When it comes to banking, most people are only familiar with their local banking company. Unless they work in the finance industry, they have probably never come across the term “investment baking.” However, this is a term that is used a lot during international credit crises. Unlike a typical bank, an investment bank doesn’t handle check deposits or business loans. Rather, it exists more for large international companies that are looking to buy or sell large assets.
Investment banking is a special type of financial institution. Instead of working directly with the public, these banks work with companies by helping them access capital markets such as bonds or stocks. Companies need investment banks to raise money for some operations such as expansion. An example of this is when The Coca-Cola Company used an investment bank to sell $10 billion worth of bonds so that it could open a new bottling plant in Asia. The investment bank was in charge of helping it find a buyer and responsible for the paperwork.
Typical Activities of Investment Banks
There are plenty activities that investment banks engage in when it comes to working with international companies. One activity is raising equity capital. An example of this would be an investment bank creating a special class of stock that companies can place with certain investors such as banks or insurance companies. Investment banks also raise debt capital for companies. An example of this would be when an investment bank raising money to help a company expand or lower its debt. Investment banks also help companies launch new products by providing them with the funding they need.
The Many Different Investment Banks
There are many different investment banks around the world. Most investment banks are only as good as the president and CEO. For example, John Hailer of Natixis has helped his company grow into an $883 million investment firm. Thanks to his guidance, Natixis has become one of the largest asset managers in America, Europe and Asia. Natixis is just one example of the many different investment banks with which companies can work. When a company works with an investment bank, it must first find a bank that works in the area in which it’s interested because not all investment banks handle the same translations or are experts in the same areas of investment banking.
Understanding Both Sides of Investment Banking
For the most part, investment banking is split into two sides: the selling side and the buying side. While there are some investment banks that focus on one side or the other, most asset managers help companies with both services. When a company focuses on selling, the bank usually helps it issue new bonds, facilitates transactions and engages in market-making services. The buying side works more with mutual, pension and hedge funds, and its goal is to assist the company in maximizing its return on investment.