Investment Banking

What is investment banking?

Investment banking is a specialized banking area that helps raise funds and offers advice to individuals or organizations.

History of Investment Banking?

In early period, Investment bank’s primary work is Underwriting. but as time passes investment banking started to provide more services.

Origination of Investment Banking?

Incapability of the normal banks
Government could not raise funds for big projects.
- Did not know pricing.
- No market understanding.
- Interest of the investors were not satisfied.
Investment banks acted like prominent middlemen.

What Investment Banking does?

Investment banking offer services like Underwriting, Advisory Services, Trading & Broking Services, Asset Management.
- Underwriting- In this service groups works between investors & organisations to helps in raising the funds or go to public through ipo. These services are done in primary market.
- Advisory Services- In this category, services are offered like Merger & Acquisition.
- Trading & Brokerage Services- It is heart of modern Investment banking.Trading takes place with all sorts of securities – Bonds, Equity & Derivatives.
- Asset Management- In this type of service banking manages different types of investment of investors including institutional & individual across globe.

Underwriting Services

Underwriting is the process in which banker give the guarantee to sale of a stock or bond to investors E.g., Initial Public Offering at the behest of organisations. Businesses want money to grow their business and Underwriters gave the assurance of unsold securities to purchase.
There are two types of underwriters:
- Firm Commitment: Under the firm commitment, the underwrite agrees to buy the entire securities of any unsold securities & grasp full responsibility.
- Best efforts: Underwriter guarantee of selling securities as much as possible but did not commit to purchase of any shares if unsold and return back to the issuing Company.

Advisory Services

There are two types of advisory services provided by IB
- Mergers
- Acquisitions
The title ‘mergers’ & ‘acquisitions’ are used converse, but they are different.
- Mergers: Under mergers, the BOD for two companies amalgamate between them and form a new entity. E.g.,PVR and Inox Leisure merged and renamed as PVR INOX Ltd., Zee and Sony merged and renamed as Culver Max Entertainment, Vodafone and Idea merged and rebranded as V!
- Acquisition: Under this, the acquiring company obtain the majority shares of a target company and its operations. E.g., Google acquired Android in 2005, Tata acquired BigBasket in 2021, Zomato acquired Uber Eats in 2021, Walmart acquired Flipkart in 2018.

Trading & Brokerage Services

Investment Banking also provides trading & brokerage services. IB provides trading with all sorts of securities like- Bonds, Equity & Derivatives. It is the heart of modern investment banking services. Earlier I-banking works only in underwriting.
In Trading I-banking provides services like-
- Equity trading.
- Fixed income trading.
- Derivatives trading.
- Algorithmic trading.
- Market-making.
- High frequency trading.
In Brokerage I-banking provides services like-
- Order execution.
- Portfolio management.
- Research & Analysis.
- Custodial service.
- Market access.
- Regulatory compliance.
Investment Banking also deals in activities like Proprietary trading & Client-Based trading.
- Proprietary Trading: In Proprietary trading banks using his own capital for trading in securities for their profit.
- Client-Based Trading: In client-based trading banks function as a Middlemen, executing trades on their client’s behalf.

Asset Management Services

Investment banking manages a wide range of clients, including organisations & individuals, through a variety of investment strategies.

Investment Banking Clients

Government: I-Banking works with government and help them to raise fund or trade securities and buy or sell corporations.
Corporation: I-Banking works with public & private companies & help them go Public (IPO), raise additional fund, grow their business, make acquisition, and provide corporate finance advice.
Institutions: I-Banking facilitates trading and research services accessible to institutional investors who manage other people’s money.

Investment Banking Skills

Financial Modelling
- 3-Statement models
- Discounted Cash Flow (DCF)
- Leveraged Buyout (LBO)
Business Valuation
Negotiation
Sales & business development

Main Investment Banks

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