What Is Investment Banking?

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There’s an old Wall Street adage that “capital gravitates to where it’s treated best.” Investment banks help companies raise capital by opening financial markets and allowing them to operate more efficient. This can help businesses prosper while individuals thrive and society as a whole grow.

Investment banks provide a broad variety of services. Some, like research divisions, study the prospects of a company and write reports with buy and hold recommendations. Others offer M&A or merger and acquisition advice, guiding clients through the sale or purchase of companies. They also provide “broker-dealer” services that enable institutions to trade securities such as bonds, stocks, and commodities for cash or other securities (a process known as market-making).

Certain investment banks specialize in particular types of transactions. Some investment banks specialize in particular types of deals. They include IPOs and follow-on offerings as well as bonds issued by corporations and governments. They may also provide advice on leveraged buyouts and spin-offs that involve the sale of business units by a company to its shareholders.

Some investment banks have a significant Sales & Trading division (S&T) that trades publicly listed securities like stocks, bonds commodities, stocks, and other financial instruments, for their own accounts and for institutions such as mutual insurance companies, funds, private equity funds, etc. This is an important part of the business because it serves as a source of income when other activities such as M&A or IPOs are weak. They also offer “market-making” services, which are vital to the operation of the financial markets. They serve as intermediaries between people who wish to buy or sell securities. They ensure that there are enough buyers for every transaction.