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.
About the author
About the author
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
Apple sets an unprecedented profit pace within the GAFAM group in 2023
After navigating through the economic difficulties presented in 2022, the technology sector has demonstrated resilience and growth, with many companies seeing increases in revenue and stock value. Read more
Stock market
Fintech startup okoora unlocks over $3 billion in forex savings for businesses
Fintech innovator okoora has announced it has saved customers a monumental amount over $3 billion through international foreign exchange transactions. Read more
Stock market
Google's Gemini edges out ChatGPT4 in groundbreaking AI showdown
Google's latest AI model, Gemini, has edged out OpenAI's ChatGPT4 in a recent set of rigorous multi-discipline tests, marking a significant milestone in the large language model (LLM) sector. Read more
Stock market
China's travel and spending surpass pre-pandemic levels, sparking optimism on stock markets
The recent report indicates that Chinese consumers have been travelling and spending more than they did in the same period of 2019, marking a positive turnaround for the Chinese economy. Read more
Stock market
US inflation data sends shockwaves through financial markets
Yesterday, a new set of inflation data from the United States sent tremors through the financial markets, as it came in stronger than anticipated. Read more
Stock market
State Street boosts global ETF operations with enhanced API technology
State Street Corporation has recently announced a significant upgrade to its Fund Connect ETF portal by enhancing the Application Programming Interface (API) capabilities, extending its services to ...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
Apple sets an unprecedented profit pace within the GAFAM group in 2023
After navigating through the economic difficulties presented in 2022, the technology sector has demonstrated resilience and growth, with many companies seeing increases in revenue and stock value. Read more
Stock market
Fintech startup okoora unlocks over $3 billion in forex savings for businesses
Fintech innovator okoora has announced it has saved customers a monumental amount over $3 billion through international foreign exchange transactions. Read more
Stock market
Google's Gemini edges out ChatGPT4 in groundbreaking AI showdown
Google's latest AI model, Gemini, has edged out OpenAI's ChatGPT4 in a recent set of rigorous multi-discipline tests, marking a significant milestone in the large language model (LLM) sector. Read more
Stock market
China's travel and spending surpass pre-pandemic levels, sparking optimism on stock markets
The recent report indicates that Chinese consumers have been travelling and spending more than they did in the same period of 2019, marking a positive turnaround for the Chinese economy. Read more
Stock market
US inflation data sends shockwaves through financial markets
Yesterday, a new set of inflation data from the United States sent tremors through the financial markets, as it came in stronger than anticipated. Read more
Stock market
State Street boosts global ETF operations with enhanced API technology
State Street Corporation has recently announced a significant upgrade to its Fund Connect ETF portal by enhancing the Application Programming Interface (API) capabilities, extending its services to ...Read more