Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Investment Banking shopping experience:
1. Compare - without doubt the biggest advantage that the Investment Banking offers shoppers today is the ability to compare thousands of Investment Banking at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.
2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about
3. Testimonials - don't know anybody that has bought a Investment Banking? Wrong! If the Investment Banking is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.
4. Questions - Got a question about Investment Banking then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....
5. Reputation - Never heard of the company selling Investment Banking? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Investment Banking and build up a picture of their reputation for sales, returns, customer service, delivery etc.
6. Returns - still worried that even after all of the above your Investment Banking wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.
7. Feedback - happy with your Investment Banking then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.
8. Security - check for the yellow padlock on the Investment Banking site before you buy, and the s after http:/ /i.e. https:// = a secure site
9. Contact - got a question about Investment Banking, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.
10. Payment - ready to pay for your Investment Banking, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.
I-banking redirects here. For internet banking, see online banking.
Investment banks help companies and governments (or their agencies) raise money by issuing and selling
securities in the
capital markets (both Ownership equity and
bond (finance)).
Almost all investment banks also offer strategic advisory services for mergers, acquisitions,
divestiture or other financial services for clients, such as the trading of Derivative (finance), fixed income, Foreign exchange market, commodity, and equity securities.
Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e. underwriting, research, etc.).is referred to as
"sell side."The
"buy side" constitutes the
pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment. Many firms have both buy and sell side components.
Organizational structure of an investment bank
The main activities and units
The primary function of an investment bank is buying and selling products both on behalf of the bank's clients and also for the bank itself. Banks undertake risk through
proprietary trading, done by a special set of traders who do not interface with clients and through
Principal Risk, risk undertaken by a trader after he or she buys or sells a product to a client and does not hedge his or her total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet.
An investment bank is split into the so-called
Front office,
Middle Office and
Back office.Front office
- Investment Banking is the traditional aspect of investment banks which involves helping customers raise funds in the Capital Markets and advising on mergers and acquisitions. Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Other terms for the Investment Banking Division include Mergers & Acquisitions (M&A) and Corporate Finance (often pronounced "corpfin").
- Investment management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes eg. mutual funds) .
- Sales and Trading is often the most profitable area of an investment bank, responsible for the majority of revenue of most investment banks. In the process of Market maker, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need.
- sell-side analyst is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division generates no revenue, its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. In recent years the relationship between investment banking and research has become highly regulated, reducing its importance to the investment bank.
- Structuring has been a relatively recent division as derivative (finance) have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities.
Middle Office
- Risk Management involves analyzing the Market risk and Credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent 'bad' trades having a detrimental effect to a desk overall. Another key Middle Office role is to ensure that the above mentioned economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation.
Back office
- Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. While some believe it provides the greatest job security with the bleakest career prospects of the divisions within an investment bank, many have outsourced operations. It is however a critical part of the bank that involves managing the financial information of the bank and ensures efficient capital markets through the financial reporting function. The staff (i.e. operations anaylsts) were generally less qualified individuals lacking college backgrounds. In recent years due to increased competition in finance related careers, college degrees are now mandatory at most Tier 1 investment banks. A finance degree has proved significant in understanding the depth of the deals and transactions that occur across all the divisions of the bank. .
- Technology: every major investment bank has considerable amounts of in-house software, created by the Technology team, who are also responsible for Computer and Telecommunications-based support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading platforms. These platforms can serve as auto-executed hedging to complex model driven algorithms.
Size of industry
Global investment banking revenue increased for the third year running in 2005, to $52.8bn. This was up 14% on the previous year, but 7% below the 2000 peak. The recovery in the global economy and capital markets resulted in an increase in
M&A activity, which has been the primary source of investment banking revenue in recent years. credit spread (bond) are tightening and intense competition within the field has ensured that the banking industry is on its toes.
The
US was the primary source of investment banking income in 2005, with 51% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 31% of the total, slightly up on its 30% share a decade ago. Asian countries generated the remaining 18%. Between 2002 and 2005, fee income from Asia increased by 98%. This compares with a 55% increase in Europe, and a 46% increase in the US, during this time period.
Recent evolution of the business
New products
Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, many have theorized that all investment banking products and services would be
commodity. New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets. However, since these can usually not be
patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.
