Key Investment Banking Functions to Know for Financial Institutions and Markets

Investment banking plays a crucial role in financial markets by helping companies raise capital, navigate mergers, and manage risks. Their functions, from underwriting securities to providing advisory services, ensure efficient market operations and support economic growth.

1. Underwriting securities

   • Investment banks assess the risk and value of securities before they are issued.
   • They guarantee the sale of a certain number of shares by purchasing them from the issuer.
   • Underwriters help determine the offering price and the timing of the issuance.

2. Mergers and acquisitions (M&A) advisory

   • Investment banks provide strategic advice on potential mergers or acquisitions.
   • They conduct due diligence to evaluate the financial health and risks of target companies.
   • Advisors help negotiate terms and structure deals to maximize value for clients.

3. Capital raising

   • Investment banks assist companies in raising funds through equity or debt offerings.
   • They identify the best financing options based on market conditions and company needs.
   • Capital raising can involve public offerings, private placements, or debt issuance.

4. Market making

   • Investment banks facilitate liquidity in the markets by buying and selling securities.
   • They maintain an inventory of stocks and bonds to ensure there are always buyers and sellers.
   • Market makers help stabilize prices and reduce volatility in the financial markets.

5. Securities trading

   • Investment banks engage in buying and selling securities on behalf of clients or for their own accounts.
   • They utilize market analysis and trading strategies to maximize returns.
   • Trading desks operate in various asset classes, including equities, fixed income, and derivatives.

6. Corporate restructuring

   • Investment banks advise companies on reorganizing their operations or finances to improve efficiency.
   • They assist in mergers, divestitures, and other strategic changes to enhance shareholder value.
   • Restructuring can involve financial re-engineering, asset sales, or bankruptcy proceedings.

7. Initial public offerings (IPOs)

   • Investment banks guide companies through the process of going public and issuing shares.
   • They help prepare necessary documentation, including prospectuses and regulatory filings.
   • IPOs involve pricing the shares and marketing them to potential investors.

8. Debt issuance

   • Investment banks assist companies in raising capital through the issuance of bonds or other debt instruments.
   • They help structure the terms of the debt, including interest rates and maturities.
   • Debt issuance can be used for various purposes, such as funding projects or refinancing existing debt.

9. Private placements

   • Investment banks facilitate the sale of securities directly to a select group of investors.
   • This method is often quicker and less expensive than public offerings.
   • Private placements are typically used by companies seeking to raise capital without extensive regulatory requirements.

10. Financial advisory services

    • Investment banks provide expert advice on financial strategies, risk management, and investment opportunities.
    • They analyze market trends and financial data to inform client decisions.
    • Advisory services can cover a wide range of topics, including capital structure, valuation, and strategic planning.