An Investment Bank: Functions of Investment Banks

An investment bank
is a financial institution that assists individuals, corporations, and governments in raising

financial capital by underwriting or acting as the client's agent in the issuance of securities (or
both).
Functions of Investment Banks

a. Core Business
Underwriting
Distributing
Advising
Others
b. Back Office
Operations
Technology
c. Middle Office
Risk Management
Corporate Treasury
Financial Control
Corporate Strategy
Compliance
d. Core Business - Underwriting

Assuming the risk of selling a security issue at a satisfactory price
Term borrowed from insurance
e. Core Business - Distributing

Selling function of investment banking
The primary function of an investment bank is buying and selling products.
f. Core Business - Advising

Providing advice in the issuance & marketing of securities
Research is the division which reviews companies and writes reports about their prospects,
often with "buy" or "sell" rating
g. Core Business > Others

Global transaction banking
Investment management
Merchant banking
Middle Office
O Risk Management:
Involves analysing the market and credit risk that traders are taking onto the balance sheet
in conducting their daily trades. Setting limits on the amount of capital that they are able to
trade in order to prevent 'bad' trades having detrimental effect to a desk overall.
O Corporate Treasury:
Responsible for an investment bank's funding, capital structure management, and liquidity
risk monitoring.
O Financial Control:
Tracks and analyses the capital flows of the firm. Adviser on essential areas such as
controlling the firm's global risk exposure and the profitability and structure of the firm's
various businesses.
O Compliance:
Responsible for an investment bank's daily operations' compliance with government
regulations and internal regulations.
O Operations & Technology:

Data-checking trades that have been conducted, ensuring that they are not erroneous, and
transacting the required transfers.
Types of Investment Banks

There are two major types of investment banks based on their function. This might be more
relevantly referred to as branches of operation in investment banking. The first is the
1. Sell side: that includes functions such as trading securities and includes the facilitation
oftransactions through market-making, and the promotion and marketing of securities
through research and underwriting.
2. Buy side: Refers to institutions that give guidance and advice as it pertains to buying
investment services. Common entities on the buy side include insurance companies, hedge
funds, unit trusts, mutual funds and private equity funds.
Private or boutique investment banks

: are concerned with private and confidential information and transactions that might not be
revealed to the public. They are usually smaller banking entities that specialize in one or
more areas of investment products. Others in this sector focus their services on one type or
one specific group of industries. These private entities carry out a variety of functions. Some
may act as investment advisors while others specialize in the trade of certain assets and
commodities. There are also those that offer services to specific social groups and industries.
Examples of private investment banks include; Almeida Capital, Atlantic-Pacific Capital, J.P.
Morgan Cazeneuve, Triage, China International Capital Corporation and CITICSecurities.
Public, Full-service or Bulge bracket investment banks

: enlist a wider variety of market activities that include research, underwriting, mergers and
acquisitions, trading, merchant banking, investment management and securities trading
services. These bulge bracket banks are enormous investment institutions that cover all or
most industries. They serve a wide variety of client types and offer most if not all possible
types of investment banking services in
their portfolio. Major institutions that fall under this umbrella today are Bank of America Mer
rillLynch, Barclays Capital, Citigroup, JPMorgan Chase and Morgan Stanley.
Investment Banking Services Corporate Financial & Advisory:

The management and underwriting of public and private securities. Identification of investors for
new ventures or for the expansion of
established business. Handling of public and private companies mergers, acquisitions and rest
ructuring.Undertaking of industry research or project feasibility studies. Undertaking of share
valuations for various purposes. Private placements of debt and equity.
Underwriting
- Guarantee that all the issued shares will be sold. If there is any portion that is unsold, the
underwriting institutions themselves will take it up.
Portfolio and Investment Services:

Nominee and registration services including custodianship of all types of securities. Trading
of stocks, shares, Government bonds and money market securities. Management of corporate
and private portfolio, trusts and pension funds. Share register and share registration services.
Management of investment portfolios. Management of investment and unit trusts
and property trust funds. Fund management funds.
Corporate Banking:
Management of syndicated and consortium facilities in local and foreign currencies.
Provision of trade financing facilities. Syndication and provision of guarantee facilities.
Management and underwriting of commercial papers. Provision and arrangement of short,
medium and long-term loans in Malaysia and overseas. Provision of bridging finance
and project finance. Provision of factoring and leasing facilities. Capital market issues. Block
discounting of hire-purchase agreements.
Syndicated Loan:
When the value of loan required by a company is too large, it is possible that the company
may be unable to obtain it from one single financial institution. Investment bank will help to
arrange the loan from several financial institutions. Such loans are called syndicated loan.
The aim of the syndicated loan is to reduce risks and exposure of each of the
syndicate participants.
Fund-Based Activities:
Acceptance of call and fixed deposits. Term loans Investment banks also offer a number of
other services which are provided by commercial banks. Investment banks cannot accept
current or demand deposits.
Services of Merchant Banking

Corporate Counselling
Project Counselling
Capital Restructuring Services

Credit Syndication
Issue Management and Underwriting
Portfolio Management
Working capital Finance
Merger and Acquisition
Venture Financing
Lease financing
Mutual Finance
Relief to sick Industries
Project Appraisal
SEBI Guidelines for Merchant Banking
All merchant bankers will require authorization by SEBI to carry out business.
An initial authorization fee, an annual fee and renewal fee may be collected by SEBI.
All issue must be managed at least by on authorized banker.
Each merchant banker is required to furnish to the SEBI half yearly unaudited financial
result.
SEBI has prescribed the code of conduct for the each merchant banker.
SEBI has the power to suspend or cancel the authorization in case of violation.
To ensure the transference and accountability in operation of the merchant banker

and protect the investors.
Inspections will be conducted by SEBI to ensure that provisions of the regulation

are properly complied.

An Investment Bank: Functions of Investment Banks

Uploaded by

Copyright:

Available Formats

An Investment Bank: Functions of Investment Banks

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

An Investment Bank: Functions of Investment Banks

Uploaded by

Copyright:

Available Formats

An investment bank

is a financial institution that assists individuals, corporations, and governments in raising

Functions of Investment Banks

d. Core Business - Underwriting

e. Core Business - Distributing

f. Core Business - Advising

g. Core Business > Others

O Operations & Technology:

Types of Investment Banks

Private or boutique investment banks

Public, Full-service or Bulge bracket investment banks

Investment Banking Services Corporate Financial & Advisory:

Portfolio and Investment Services:

Services of Merchant Banking

Capital Restructuring Services

Issue Management and Underwriting

Working capital Finance

Merger and Acquisition

Relief to sick Industries

SEBI Guidelines for Merchant Banking

All issue must be managed at least by on authorized banker.

To ensure the transference and accountability in operation of the merchant banker

Inspections will be conducted by SEBI to ensure that provisions of the regulation

You might also like