For example,
trading bonds and equities for customers is now a commodity business , but structuring and trading
Derivative (finance) is highly profitable . Each OTC contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the
CBOE, and are almost as commoditized as
general equity securities.
In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading , where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).
Vertical Integration
In the US, the Glass-Steagall Act, initially created in the wake of the
Wall Street Crash 1929, prohibited banks from both accepting deposits and underwriting securities which led to segregation of Investment Banks from
Commercial Banks. Glass-Steagall was repealed by the Gramm-Leach-Bliley Act in 1999.
Another development in recent years has been the
vertical integration of
debt securitization . Previously, investment banks had assisted lenders in raising more lending funds and having the ability to offer longer term fixed interest rates by converting the lenders' outstanding loans into bonds. For example, a mortgage lender would make a house loan, and then use the investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization. However, lenders have begun to securitize loans themselves , especially in the areas of mortgage loans. Because of this, and because of the fear that this will continue, many Investment Banks have focused on becoming lenders themselves , making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many Investment Banks lend at loss leader interest rates in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers .
Possible conflicts of interest
Potential conflicts of interest may arise between different parts of a bank, creating the potential for financial movements that could be market manipulation. Authorities that regulate investment banking (the Financial Services Authority in the
United Kingdom and the United States Securities and Exchange Commission in the United States) require that banks impose a
Chinese wall (financial) which prohibits communication between investment banking on one side and research and equities on the other.
Some of the conflicts of interest that can be found in investment banking are listed here:
- Historically, equity research firms were founded and owned by investment banks. One common practice is for equity analysts to initiate coverage on a company in order to develop relationships that lead to highly profitable investment banking business. In the 1990s, many equity researchers allegedly traded positive stock ratings directly for investment banking business. On the flip side of the coin: companies would threaten to divert investment banking business to competitors unless their stock was rated favorably. Politicians acted to pass laws to criminalize such acts. Increased pressure from regulators and a series of lawsuits, settlements, and prosecutions curbed this business to a large extent following the 2001 stock market tumble.
- Many investment banks also own retail brokerages. Also during the 1990s, some retail brokerages sold consumers securities which did not meet their stated risk profile. This behavior may have led to investment banking business or even sales of surplus shares during a public offering to keep public perception of the stock favorable.
- Since investment banks engage heavily in trading for their own account, there is always the temptation or possibility that they might engage in some form of front running. Front running is the illegal practice of a stock broker executing orders on a security for their own account (and thus affecting prices) before filling orders previously submitted by their customers.
Investment banks
External links
- Advisory Firms - Online, searchable database of M&A firms
- New York Times Deal Book - Financial News
I-banking redirects here. For internet banking, see online banking.
Investment banks help companies and governments (or their agencies) raise money by issuing and selling securities in the capital markets (both Ownership equity and
bond (finance)).
Almost all investment banks also offer strategic advisory services for mergers,
acquisitions,
divestiture or other financial services for clients, such as the trading of Derivative (finance),
fixed income, Foreign exchange market, commodity, and equity securities.
Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e.
underwriting, research, etc.).is referred to as
"sell side."The
"buy side" constitutes the pension funds,
mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment. Many firms have both buy and sell side components.
Organizational structure of an investment bank
The main activities and units
The primary function of an investment bank is buying and selling products both on behalf of the bank's clients and also for the bank itself. Banks undertake risk through
proprietary trading, done by a special set of traders who do not interface with clients and through
Principal Risk, risk undertaken by a trader after he or she buys or sells a product to a client and does not hedge his or her total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet.
An investment bank is split into the so-called
Front office,
Middle Office and
Back office.Front office
- Investment Banking is the traditional aspect of investment banks which involves helping customers raise funds in the Capital Markets and advising on mergers and acquisitions. Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Other terms for the Investment Banking Division include Mergers & Acquisitions (M&A) and Corporate Finance (often pronounced "corpfin").
- Investment management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes eg. mutual funds) .
- Sales and Trading is often the most profitable area of an investment bank, responsible for the majority of revenue of most investment banks. In the process of Market maker, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need.
- sell-side analyst is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division generates no revenue, its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. In recent years the relationship between investment banking and research has become highly regulated, reducing its importance to the investment bank.
- Structuring has been a relatively recent division as derivative (finance) have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities.
