Investment Banking For Dummies

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Asset management fees: Some investment banks help their clients make decisions on how to invest their money. Investment banks generate asset management fees when they help clients decide which securities they should buy or sell.

Companies are constantly scanning the corporate landscape for other firms that may be for sale, or may own assets that are worth buying. Buying companies can be a risky proposition. After all, the only way to buy a healthy company is to offer a price higher than the current market price, called a premium. By paying up for the company, the buying company had better make the right moves to get the deal to work. Investment banks help companies on the prowl find buyout targets, make the deal, and sometimes even finance it. Underwriters stay involved in the process during this tenuous first day of trading. Investment banks want to do whatever they can to make sure the shares of the newly public company don’t break (close below the initial price). A broken deal is often looked at negatively by investors; plus, a broken deal makes it look like the investment bank didn’t set the initial price correctly. Investment banks may seem like financial behemoths that have their hands in just about any matter that involves large sums of money. And to a large degree, that’s true. Investment banks are usually involved in some fashion when it comes to financing major projects, conducting trading in financial instruments, or developing new ways to generate capital. Given how desired shares of hot IPOs are, it’s not surprising that investment bankers hold them very closely. Investment bankers’ role in the IPO process remains one of their most high-profile functions. The investment bankers are in charge of helping the company promote itself to prospective investors and determine how much to sell the shares for. Investment banking operations are rarely identical between firms. Some banks and investment banks are engaged in some front-office areas, while others steer clear of them completely. There are also some peripheral areas of business some banks and investment banks include as part of their services that don’t fall in one of the traditional “offices.” One example of a service that is often grouped in investment banking is investment management. In an investment management unit, investment professionals are paid to invest money on behalf of individual clients or institutions.My list of the 5 best investment banking books above is as good as any place to start. They're mostly aimed at beginners, and therefore represent a good point to jump onboard with this reading challenge. In this book, we tell you what really happens in the investment banking world. This chapter introduces you to the high-level reality of what investment banking is. Here, you see how Wall Street really works. In this chapter, you see that although investment banking can be extremely lucrative, it’s also an important facilitator of economic growth and traces its roots to the idea of putting money into the hands of the dreamers and creators. What Investment Banking Is

This book by Kellogg Professor David Stowell explains the intricate web of how these players cut through the financial system and their impact on corporations, governments, and investors. On the other hand, investment banks, at least until the financial crisis of 2007 (see the appendix), were free to take bigger chances with other people’s money. Investment banks could be more creative in inventing new financial tools, which sometimes don’t work out so well. The idea is that clients of investment banks are more sophisticated and know the risks better than the average person with a bank account. Bank loans: Commercial banks are in the business of lending to companies that need capital. Periodically, a bank may extend a line of credit to a small business, especially if the business is stable. Banks, though, tend to be skittish and won’t lend if there’s even a scent of risk with the company. Internet companies, which have little in the form of assets, for instance may be turned away for bank loans because there isn’t anything to be used as collateral. Financing large projects: Massive projects, such as building giant bridges or power plants, usually require enormous amounts of cash up front. These projects may ultimately make money, but they require loads of cash to be built. The need for upfront cash is so great, it may outstrip the lending capacity of traditional banks, or it may be too risky for traditional banks. That’s where investment banks can come in. Investment banks gather cash by selling securities to investors with excess money looking for a chance at a good return.

6. The Business of Investment Banking

Tip Investment bankers have no shortage of techniques that make their jobs easier. You’ll find those marked with the Tip icon. Remember Investment banking operations at one firm may be engaged in some of the preceding activities, but not all. There’s no rule that demands investment banking operations must perform all the services described here. As investment firms grow, though, they often add functions so they’re more valuable to their clients and can serve as a common source for a variety of services. How investment banking differs from traditional banking