What the Heck is Investment Banking, Anyway?

Though it's now the smallest section in most of the most important brokerage houses, investment banking continues to be very important to those companies, and is considered to be a really strategic enterprise segment. So what is investment banking exactly? To a big extent, funding bankers act as a kind of monetary advisor to their purchasers. Bankers present two principal classes of services: capital raising and strategic advisory. Companies can elevate cash in a number of different ways. If an organization is non-public, it could actually elevate money from an institutional investor like a private equity or venture capital agency, or it could actually select to go public by means of an IPO. If a company is already public, it will probably promote extra shares into the market, sell shares to an establishment in a non-public placement, or select to sell the entire shebang and go non-public. And whether an organization is public or personal, raising debt is usually an possibility as effectively.

Investment bankers on the capital-raising side work in various roles. Initially, they are the salespeople convincing the company in question that elevating money is a good suggestion, and that -- perhaps extra importantly -- the corporate ought to choose that banker's agency to handle the deal. Once a company has decided that it goes to boost money, the bankers act as the ringleaders of the process and shepherd the deal from begin to complete. On the advisory aspect, bankers provide strategic and monetary consulting to their clients. Among the better-recognized activities on the advisory aspect is merger and acquisition advising. As with capital elevating, bankers on the advisory facet should sell clients on their ideas and their agency. Once a consumer mandate is won, the bankers work with the company to help it consider the state of affairs, whether or not it's the purchase of one other company, the negotiation of a sale value to a personal equity purchaser, or the protection of a hostile takeover bid.

Over the previous five years, it's been pretty profitable to know names like Goldman Sachs (NYSE:GS) and Lehman Brothers (NYSE:LEH). Since this time in 2002, the 2 companies have returned 200% and 158%, respectively, simply outpacing the 50% that the S&P returned over that interval. Although the Fool group appears to have a mushy spot for Goldman, there are numerous market watchers who believe that -- like Paris Hilton in jail -- a very good thing like this simply can't last. There's quite a lot of compelling proof on both sides of the bull/bear tug-of-conflict over the funding banks, however before you possibly can determine what's going to happen to those mavens of Wall Street, it's useful to know what precisely they're doing. In recent times, the banks have grown and expanded in many various directions, and though they're still most also known as "investment banks," they do a heck of loads more than investment banking.

In addition to the main bulge bracket names like Lehman Brothers and Bear Stearns (NYSE:BSC) that everybody seems to know, lots of the larger banks like Wachovia have investment banking divisions. There are also many smaller investment banks that focus on specific niches. And of course, along with all the acquainted names within the U.S., there are countless investment banks based elsewhere -- for instance, Nomura Holdings (NYSE:NMR) in Japan, Macquarie in Australia, and Credit Suisse in Switzerland. That can assist you proceed digging into the investment banking trade, I've put collectively an inventory of 10 of the most important gamers. I've also included the rankings for every of those stocks from The Motley Fool's CAPS service. JPMorgan is a Motley Fool Income Investor choose. You'll find out why with a 30-day free trial of the e-newsletter. Fool contributor Matt Koppenheffer doesn't personal shares of any of the businesses mentioned. The Fool's disclosure policy isn't an investment banker, but it could whip out a imply comp set like no person's business.

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