An investment bank functions as a financial intermediary between those with funds to invest and those needing funds. A major goal of the investment banker is to obtain capital for clients at the lowest possible cost.
In its role of advisor to the company wishing to raise money, the investment banker analyzes the client’s financial situation, recommends the preferred method of raising the required funds, and implements the agreed upon course of action. Most investment banks have two main departments, corporate finance and public finance.
Corporate finance includes securities organization, project finance, leasing, corporate reorganization and advisory work, mergers and acquisitions including divestitures, takeover defense and leveraged buyouts.
Public finance includes offering services to public sector entities including state and local government.
An MBA is generally a prerequisite for employment as an investment banker. An investment banker must have strong analytical, quantitative and financial skills as well as excellent oral and written communication skills.
Investment banking is very demanding, requiring long hours, the ability to handle many projects simultaneously, and the ability to work well under pressure. An essential aspect of the job of an investment banker is the establishment of new business.
Potential clients must be actively approached. Therefore salesmanship is essential in all aspects of investment banking from establishing client relationships to completing a deal.
Purchase securities from the client and resell to institutions and individual investors. The investment-banking firm realizes a profit by reselling securities at a higher price than that paid.
Arrange financing with an institution directly rather than by making a public offering.
Mergers and Acquisitions
Provide clients with a means of expanding the company through the purchase of another firm by making a detailed analysis of the company under consideration. The investment bank also provides clients with a means of resisting the unwanted sale of the company.
Provide clients with a method of raising funds by issuing bonds for a specific project. Revenues from the project are then used to retire the bonds.
Financial Advisory Service
Perform an in-depth analysis of the financial structure of the company. Areas of investigation may include long-term financial planning, stock repurchase decisions, dividend policy, working capital management, and valuation of a company’s different businesses.
Means of acquiring equipment or facilities without purchasing them outright. Investment bankers determine whether leasing or buying assets is more profitable.
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