The global credit crisis brought plenty of attention to investment banking services, even from those who had never heard of investment services before in their lives. Here, we’ll seek to answer the question, “What are investment banking services?” by looking closely at how investment banking services make money.
Simply put, investment banks are nothing like the standard corner institutions where most of us apply for business loans or deposit our paychecks. Instead, investment banks work primarily in higher finance by helping companies access capital markets to raise money for expansion or other needs.
What Do Investment Banking Services Do?
Typically, an investment bank will engage is some or all of these activities:
- Raise equity capital. This might involve helping launch an IPO or creating a special class of preferred stock that can be placed with sophisticated investors like insurance companies or banks.
- Raise debt capital. For example, this might mean issuing bonds to help raise money for expansion of a factory.
- Insure bonds or launch new products like credit default swaps.
- Engage in proprietary trading where teams of in-house money managers invest or trade the company’s money for its private account. An example might be speculating in gold futures based on a belief that gold will rise and acquiring call options of gold mining firms or purchasing gold bullion for storage in secure vaults.
Investment banking services might also provide help with financial management, including financial planning advice and investment property advice.
What Matters in Investment Banking
If you’re considering investment banking services for the first time, pay attention to these areas in particular:
- Trends: Look into the history of the service you’re considering. Is it stable or constantly entering buying, selling, and merger agreements?
- Scandal: Look elsewhere if the institution you’re considering has been involved with any scandal, major or minor.
- Name recognition: Pay closer attention to financial stability than name brand. You’re really looking for the better deal and the better option.
- Investment amount: There is no point in investing so much that you can’t meet other financial responsibilities.
- Personal involvement: Do you want to be regularly consulted or do you want to entrust choices to your financial institution?
- Fees: Are they reasonable or will they take a big bite out of your investment returns?
Choosing between investment banking services is a major undertaking. Be sure to ask questions and consider your situation carefully. Find out more about this topic here.