot do everything, and it is okay to
rely on others under some circumstances.
2. Analytical skills allow an investment banker to formulate
balanced deal insights and sustainable portfolio advice. You
require these skills in the development of an investment banking
strategy.
 3. Risk management means understanding the stakeholders’ risk
exposure in M&A deals or capital market studies.
4. Communication skills help you prevent misunderstanding and
improve buyer negotiations while saving time for every involved
party.
5. Financial modeling requires a sound understanding of
mathematical, accounting, and business administration
principles.
6. Legal awareness helps you notice critical regulatory changes,
raising the compliance standards of your organization.
Additionally, you must hold relevant academic qualifications and genuine
workplace experience to get the position of an investment banker in a
reputable IB division. A degree in finance, business administration,
economics, or mathematics is the minimum requirement in most
investment banks.
Related: Who Are Investment Bankers and What Do They Do?
Advantages and Disadvantages of
Investment Banking
If there is a profit, there will be some pain to accompany you if you want to
acquire it. Investment banking exists to streamline your fund-raising or
portfolio activities. However, if you do not practice due diligence when
selecting investment banking services, you might unpleasantly discover the
disadvantages of investment banking.

1| The Advantages of Investment Banking

1. The scale of investment banking services is many times greater
than what a regular corporate bank account can provide.
2. Economic growth accelerates as more enterprises benefit from
investment banks and hire more people. Job growth increases
the purchasing power of the masses, promotes consumption,
and accelerates the circulation of wealth.
3. Established work models remove the guesswork from the deal
lifecycle and refinancing strategy.
4. Regulatory compliance increases since investment banks
maintain the data on the latest rules and policies that govern
company ownership, funding, and bankruptcy. You do not need
to worry about authorities suddenly penalizing you for a business
deal.
5. Cross-border partnerships increase because businesses and
investors can tap into foreign resources to acquire mutually
beneficial financial outcomes.

2| Disadvantages of Investment Banking

High risks are inevitable in investment banking transactions, most of which
are purely electronic fund transfers. Also, unprofessional investment banks
can increase the risk exposure of businesses and investors.
Long-term investments are at the core of investment banking so that stable
funds become a reality. However, this category of financial commitment
also locks your resources away.
Competition authorities pay extra attention to mergers and acquisitions.
You are still liable for the deal dynamics even if you use investment banking
solutions.
Market fluctuations might impact funding projects and deal negotiations.
Therefore, what seems a fair and balanced deal today, can become a
problem later. You require thorough analytical insights and excellent
market research to manage this issue.
Also Read: Global Economic Trends for 2022 and Beyond

Investment Banking Companies

1| Barclays
Barclays delivers its investment banking operations through the division
named “Barclays Capital.” It also enables commercial banking facilities like
JP Morgan Chase.

2| Goldman Sachs
Goldman Sachs originated in the 19th century and became today’s most
recognized investment bank. It can facilitate the core investment banking
services while leading the IB sectors in revenue and business
standardization.

3| Wells Fargo
Wells Fargo is well-known in the United States of America, and it serves
different client categories alongside its institutional investment banking
services. Wealth/retirement management and consumer brokerage are
some available facilities at Wells Fargo.

4| Credit Suisse
This bank, Credit Suisse, operates in more than fifty countries, though its
origin lies in Zurich, Switzerland. Leaders secure debt/equity underwriting,
investment research, and core investment banking assistance.

5| Bank of America Merrill Lynch

This bank goes beyond the regular investment banking facilities, imparting
mortgage facilities and leading the brokerage firms. It has secured several
awards and titles in banking, financial services, and insurance (BFSI).
6| Morgan Stanley
It has its office in New York, but its operations extend to Tokyo, Mumbai,
Hong Kong, and other major cities worldwide. Businesses know how
Morgan Stanley supports them via wealth management and institutional
securities. Also, it features settlement and custodian roles. 

