Definition
An investment banker is a professional or a firm that assists companies, governments, and other entities in raising capital by underwriting or acting as an agent in the issuance of securities. Investment bankers facilitate complex financial transactions such as mergers and acquisitions, public offerings, and private placements. They typically work in large financial institutions known as investment banks.
Examples
- Initial Public Offering (IPO): Morgan Stanley, an investment bank, acting as the lead underwriter, helped Facebook go public by issuing shares to the investing public in 2012.
- Mergers and Acquisitions (M&A): Goldman Sachs served as the financial advisor and intermediary for Disney in its acquisition of 21st Century Fox.
- Debt Issuance: JP Morgan Chase facilitated the issuance of corporate bonds for IBM, helping the company raise debt capital from investors.
Frequently Asked Questions
What is the main role of an investment banker?
The primary role of an investment banker is to help organizations raise capital by underwriting and issuing securities, advising on mergers and acquisitions, and providing financial advisory services.
How do investment bankers make money?
Investment bankers earn income through fees and commissions from underwriting new issues, advising on mergers and acquisitions, managing asset portfolios, and other financial services.
What is underwriting in investment banking?
Underwriting is a service where an investment bank commits to buying the entire issue of securities from the issuer and reselling them to the public, often guaranteeing a specific price for the securities.
What is the difference between an investment bank and a commercial bank?
An investment bank focuses on capital raising, underwriting, and advisory services in financial markets, whereas a commercial bank typically offers services like accepting deposits, providing loans, and other retail banking services.
Are investment bankers involved in trading?
Yes, investment bankers may also be involved in proprietary trading and market making, trading securities on behalf of the bank’s own accounts and providing liquidity to the market.
Related Terms
- Best Effort: A type of underwriting in which the underwriter agrees to sell as much of the issue as possible but does not guarantee the entire amount will be sold.
- Firm Commitment: An underwriting arrangement in which the underwriter guarantees to buy all the securities from the issuer and resell them to the public, assuming full financial responsibility for any unsold shares.
- Public Offering: The sale of securities to the general public, typically through an IPO.
- Private Placement: The sale of securities to a relatively small number of select investors as a way of raising capital without launching a public offering.
Online References
- Investopedia: Investment Banking
- Wikipedia: Investment Bank
- SEC: Guide to Broker-Dealer Registration
Suggested Books for Further Studies
- “Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions” by Joshua Rosenbaum and Joshua Pearl
- “The Business of Investment Banking: A Comprehensive Overview” by K. Thomas Liaw
- “Investment Banking For Dummies” by Matthew Krantz and Robert R. Johnson
Fundamentals of Investment Banking: Finance Basics Quiz
Thank you for engaging in our extensive exploration of investment banking. We hope this provides clarity and enhances your proficiency in this critical financial domain.
