Investment banking
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What is investment banking?
If you work in the City of London or the financial centers
of New York, Tokyo or any of the other leading commercial
centers, or if you manage a major company, should someone ask
you “what is investment banking?” you are going to have little
trouble answering.
For the majority of the world’s
population who do not have regular contact with major
investment houses, an investment banking 101
can be very useful. When investment banking makes it into the
news it is usually related to some misdemeanor committed by a
senior bank official or perhaps this sector is being blamed for
a downturn in a national economy. Unfortunately the less
dramatic but essential roles investment banks play within the
economy of the developed world is too easily forgotten.
To present a more complete picture to aid in our
understanding of what is investment banking, it is important to
appreciate the range of activities these banks perform.
In simple terms their operations can be divided between
helping companies raise capital on the equity markets, for
example through stocks and bond issues, and their role as
advisors to companies looking for ways of improving their
market share or financing expansion of their activities. The
body of expertise and information these banks build up are
placed at the disposal of their clients and assist them to make
the best decisions regarding financing their businesses and
overcoming the challenges they are encountering.
In addition to understanding their main operations, an
investment banking 101 must also incorporate details of the
typical investment banking structure. Investment houses operate
on three levels. The Front Office is the section of the bank
that deals directly with clients offering advice and raising
funds on the capital markets. The Middle Office concerns itself
with issues such as assessing credit risk and calculating
capital limits. The Back Office oversees the implantation and
verification of fund transfers and this is where all the
logistics of the investment bank operations are supported
including its database and associated computer services.
Appreciating what is investment banking also requires
understanding the wide range of commercial activities that fall
within its orbit. Investment banks are divided into a number of
distinct industry groups including retail and transport
industries, telecommunications and healthcare just to give a
few examples. Each of these groups deals with many different
clients within their industrial sector. Alongside this division
investment banks also have product group divisions, for
example, groups specializing in mergers, project finance and
business restructuring.
While trying to understand the structure of the investment
banks and the operations they conduct take us into complex
areas, the current world economic crisis and the part these
banks have played in economic collapse and the roles they might
(hopefully) perform in economic recovery make it well
worthwhile to learn more about their activities.
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