Impression of Investment Banking in Growing Business and Its Operations
An investment bank is a type of institution, which is a bit different from commercial banking sector. Investment banks supply services, which are helpful for governments, individuals and corporations. Not only the bank provides services but also it aids the corporations in raising capital for them.
As we stated above that investment banking is different from commercial banking, so here are the differences. These are fundamentally the two divisions of the banking industry. Both the banks perform different activities and offers different services. The working of investment bank includes purchase and sales of bonds, stocks and other investments. It also helps corporate and companies by offering Initial Public Offerings. However, commercial banks behave like managers for deposit accounts for businesses and individuals, focusing primarily on business accounts. However, the commercial banks also provide loans to public through deposit money they get from the deposit accounts.
Investment banking plays a vital role in raising the capital to finance various activities and grow the business many times. Instead of directly dealing with the individual investor, the investment banking works in capital market advisory capacity for corporations and governments. The investment banking aids their customers by raising or lifting the fund in the capital markets as well as by providing various financial services. The services of investment banks do not ends here, it also help the client by mergers and acquisition activity.
Some of the major functions of the investment banking are listed below:
If there are well-established company and its willing to build a factory, thus seeking for issuing bond financing, to support the expansion of company. On the other hand, if government wants to aid financially the infrastructure, let it be airport, railway station, roads or any other building then it will pursue help of investment banks to raise its capital. The investment banks issues the bonds as well as it also arrange equity financing. In case company needs to grow, requires much money, and decide to increase its funds by an option of Initial Public Offering then the investment bank would help.
The investment banks also underwrite the deals in order to arrange capital markets financing for their customers. The investment bank minimize the risk by getting indulge into the activity of buying and selling the securities. The bank buys the securities from the issuers and then sells them to the buyers. The bank when buys the security at a certain price adds a markup to the sale price with intention to earn profit, which reimburse the risk taken by it. Deal is underwritten by the investment bank and it becomes the mediator.
Through the private placements, investment banks help their customers to raise the capital of the firms. The bank places the offer of bonds with institutional investors like assurance company or retirement funds. This is generally the quicker way to raise the funds, as there is no necessity of being registered by SEC.
Mergers and Acquisitions
Another requirement to raise the fund of the company is when the situation arises that one company wants to buy another company. The company seeks advice from the investment banks and gets the suggestions about the acquisition and the pricing of the offer to buy the company. The investment banks play a vital role in valuing the acquired company and advices the accurate and precise price, which represents its actual value.
Thus, in order to grow business by double digits, one needs the help of investment banking.