Investment Banking
Investment Banking refers to a venture, which provides broad based financial services to the clients both institutional and retail. As a financial service provider to the institutional investor it assists corporate entity to raise capital, by underwriting and acting as the agent in the issuance of initial public offer as well as further public offer of securities. It also provides information to the corporate when and how to place their securities in the market. It also assists corporate houses in mergers and acquisitions. In its individual or retail advisory service, investment banking helps retail investors in their trading and investment in securities. Apart form it, Investment banking also provides other ancillary services like market making, trading of securities, bond, fixed income instruments, foreign exchange, commodity etc. However investment banking does not include activities of commercial banking like accepting deposits and giving loans.
The activities of investment banking are generally divided in two groups. Trading of securities, market making and promotion of securities like underwriting, research etc. are referred as the “sell side” activity. On the other hand dealing with different types of funds like pension funds, mutual funds, hedge funds and dealing with the retail investors constitute the buy side activity. Generally large full service investment banking provides both sell side and buys side services, while investment banking which are not full service, provides only one sided service, which is very often the sell side service. Apart from these, other niche services of investment banking are:- Structuring: which means formulation of complex financial products which offer greater margins & returns. Strategies: which refer to advice on strategies that can be adopted in various market conditions. Research service consists of reviewing companies’ performance and their future prospects, often with “buy” or “sell” advice. Another niche service is global transaction banking which provides cash management, custody services, trading & securities brokerage service to institutional investors.
Investment banking also provides investment management service, which is professional management of investment portfolio to meet the specific investment goal of the portfolio holder. Merchant banking which is a private equity activity is also a niche service rendered by investment banking. To provide this kind of all encompassing financial service investment banking needs an elaborate organizational structure, comprising risk management to analyze the market & credit risk of trading. Corporate treasury to look after funding, capital structure management & liquidity related matters. Financial control to monitor fund flows, global risk exposure & profitability. Compliance to look after compliance with government as well as internal regulation. Operation for data checking of trade done & technology to look after application of information technology, development & use of in-house software & electronic trading including of complex algorithms based trading. To sum up it can be said that in today’s globalize economy, investment banking is recognized as one of the most global venture. It is incessantly subjected to new developments in the global financial markets & the investment banking also aptly responded to it, by constant innovation & development of new financial products.
Tags: Financial Services