What does investment banking involve

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Your bank will support this process in two key ways. Click here to learn more about the different types of investment banks. Updating Results. Home Advice. Investment banking What it is and what investment bankers actually do. Considering a career in investment banking? Find out what investment bankers actually do and the key areas within an investment bank — essential info for graduates.

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Develop and improve products. List of Partners vendors. Investment banking is a draw for many interested in a Wall Street career, given the profession's high profile and handsome compensation.

But the job title of investment banker says little about what one actually does. So, what do investment bankers do? Investment bankers famously have a central role in the launches of initial public offerings IPOs by young companies preparing to go public.

However, that's just one example of their work assignments. Essentially, investment bankers are financial advisors to corporations and, in some cases, to governments.

They help their clients raise money. That may mean issuing stock, floating a bond, negotiating the acquisition of a rival company, or arranging the sale of the company itself. When the capital markets are doing well, investment bankers tend to do well. More money and more activity generate more profitable projects for investment bankers and their clients. Investment bankers play a role in a number of financial activities undertaken by companies and governments.

Below is an overview of the main types of deals they are involved in. If a large company wants to build a factory, it probably doesn't have the cash on hand to do it. It may decide to issue a bond to raise the money to proceed with the project. The cost of the bond will be paid from the increased production generated by the new factory. Similarly, a government may need to finance the construction of an airport, a highway, or any other large municipal project.

If it issues a bond, it can do the work now and repay the bond from future tax revenues. In either case, an investment banker may be brought in to arrange for the financing.

The investment banker would plan the bond issuance, price it appropriately, complete the U. Securities and Exchange Commission SEC documentation required to issue the bonds, and finally help market the bonds to buyers. The most cost-efficient way for companies to finance their growth and expansion is either by selling bonds or by selling stock.

The investment banker also plays a role when it comes to arranging the sale of stock, or equity financing. Suppose a young company decides to raise money for its expansion by launching an initial public offering , or IPO.

It would first hire an investment banker to put together a prospectus for potential investors explaining the terms of the offering and the risks it carries. The offering then has to be managed through the process of marketing to investors, explaining to the media, and gaining approval from the Securities and Exchange Commission SEC.

Pricing the offering is crucial. If the shares are priced too high, the public may not be interested in buying them and the IPO will be a very public flop. If the shares are priced too low, the investment banker is leaving money on the table that could have been generated for the client. The investment banker plays a leading role throughout each step of this process. While arranging capital markets financing, investment bankers often undertake the underwriting of the deals for their clients.

This means taking on much of the risk inherent in the process by buying the shares outright from the issuers and then selling them to the public or institutional buyers. Investment bankers sell the shares at a markup to generate profit for their employers. The difference between the purchase price and the markup price is called the underwriting spread. Typically, a lead investment banker works with a group of investment bankers, called a syndicate , to underwrite an issue so that the risk is spread out among several players.

In some cases, the investment banker may merely act as a go-between and markets the deal but does not take on the underwriting risk. In this case, the investment bankers might sell some of the securities and get paid on a commission basis for the number they sell.

Retail banks accept deposits of money and lend it out to borrowers; commercial banks do the same but their depositors are businesses rather than individuals.

The proceeds from these sales help companies, government entities or entrepreneurs to finance big projects that require a lot of upfront cash, such as research and development or an expansion into a new region or market. In short, investment banks are middlemen between those with money and those with ideas who need funding.

They give money a productive purpose by channelling it into projects. Investment banks provide a range of services, which varies from one organisation to another. Some investment banks are part of a large retail or commercial bank Barclays is one example and some provide separate services such as asset management alongside their investment banking divisions.

It works in the same way as a retail bank offering you a mortgage to buy a house. The bank takes into account how much financing the client needs and for what purpose, as well as their credit history and current market conditions. This information helps the bank to work out how much investors would be willing to invest.

Investors benefit by receiving interest payments from the loan or bond, and the receiving organisation benefits from a lump sum that it can pay back gradually afterwards. Investment banks also provide equity financing , which is when they find investors to invest directly in the company by becoming shareholders.

In order to advise its clients, an investment bank needs to have a good sense of whether a company would be attractive to investors and whether the terms of a loan, bond or equity offering would appeal to them. Banks make money by charging a fee for their services. Investment banks also give advice to organisations, charging fees for these services.

An investment bank would help the organisation decide how to approach the other company, how to structure the transaction, what would be a fair price to pay and how to finance the acquisition.

Essentially, an IPO allows a business to be listed on a stock exchange, giving private individuals and organisations the ability to buy and sell shares easily online, for example. To buy shares in a privately held company that has not done an IPO, investors need to contact it directly to agree on the price. Being listed on public markets enables a company to grow more quickly. Investment bankers help a company to get itself listed, which would include everything from internal preparations to marketing materials for research analysts and investors to analyse.

Most ordinary people are unlikely to have had any direct contact with an investment bank — unlike other financial areas of work such as retail banking or insurance. However, investment banks indirectly affect most aspects of our lives because they advise and work on behalf of many different entities in society.