From primary markets to advisory services.PrintCiteShare
Written byAnn C. Logue
Fact-checked byDoug Ashburn
Helping the capital markets function efficiently.
© Kostiantyn/stock.adobe.com
Investment banking is a business that facilitates capital markets and the larger financial community. Investment bankers connect investors to companies that are raising money by issuing stocks and bonds. Most investment banks also offer broker-dealer services to help customers—often institutional clients—buy and sell securities, and they may also provide businesses with advice on mergers, acquisitions, and other strategic transactions. They play a key part in the financial system by allocating capital to economically productive uses.
Key Points
- Investment banks help companies raise money in stock and bond markets.
- Most investment banks are also broker-dealers, helping institutional investors buy and sell securities.
- Investment banks are regulated by the Securities and Exchange Commission, and some are also regulated as commercial banks.
The primary work of an investment bank is in the primary market
Investment banks engage in corporate finance, which means they help businesses raise money in the stock and bond markets. These are public, regulated markets, so bankers must pay careful attention to financial regulations and compliance.
Investment bankers organize public offerings by writing and filing prospectuses as well as estimating valuation and finding investors who will buy the offerings. This “primary market” is the first time that the securities are made available to investors. After they are issued, the securities trade on the stock exchange and in bond markets, which are known as secondary markets. Combined, the primary and secondary markets are known as capital markets.
Read before investing: Why the prospectus matters
You’ve probably seen the boilerplate disclaimer: “Read the prospectus before investing.” But can you really be expected to wade through a complex document full of jargon, tables, and formulas, and come out with a clearer understanding of the investment? Learn what to look for in a prospectus.
Many investment banks also work in public finance, which raises money for state and local governments. This involves issuing municipal bonds and arranging asset sales and leases.
Most investment banks engage in other activities
- Broker-dealer services. A broker brings buyers and sellers of securities together. A dealer sells securities from its own inventory. Investment banks have broker-dealer services for institutional and retail investors to attract customers for investment banking deals, support trading in securities issued in banking transactions, and maintain a base of revenue when corporate finance activity is in a downcycle (i.e., a slow period for initial public offerings [IPOs] or merger and acquisition [M&A] deals).
- Advisory. Because investment banking analysts research markets to help their clients raise money, they are aware of other opportunities in the market. They may provide advice on IPOs, M&A deals, spin-offs (i.e., the sale of a company business unit), and other strategic transactions to help their clients thrive. Some offer advice on risk management, including options and futures transactions to help clients manage costs and supply chains.
- Currency operations. Many investment banks operate globally, so they provide their clients with research and transaction capabilities to manage exchange rates and take advantage of opportunities to invest overseas.
How investment banks support capital formation
Investment banks play a key role in the economy by helping clients with money to invest and generate a return from clients that need funds to support growth. In this way, they make it more likely that companies can expand. Also, taking a company public for the first time (IPO) or selling it to another company (M&A) creates liquidity for early-stage investors, giving them an incentive to keep funding new companies.
Some of the biggest investment banking players
Investment banking is a competitive business, so it’s no surprise that investment banks carefully track which firms are going up and which are not. Each quarter the Financial Times newspaper publishes its league tables, which rank the top investment banks just like general newspapers list sports teams.
The league tables list all banks that engage in corporate finance activities. The largest bank is JPMorgan Chase (JPM), which is a money center bank with both commercial and investment banking activities around the globe. Other large money center banks include Bank of America (BAC) through its BofA Securities division, Citi (C), and Wells Fargo (WFC). Goldman Sachs (GS) and Morgan Stanley (MS) are leading global investment banks that received commercial banking charters during the 2008 financial crisis.
The Financial Times top 10 list (as of April 2024) is rounded out by investment banks based outside the United States: Barclays (BCLYF), BNP Paribas (BNPQY), Deutsche Bank (DB), and RBC Capital Markets (RY).
The bottom line
Investment bankers tend to work long hours in a high-pressure environment and are typically well compensated for their efforts. Whether the investment banking sector is fairly compensated for the value it creates—which has been tremendous over the past century—is an argument as old as free market capitalism itself.
But there’s an old saying on Wall Street: Capital gravitates to where it’s treated best. Investment banking provides many of the essential functions that “treat capital well.” Investment banks help businesses raise money to grow and expand. They expand capital market access and work to make markets function efficiently, to the benefit of society as a whole.
References
What Is an Investment Banker? | cfainstitute.org
League Tables | markets.ft.com
Swiedish:
Investment Banking: Kopplar investerare till företagstillväxt
Investment banking är ett specialiserat segment av bankverksamhet som fokuserar på att anskaffa kapital för företag, regeringar och andra enheter, samtidigt som det tillhandahåller strategisk finansiell rådgivning. Det fungerar som en bro mellan investerare (som tillhandahåller kapital) och företag eller institutioner som söker medel för expansion, förvärv eller andra tillväxtmöjligheter.
Nyckelfunktioner för Investment Banking
Kapitalanskaffning
Aktiefinansiering: Hjälper företag att samla in pengar genom att ge ut aktier (Initial Public Offerings – IPOs eller sekundära erbjudanden).
Skuldfinansiering: Underlätta emission av obligationer eller andra skuldinstrument för att generera medel.
Fusioner och förvärv (M&A)
Tillhandahåller rådgivningstjänster för fusioner, förvärv och avyttringar. Investeringsbanker hjälper till att utvärdera affärer, fastställa verkliga värderingar och förhandla om villkor.
Market-Making & Trading Agerar som mellanhänder på finansmarknaderna, köper och säljer värdepapper för att tillhandahålla likviditet.
Riskhantering
Designa och sälja finansiella produkter (som derivat) för att hjälpa kunder att skydda sig mot marknadsrisker.
Omstrukturering av företag
Rådgivning om omorganisering av ett företags struktur eller verksamhet för bättre effektivitet, lönsamhet eller skuldhantering.
Den schweiziska bankkontexten
Schweiz har ett rykte om sig att vara ett robust finansiellt system som kännetecknas av diskretion, innovation och globalt inflytande. Schweiziska banker, inklusive de med investeringsbanker, är kända för sin expertis i att hantera gränsöverskridande transaktioner och storskaliga investeringar.
Globala anslutningar:
Schweiziska investeringsbanker, som UBS och Credit Suisse, utnyttjar Schweiz neutralitet och globala rykte för att koppla internationella investerare med företagsmöjligheter över hela världen.
Private Equity och riskkapital:
Schweiziska investeringsbanker är betydande aktörer inom private equity, och hjälper företag att samla in pengar för tillväxt samtidigt som de ger investerare möjligheter med hög avkastning.
Integration av förmögenhetsförvaltning:
En unik egenskap hos schweizisk investeringsbank är dess nära integration med förmögenhetsförvaltning. Banker kombinerar ofta dessa tjänster och erbjuder kunder med mycket hög nettoförmögenhet anpassade investeringsmöjligheter kopplade till företagstillväxt.
Hållbarhetsfokus:
Många schweiziska investeringsbanker är också pionjärer inom grön finansiering, och kopplar investerare till hållbara och ESG-fokuserade (Environmental, Social and Governance) projekt.
Sammanfattningsvis betonar investmentbanking i schweiziska sammanhang global räckvidd, diskretion och en stark anpassning till kundens mål, vilket gör det till en nyckelspelare för att driva företagstillväxt och innovation genom strategiska investeringar.
