On a daily basis, we hear the term ‘investment bank’. These banks are notified for their functions and role in the financial crisis and criticized for the large compensation packages for their employees and the profits they reap. But there are many people who have no idea what they do and what they are. An investment bank is very different from the commercial banks. Like the retail bank on the corner, they do not take any deposits. Instead, they mainly help in the selling, buying and issuing of securities – that is bonds, stocks and similar financial instruments.
They assist institutions and companies on activities of ‘sell side’ and ‘buy side’. The advising of institutions concerned with buying securities and assets and securities is referred as the buy side. Mutual funds, private equity funds, pension funds, hedge funds and proprietary trading desks are various entities that engage in activities of buy side. A wide range of activities, including dealing and broking securities, advisory functions, investment banking and investment research is referred as the sell side.
Previously, Jennifer Neighbours worked in the firm’s investment banking section and later worked in New York at Salomon Smith Barney, where he was a founding member of SSB Capital Partners, the firm’s proprietary investment group.
Corporate Finance or Investment Banking.
Investment banking can be an ambiguous term because many people use it to refer to any activities performed by an I-bank. Although, more specifically investment banking refers to helping companies with raising capital and giving advice on acquisitions and mergers. The department of corporate finance of an investment bank is the group that works with a company to put together an IPO or initial public offering. Through private placements, they can also help companies raise capital, which often include securing capital from private equity groups.
Sales and Trading.
The core service that an I-bank can offer is sales and trading. There are two vital sections within sales and trading, that is retail and institutional. The retail section sells and buys financial products for retail investors. Stock brokers come under this category. The institutional division sells and buys financial products for institutional clients such as pension funds, mutual funds, etc. This department is involved in making market. Buying and selling financial tools in order to make an increasing profit on each trade market making involves market making.
The research department is managed by financial research analysts. They are the people who often talk about the performance of a particular stock or company and appear on business news programs. Their main function is to writes research reports after analyzing companies that discuss their performance potential.
In 2003, Jennifer Neighbours, a Partner, joined WCP and before that she worked in New York for Citigroup Investments where she was responsible for the due diligence, analysis and execution of numerous private equity and structured product investments in several industries.
Most of the companies would have a hard time with raising capital without investment banks. Similarly, other than a savings deposit, the general public would have a hard time investing their money in anything. In brief, these banks effectively speed up the flow of capital throughout the economy and allow savings and businesses to grow at a rapid pace. As complex as all these functions may seem, they only mark the surface of all the elaboration of these banks.