Invest
What is an investment bank in simple terms
Investment banks have been around for a long time, but it was only during and after the US economy crashed in 2008 that most people paid better attention to them.
What is an investment bank in simple terms
Investment banks have been around for a long time, but it was only during and after the US economy crashed in 2008 that most people paid better attention to them.
Since most people only conduct business in commercial banks, many are still unaware of what exactly investment banks are, what they do and how they are able to create a huge impact on the global economy.
Here's a simplified explanation.
What is an investment bank?
Unlike a commercial bank where people deposit and withdraw money, ask for loans or mortgage, or avail of personal investments such as mutual funds.
investment banks focus on corporate deals, mergers and demergers, initial public offerings (IPO), debt and restructuring, and buying and selling of companies. Some investment banks may offer commercial banking services, but those public-based services and client base are not its primary focus.
When a company goes public or is in the middle of an acquisition deal, investment banks are the ones negotiating and transacting behind the scenes. An investment bank is the institution that bridges companies or corporations to potential investors so that the client—whichever side they work for—could get the best deal possible with their money.
Who are its preferred clients?
An investment bank clientele are companies and corporations that are, or could potentially be, movers and shakers in the economy—entities transacting millions or even billions of dollars.
What banking services do they offer?
Investment banks are experts in weighing a company’s value. Investment banks serve as mediators between companies and capitalists or investors, especially when buying or selling businesses.
They focus on negotiating the best possible price for selling or buying companies in mergers and acquisitions and give advice on how marketable or risky a business is.
They underwrite stocks or bonds for companies needing capital. Investment banks price the stocks and bonds of a company based on its assessed value. They usually purchase a certain number of shares to sell during the IPO.
They oversee the entire process of mergers and acquisitions—from finding a good matching seller or buyer to closing the deal— and the organisational restructuring is done afterwards.
How do investment banks impact the economy?
Since investment banks deal with high profile clients and high capital deals, a wrong assessment or advice could negatively impact both the local and global economy. Failures in the investment bank sector ushered in both the 1929 Great Depression and 2008 global financial crisis that started in the US.
RELATED ARTICLES
About the author
About the author
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
