Investment Banking

Investment banking is carried out by financial institutions that assist governments, corporations, and individuals in raising financing. This is done by underwriting or acting on behalf of the client by issuing securities. Investment banks handle mergers and acquisitions and offer a variety of services such as trading of fixed income instruments, derivatives, equity securities, and commodities, together with market making.

In contrast to retail and commercial banking, investment firms do not take deposits or extend loans. Two main business activities can be differentiated. On the sell side, investment banks trade securities for other securities or cash. They engage in market-making and facilitate transactions. In addition, investment banks promote securities by research and underwriting. The buy side includes dealing with hedge funds, mutual funds, pension funds and the public. The latter consumes services and products. For most of the investment banks are typical both, sell and buy elements. In addition, some investment banks have public and private functions. The public function focuses on public information, with companies working in areas such as stock analysis. Divisions that deal with private areas look at insider information which is not to be publicly disclosed.

In general, investment banking assists business entities in funds acquisition in two major ways. Through it, institutions can draw on public funds with the help of the capital markets, selling stock. As another option, they may seek private equity or venture capital in exchange for a stake in the business.

As a part of their services, investment banks offer a number of consulting services. They examine the state of the market on an ongoing basis and consult clients about managing public assets and the best time to make a public offering. Some of their consultative services overlap with the ones of private brokerages, giving companies buy-and-sell pieces of advice.

Small-size firms that provide services in the field of investment banking are known as boutiques. They mostly specialize in mergers and acquisitions’ advice, bond trading, program trading or providing technical analysis.

It should be noted that investment banks differ from broker-dealers and brokerages, although the three are often used interchangeably. Brokerage firms charge a commission for helping clients with the purchase or sale of mutual funds, bonds, and stocks. Broker-dealers perform similar functions, but they also trade through their own accounts. For example, when a client buys some stock of a publicly traded company, he/ she can buy it through a stock exchange or though the dealer’s account. The client pays the current market price of the stock, regardless of what the broker-dealer has paid for it. The investment bank is a type of broker-dealer which provides financial services such as strategic planning, IPOs, etc.

Those who are interested in pursuing a career in the field of investment banking should know that investment firms look for individuals with undergraduate and graduate degrees and strong interpersonal and analytical skills. Mathematical ability, fluency with Excel spreadsheets, and teamwork are other requirements for the position. The Investment Banking team of HSBC, for example, is composed of individuals who provide execution and advisory services to clients in a number of areas: foreign exchange, equity and debt capital markets, derivatives, fixed income, structured products, and many more. The investment banking team carries out divestitures, and mergers and acquisitions’ advisory assignments, among others. It specializes in four main sectors: consumer and retail, financial institutions, resources and energy, and diversified industries. Tailored financial products and solutions are offered to key corporate, government, and institutional clients around the globe.

Each of the top 5 Canadian commercial banks has their own investment banking division. RBC Capital Markets is the investment-banking arm of Royal Bank of Canada, CIBC World Markets is CIBC investment banking division, TD Securities is the investment-banking arm of TD Bank Financial Group, Scotia Capital is the investment banking division of Scotiabank, and BMO Capital Markets is the investment arm of BMO Financial Group.