There are a variety of positions for those interested in a Wall Street profession that may be of interest, including broker, analyst, and investment banker. Most want to be investment bankers, attracted by these careers promising high-profile and handsome wages. What are investment bankers doing then?
What Bankers of Investment Do ?
Essentially, corporate finance advisors are investment bankers.
Following the financial crash of 2007-08, Wall Street drew the ire of the world, and its position in the crisis contributed to increased oversight and control of the financial industry. The recession, which came to a head in Sept. 2008 after investment firm Lehman Brothers filed for bankruptcy, revealed the Wall Street underbelly.
But while as a result, the lustre of becoming a so-called Wall Street master of the universe has been somewhat tarnished, Wall Street careers still remain a magnet for top graduates.
The Investment Banker’s Job
Instead of working individually with private clients, the investment banker operates in a financial markets consulting capacity to businesses and governments. Investment bankers support their clients in raising capital markets funds, offering numerous financial consulting services, and assisting in mergers and acquisitions operations.
Therefore, when the financial markets are doing well, investment bankers appear to do well because all the operations they perform will produce more money.
If a large corporation wishes to construct a factory and needs to issue bond financing to fund its expansion, it can obtain an investment banker’s assistance. Similarly, a government can collaborate with an investment banker to issue bonds to raise capital if it wants to fund the development of an airport, highway or other major municipal project.
In such a scenario, the investment banker will schedule the issuing of the bond, pricing the issuance of the bond so that there is ample interest for the bonds, negotiating with the borrower to handle the U.S. Necessary documents from the Securities and Exchange Commission (SEC) to issue the bonds and assist in selling the bonds.
When it comes to coordinating equity capital, the investment banker still plays a part. Suppose a business believes that it wants more capital to expand and decides to collect the money by heading in for an initial public offering, or IPO. A prospectus outlining the terms of the bid and the risks it entails will be put together by an investment manager, overseeing the issuance process with the SEC, and helping to price the deal. The shares need to be priced just fine. The public will not be interested in purchasing them if they are priced too high. The investment banker could be leaving some money on the table that he or she may have made for the customer if they are priced too low.
Deals to Underwrite
Usually, investment bankers often conduct the signing of agreements while arranging the funding of the financial markets for their customers. This suggests that by purchasing the shares from the issuers and selling them to the public or retail investors, they handle the risk implicit in the process. Investment bankers purchase the shares at a single price and then apply the sale price to a discount and thereby make a return that compensates for the risk they take on. The underwriting distribution is this spread. A lead investment banker usually deals with a group of investment bankers, called a syndicate, to subscribe to a problem such that the risk is divided among them.
Often in selling the transactions, the underwriter simply serves as a go-between and takes the utmost attempt to sell the shares, but does not carry on the burden of subscribing. In this situation, investment bankers have the option to sell shares and get paid for the exact sum of securities they sell, on a commission basis.
Placements for Private
Instead of carrying on the cost of a stock offering, investment bankers often assist their clients by private placements to collect money. They might for example, put bonds with an institutional investor, such as an insurance firm or a pension fund, on sale. This is typically an easier way to collect funds and there is no need to apply with the SEC for this kind of deal.
The state finds institutional investors to be more mature than individual investors, because there are less private placement regulations.
Mergers and Acquisitions
Another field in which investment bankers play a part is where a business is trying to acquire another business. An investment banker provides guidance, including the price of the bid, about how the business can go through the acquisition. This requires valuing the targeted market and having a price that reflects its worth. Companies placing themselves up for sale on the other side of the deal will require investment bankers to determine asking rates and proposals. Fusions and acquisitions may also entail lengthy wars.
Conflict Of Interest
They also drawn scrutiny even as investment bankers help grease the gears of financial markets. For one after investment bankers were advised to compel analysts to favourably score stocks to appease their customers to generate investment banking revenue, the credibility of Wall Street’s stock analysis has come into question. The SEC approved guidelines to deal with certain conflicts of interest between the investment banking activity of a corporation and its equity analysis operations.
Another conflict of interest can arise as investment bankers who have access to proprietary customer details relating to their company and prospects are willing to pass on information to the traders of their company. When dealing with customers who don’t have the same details, traders will use this insider information to an unfair benefit.
About the bottom line
Investment bankers play a part in helping their customers collect money in a capitalist environment to fund different operations and expand their businesses. They are financial advice intermediaries that assist and assign pricing resources to multiple purposes.
While this practise helps grease the gears of capitalism, since there is some concern that they are paying too well in comparison to the services they offer, the position of investment bankers has been scrutinised.
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