7| Citigroup/Citibank
Citigroup (or Citibank) is the oldest name in investment banking, providing
excellent support in capital market origination, treasury, and securities. It
operates several business divisions like Barclays to realize operational
efficiencies.

8| JP Morgan Chase
It has provided its IB solutions to its institutional clients across all
continents. It should be no surprise when its market share is more than 8%
consistently. You will find that JP Morgan Chase also provides merchant
banking and treasury services.

9| UBS Group
This financial entity is a Swiss bank streamlining its operations to guide
high-worth individuals and entities via IB solutions. It allows you to
optimize your asset/portfolio management and improve corporate
financing programs.

10| Deutsche Bank

It would be the greatest of all the IBs in Europe if we were to use total
assets for benchmarks. Deutsche bank helps organizations through
investment banking, brokerage, and cross-border card services, and its
branches serve more than seventy nations and provide insurance plans.

Corporate Banking vs. Investment Banking

Corporate banking and investment banking differ in how they serve their
clients.
1. Corporate banking facilitates financial services for the long term,
while investment banking focuses on a specific deal or
transaction.
2. Primarily, companies and private sector players benefit from
corporate banking. However, investment banks also assist public
sector institutions and government projects.
 3. Corporate banking handles loans, credit, and debt for their
clients. Investment bankers manage equity and capital market
plans to help institutions.
4. Risk management is more prominent in corporate banking.
Mergers and acquisitions are the focal points in the investment
banking industry.
5. Corporate banks are more active on the Forex (foreign exchange)
side. Meanwhile, investment banks concern themselves with sales
and trading facilities.

Challenges in Investment Banking

Every industry suffers losses when external or internal risks become an
intense reality. Likewise, investment banking services must handle the
following challenges to remain competitive and protect stakeholder
interests.

|1| Over-regulation of the Investment Industry

Several financial and asset management legislations impact the stability of
investment banks. Some rules, like the Volcker rule, restrict proprietary
trading.
Specific laws or regulations do not provide sufficient time to implement
new compliance requirements. So, central regulators can penalize
investment banks without considering the reasonable delays in business
model transition.

|2| Investment Banks Cannot Change Interest Rates

Investment banks do not have the freedom to manage their pricing and
commissioning strategies like independent private businesses. Even the
elite boutique investment banks must remain aware of regulatory oversight
and compete accordingly.
Also, pricing/fair-trade guidelines are not uniform in all countries. What
seems to be a legitimate business merger in one country could attract the
competition committee’s attention in another region.
|3| Low-Interest Rates
While the investment banking service assists the stakeholders in raising
funds to succeed in debt management, it cannot optimize the cash flows if
the interest rates are unfavorable.
Low-interest rates affect stocks, bonds, and company performance. These
dynamics can make buyer negotiations and balanced deal evaluation more
complicated.

|4| Investment Banks in an Economic Slowdown

An economic slowdown influences every unit of the economy, and
investment bankers are still human. So, the IBs suffer like any other
commercial bank when the country undergoes an economic slowdown.
Moreover, this challenge becomes ten times more painful in a
recession because recovering from it is often more demanding than in the
case of a slowdown reversal.
|5| Public Institutional Borrowing 
When inefficient enterprises fail to repay their capital and interests, all
banks face the trouble of NPAs or non-performing assets. If NPAs cross a
regulatory threshold, the bank might lose its remaining liberties, and
regulators might replace or control its management.
All these challenges can render investment banks ineffective and limit how
they conduct their business. If investment banks stop functioning correctly,
you observe disputes concerning mergers and funding arise, leading to
other economic woes.

Conclusion
Investment banking delivers successful deals in mergers, acquisitions,
capital markets, and corporate negotiations. Some investment banks extend
or complement their core operations via commercial banking integrations.
The transactions carry significant risk, and their complexity requires
professional assistance. Otherwise, the stakeholder interests might be in
danger while the unlimited potential of investment deals remains
unrealized.
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