For beginners, it is not easy to discern the different skills of banking institutions. As an individual, you can take out a loan from a traditional bank. On the other hand, this turns out to be impossible in an investment bank. Discover the various missions of this type of establishment and the professions represented there. We also show you the notable differences between investment banking and investment banking in order to find your way more easily.
What is an investment bank?
How an investment bank works
Unlike traditional banking establishments or retail banks, investment banks do not lend money to individuals or businesses, nor do they manage their savings. No need to go see an investment bank to take out consumer credit.
Investment banks intervene with large industrial and commercial companies, from a financial and strategic point of view, and in particular when they wish to obtain financing from the markets. They play an intermediary role in financial operations. Their main task is to circulate the money.
The business model of an investment bank
To remunerate themselves, investment banks invoice their customers by taking commissions on the services rendered. These are their only resources.
They do not need significant equity capital. When investment banks want capital, they refinance themselves on the interbank market. The other solution is to have money loaned from other banks. In addition, they follow the rules of the central bank.
Examples of investment banks
Some of the world’s leading investment banks include US firms JP Morgan & Co., Goldman Sachs and Morgan Stanley. There is also the Franco-American Bryan, Garnier & Co.
Finally, in France, investment banks are represented by Société Générale CIB, Crédit Agricole CIB, BNP Paribas CIB, Rothschild & Cie.
The missions of an investment bank
The main activities of an investment bank consist of:
- provide financial advice;
- prepare files concerning the IPO;
- carry out intermediation;
- manage capital increases;
- execute corporate finance operations;
- offer a financial engineering activity;
- manage debt issuance;
- set up merger and acquisition operations.
In detail, these establishments can therefore list companies (OPE, OPA, etc.) on the stock exchange, or increase the capital or raise debt. They also assist companies in their mergers and acquisitions (takeover of one company by another).
On the other hand, investment banks identify targets, partners or buyers, then they support companies in negotiating the conditions and prices of these transactions. They also help them finance their realization, if necessary. Note that an investment bank can also provide advice to clients in terms of cash investments or management of exchange rate and interest rate risks.
Finally, we must not confuse investment banking and investment banking because the latter practices activities on the capital markets (trading, placement of securities, etc.) on behalf of institutions wishing to invest or wealthy individuals.
To know : there are establishments which carry out both business and investment banking activities, when they have several departments or subsidiaries.
Read also: Choosing a bank: the important criteria
The main clients of an investment bank
Investment banks have several types of customers:
- large industrial and commercial enterprises;
- fund managers;
- the states ;
The professions represented in an investment bank
In an investment bank, there are a number of professionals:
- financial manager ;
- account manager for companies;
- back office manager;
- banking specialist;
- risk analyst.
There are two teams within an investment bank:
- the first, the mergers and acquisitions team is responsible for advising companies on mergers, acquisitions or divestitures. It is a consulting profession with a strong strategic dimension. This pole is often regarded as the royal road of the investment bank because the banker is at the heart of the strategic decisions of the customers. But to be responsive to customer requirements, this job requires great availability at any time;
- the second team is responsible for advising clients on IPO or capital increase operations. Bankers provide financial advice related to financing by issuance of shares. The work mainly consists of carrying out market analysis and marketing work to investors. Although this requires great availability, it remains less compared to the first team.
Finally, to become an investment banker, it is necessary to obtain a general bac, preferably in scientific series, then to move towards a bac +2 with a commercial vocation (BTS Bank, for example). You must then complete your course with a professional license, then a university master’s degree specializing in banking and finance (bac +5 level).
The differences between merchant banking and investment banking
There are several ways to differentiate investment banking and investment banking, starting with the nature of the assignments performed. An investment bank intervenes only with companies in financial terms while the investment bank has its activities oriented towards the markets (sale of shares, bonds, fundraising, etc.). However, the two banks can work well together. In addition, working in investment banking rather requires analytical skills and in investment banking it is better to have mathematical skills.
In addition, there are differences in terms of time management. Investment banks deal with long-term transactions requiring numerous presentations, in-depth analyzes as well as general advice. Sometimes a merger does not take place for several years. Conversely, an investment bank works on short and medium term assignments. Operations can thus take place within 24 hours.
Finally, in terms of availability, there are notable differences between the two types of establishment. Sellers and traders usually leave after the market closes while analysts continue to work late into the night. On weekends as well as on public holidays, they are also available.
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