As opposed to retail banking, in which savings and current accounts are operated, investment banking helps companies in raising extra money. Traditional commercial banking merely deals with deposits, withdrawals, banking tellers and other everyday banking activities. Investment bankers help companies raise money in a number of ways which are enumerated below.
Corporate Finance: A company might need extra money for a number of reasons during the course of doing its business. For example, it might need additional finance to be able to do research and develop new products in order to stay ahead of competitors. The company can approach investment banks that would help in selling the shares of the company to raise the required capital. The investment bank might also act on behalf of its client to trade in stocks.
Mergers & Acquisitions: Investment bankers also help improve the profitability and performance of a company by making it more competitive through mergers and acquisitions. A company that is doing well might want to become more cost effective and competitive. The investment banker will study the situation and suggest merger or acquisition of another company that will give the company a greater market share and help it achieve greater efficiency. On many occasions, companies agree to be purchased if they feel that it would be difficult for them to survive on their own. Investment banks help in arranging these deals and charge a percentage of the deal as their fee.
Investment banking needs a deep understanding of the markets and a sharp eye for locating companies that have the required portfolios and income streams. Investment bankers work closely with their customer companies that want to expand and recommend investments that would give the companies their target profits and other objectives. The investment banks, to some extent, offer business forecasting in an endeavor to guide the company on how and where to make the investments. Compensation for their services could be in the form of an interest return, or a percentage of profits or shares of the company.
Investment bankers are highly paid professionals, who can only succeed if they have a sharp eye and perseverance to locate the right investment opportunity by going into the depths of the working of companies, their marketing potential, their related markets and their intrinsic capabilities both in terms of the expertise of the employees and their financial strength. The expertise and hard work of an investment banker will determine the success or failure of the customer company. It is for this reason that investment banking is one of the most lucrative businesses of the world.