To know the roles and responsibilities of a modern investment bank, one must be aware of what exactly an investment bank is. An investment bank is a financial and advisory body that plays the role of a mediator or intermediary between two parties. Usually, these two parties are buyer and seller, or investor and client. This is usually required during Mergers and Acquisitions (M&A). An investment bank also helps with the capital growth of its clients (which could be an individual or an organization like a private company or a government organization) and enable large and complex transactions.
On the same lines, we also use the term ‘investment banker’. An investment banker is an individual who acts as a financial advisor to his/her clients. They advise them on all financial issues and decisions.
The concept of modern investment banks dates back to the 19th century. It was quite popular in the US at that time, with businesses looking for investment to grow their capital, would issue certain rights to third parties regarding their finances, who would then provide consultancy services and look for investors to provide help in the financial and marketing domain.
ROLES AND RESPONSIBILITIES
There are certain defined roles that investment banks perform in order to provide corporate financial services to their clients. The main aim of the investment bank is capital growth of a client. Keeping this in mind, we define the roles and responsibilities of a modern investment bank. These roles and responsibilities are written from the point of view of merchant banking (it is a private activity of an investment bank where it provides consultancy services for a fee) as well as what investment banks do in general.
Research work: The first and foremost function of an investment bank would be to perform research work on the client’s/company’s status which would be provided to potential investors for M&A and to help the client grow capital.
IPO: Initial Public Offering is the selling of shares of a company to investors. This transaction is mediated by investment banks. It is also the role of investment banks to list these shares on stock exchanges.
Mergers and Acquisitions: Merger is when two companies come together to form one under agreed norms. Acquisition is when one company gets taken over by another. These are key aspects of any market and an investment bank enables and helps companies in making such deals and performing negotiations if required.
Risk management: As the words describe, an investment bank must calculate risks for a client/company in the following ways:
Financial risks in terms of currency, loans, liquidity, etc.
Identify crucial areas where the loss of capital can be predicted and help resolve such areas.
Analysis of market risk to make smart investments and mitigate losses, if any.
Investment risk involves advising an investor whether or not to invest in a particular company by checking the company’s status.
Running background checks and putting thought into every decision as a part of compliance risk.
Trying to remove all obstacles that pose a threat to a company’s financial goals as a part of business risk.
Financial plans: Major decisions need to be made related to the financial domain of a company every now and then. It becomes easier when there is a financial plan in place. Investment banks prepare short-term as well as long-term financial plans for a client such that it is in the best interest of the company/client.
New ideas: Coming up with new marketing conditions and developments to further capital growth is another important responsibility. Thorough research and planning goes into coming up with these ideas. Planning also involves assessing risks.
Investment management: It sums up all the activities of an investment bank. It advises the client/company on what to purchase, where to pitch, portfolio management, and trading various securities.
Investment banking is an important part of the market now. A lot of companies rely on it for making investments, trades, capital growth, and purchases. If you want to do an investment banking course, you can do it from Mumbai. There are colleges in Powai which provide great courses in investment banking. Choose wisely!