Middle Office
- Risk Management involves analyzing the Market risk and Credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent 'bad' trades having a detrimental effect to a desk overall. Another key Middle Office role is to ensure that the above mentioned economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation.
Back office
- Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. While some believe it provides the greatest job security with the bleakest career prospects of the divisions within an investment bank, many have outsourced operations. It is however a critical part of the bank that involves managing the financial information of the bank and ensures efficient capital markets through the financial reporting function. The staff (i.e. operations anaylsts) were generally less qualified individuals lacking college backgrounds. In recent years due to increased competition in finance related careers, college degrees are now mandatory at most Tier 1 investment banks. A finance degree has proved significant in understanding the depth of the deals and transactions that occur across all the divisions of the bank. .
- Technology: every major investment bank has considerable amounts of in-house software, created by the Technology team, who are also responsible for Computer and Telecommunications-based support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading platforms. These platforms can serve as auto-executed hedging to complex model driven algorithms.
Size of industry
Global investment banking revenue increased for the third year running in 2005, to $52.8bn. This was up 14% on the previous year, but 7% below the 2000 peak. The recovery in the global economy and capital markets resulted in an increase in
M&A activity, which has been the primary source of investment banking revenue in recent years. credit spread (bond) are tightening and intense competition within the field has ensured that the banking industry is on its toes.
The US was the primary source of investment banking income in 2005, with 51% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 31% of the total, slightly up on its 30% share a decade ago. Asian countries generated the remaining 18%. Between 2002 and 2005, fee income from Asia increased by 98%. This compares with a 55% increase in Europe, and a 46% increase in the US, during this time period.
Recent evolution of the business
New products
Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, many have theorized that all investment banking products and services would be commodity. New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or
copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.
For example,
trading bonds and equities for customers is now a commodity business , but structuring and trading Derivative (finance) is highly profitable . Each
OTC contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the CBOE, and are almost as commoditized as
general equity securities.
In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading , where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).
Vertical Integration
In the US, the
Glass-Steagall Act, initially created in the wake of the Wall Street Crash 1929, prohibited banks from both accepting deposits and underwriting securities which led to segregation of Investment Banks from
Commercial Banks. Glass-Steagall was repealed by the Gramm-Leach-Bliley Act in 1999.
Another development in recent years has been the vertical integration of
debt securitization . Previously, investment banks had assisted lenders in raising more lending funds and having the ability to offer longer term fixed interest rates by converting the lenders' outstanding loans into bonds. For example, a mortgage lender would make a house loan, and then use the investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization. However, lenders have begun to securitize loans themselves , especially in the areas of mortgage loans. Because of this, and because of the fear that this will continue, many Investment Banks have focused on becoming lenders themselves , making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many Investment Banks lend at loss leader interest rates in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers .
Possible conflicts of interest
Potential conflicts of interest may arise between different parts of a bank, creating the potential for financial movements that could be market manipulation. Authorities that regulate investment banking (the Financial Services Authority in the United Kingdom and the
United States Securities and Exchange Commission in the United States) require that banks impose a Chinese wall (financial) which prohibits communication between investment banking on one side and research and equities on the other.
Some of the conflicts of interest that can be found in investment banking are listed here:
- Historically, equity research firms were founded and owned by investment banks. One common practice is for equity analysts to initiate coverage on a company in order to develop relationships that lead to highly profitable investment banking business. In the 1990s, many equity researchers allegedly traded positive stock ratings directly for investment banking business. On the flip side of the coin: companies would threaten to divert investment banking business to competitors unless their stock was rated favorably. Politicians acted to pass laws to criminalize such acts. Increased pressure from regulators and a series of lawsuits, settlements, and prosecutions curbed this business to a large extent following the 2001 stock market tumble.
- Many investment banks also own retail brokerages. Also during the 1990s, some retail brokerages sold consumers securities which did not meet their stated risk profile. This behavior may have led to investment banking business or even sales of surplus shares during a public offering to keep public perception of the stock favorable.
- Since investment banks engage heavily in trading for their own account, there is always the temptation or possibility that they might engage in some form of front running. Front running is the illegal practice of a stock broker executing orders on a security for their own account (and thus affecting prices) before filling orders previously submitted by their customers.
Investment banks
External links
- Advisory Firms - Online, searchable database of M&A firms
- New York Times Deal Book - Financial News
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