Investment banks

John Stevenson

Investment banks are financial institutions that are primarily engaged in raising funds through securities and debt. However, only a few smaller banks offer these main services. Almost all investment banks provide additional services such as trading of derivatives, fixed income securities, forex market, commodity and equity securities, etc. Some examples of investment banks are Bank of America, Wells Fargo Securities, Deutsche Bank, Nomura Holdings, and Golden Sachs, among others. These full-service investment banks have presence in all major regions around the world.

Investment banks help companies and governments, together with their agencies, to raise additional funds for their activities by issuing and dealing securities on the primary markets. They also help public and private corporations to raise funds in the capital markets (through debt or securities) by offering them strategic advisory services on private equity placements, mergers and acquisitions, and other types of financial transactions. Furthermore, investment banks act as intermediaries in trading for clients.

A major difference between a commercial banking institution and an investment bank is that the latter does not collect deposits or give corporate and commercial loans to individuals.

In recent years, however, commercial banks, in their attempt to retain more customers through a greater range of services and financial products, started offering services that were traditionally part of investment banking portfolio.

The investment bank is divided into what is usually termed as Front Office, Middle Office and Back Office. The Front Office comprises the following divisions: Investment Banking which focuses on raising funds in capital markets while offering strategic advisory services on mergers and acquisitions; Investment Management is a division that focuses on professional management of individual securities (stocks, bonds, etc.) and other assets (such as real estate properties) with the aim to achieve a particular investors’ objective. Financial markets division comprises of several sub-divisions:

- Trading: normally, this is the most profitable division of an investment bank which is responsible for the majority of the bank’s income.

- Sales: here are the people who come up with investment ideas and present them to major institutional and private investors. They are also involved in the subsequent implementation of these ideas.

– Analysis: this is the unit that reports on the financial opportunities associated with companies, often coming up with an offer to buy or sell.

- Structuring: this sub-division is a relatively new unit, gaining popularity because of the ever-growing trade of derivatives which allows larger margins than conventional securities.

Through the Risk Management division, the Middle Office is involved in credit and market risk analysis which traders use in the financial statements through their everyday transactions. The Corporate treasury is engaged in investment, management of capital, and liquidity risk monitoring.

The Back Office department, crucial for each investment bank, is engaged in financial information management and is responsible for checking whether each transaction is properly conducted and whether its parameters are correct. The information technology department is the main body responsible for technical support.

Disclaimer: The information contained in this guide is provided as an information service only and does not constitute financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs. You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice which takes account of your particular objectives, financial situation or needs, you should consider seeking independent financial advice from a Financial Services Licensee.

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