Investment Banking Definition
Investment banking is a service that aids individuals or entities in obtaining financial advice and funding.
These banks act as mediators between securities issuers and investors, assisting newly public companies. They either purchase all shares at an estimated price and resell them, or sell shares on behalf of the issuer, earning a commission per share.
Understanding Investment Banking
Investment banks provide corporations with various financial services, such as issuing and selling new stocks and bonds, facilitating mergers and acquisitions, reorganizations, and trading for institutions and private investors. They advise issuers on market placement of their stock.
Investment bankers are experts aware of current investment trends and opportunities. Businesses and institutions depend on investment banks for growth planning advice, as these bankers offer suggestions tailored to the current economic situation.
Investment Banking Example
A company XYZ wants to acquire a stake in company ABC to expand market share and diversify its product portfolio. But, XYZ is unsure how to value ABC's assets and liabilities or how to integrate operations and culture. In this case, the investment bank assists XYZ in conducting due diligence to evaluate ABC's financial performance, risks, and growth potential. It also advises XYZ on structuring the deal, negotiating terms and price, and finalizing legal documents.