Investment banking is a crucial banking division as it keeps a large number of companies afloat. Investment banking is simply a banking division that is concerned with providing capital to various investors including individuals, corporations and governments.
The main difference between commercial banks and investment banks is the fact that investment banks do not take customer deposits. Investment banks are mainly involved in underwriting new debt as well as equity securities on behalf of their clients.
Apart from providing capital, investment banks act as consultants in providing the required guidance in issues to do with mergers and acquisitions. They also help their clients to conduct large and complicated transactions.
Investment banks rely on the expertise of highly trained individuals referred to as investment bankers. These professionals have excellent knowledge of the current investing climate and are able to offer sound advice to their clients. If a client has a large project, these bankers are able to identify the potential risks and inform the client, saving the client both time and money.
When companies are looking to place their stocks on the market, investment banks come in and act as intermediaries. When a company is holding an IPO (Initial Public Offering), the investment bank comes in and buys all the stocks on offer. It then proceeds and sells the shares on the market at the current market price.
Apart from acting as middlemen, investment banks also aid their clients in pricing their financial instruments in a way that maximizes the revenue. The investment banks go a step further and help their clients navigate the regulatory requirements.
Most investment banks are subsidiaries of more established financial institutions, although there are a few that are independent. The biggest player in the industry is Goldman Sachs. Other investment banks include JPMorgan Chase, Deutsche Bank and Morgan Stanley.