As investors seeking a better understanding of the investment environment it would be appropriate to understand the composition, structure and various functions associated with investment banks; as they are amongst the important participants of the global financial markets.
Investment banks are financial institutions (not to the exclusion of banks with brokerage subsidiaries) which provide financial securities, products and services to their clientele. The clientele would include corporate entities, financial institutions (including other investment banks), governments (including their departments and agencies), institutional investors and retail investors (including high networth individuals).
The products and services offered by investment banks are usually full range financial products across various major financial markets. They also provide advisory services based on high quality market research; with the view to enable corporate restructuring to improve performance, capital raising via debt and equity, risk management, market making and cost efficient brokerage.
The function of the investment banks would be to mostly mediate the flow of assets between the seller of assets (or the issuer) and the buyers of these assets (or the investors). This would require the investment banks to set up an elaborate and complex network amongst themselves as well as with external agencies (including regulators) and their clients on the sell side as well as the buy side. This would also require the constant flow of information and relevant advise. Of course, the investment banks get paid when the deal is done.
It is through the delivery of these high quality financial products and services that the investment banks are able to generate earnings for themselves and create value for their stockholders. Their mission is to be profitable in each of their verticals (including strategic business units enabled from time to time with specific objectives); while providing relevant and value added products and services to their clients across the globe. This is usually achieved through an appropriate admix of financial products, technology and human expertise. The services usually provided by investment banks are listed below:
Investment Banking: Provide financial products and research in the areas of equity, fixed income instruments, interest rates, foreign exchange and commodities. Advise and assist access to the global capital markets for corporate, institutional, intermediary and alternative asset management clients.
Retail Financial Services: Retail banking and consumer lending with the view to serve consumers and business entities through personal services at the bank branches, ATMs, net banking and telephone banking.
Commercial Banking and Card Services: Provide banking and securities services for retail and corporate clients.
Treasury and Security Services: Provide cash management services, wholesale card and liquidity products and services to small and medium size companies, multinational corporations, financial institutions and government entities.
Global Asset management: Provide innovative investment management solutions in various asset classes to retail, institutional and corporate clients; on occasion provided via financial intermediaries on the lines of franchise.
Wealth Management: Provide services designed for high net worth individuals from across the world; whether investing domestically or internationally. Provide unbiased advisory services as per client objectives and requirements; including but not limited to asset management, estate planning, financing and banking.
Private Equity: Provide financial management services with a view to improve the underlying asset value of the portfolios under management to add value to the advantage of the clients, employees and stakeholders.Evolution of Investment Banking, a historical perspective:
The evolution of Investment banking can be traced back to Europe of 1815; Napoleon had been defeated followed by a period of peace and financial stability. The world's financial capital gravitated to England, the victors of the war. Before which the global financial center had shifted from Italy to Spain to Portugal, followed by France and Amsterdam. In later history that is after the 1st world war the financial center of the world shifted yet again from England to New York.
It was America's need for capital which was met by representatives from the European financial houses; like the Barings, Rothchilds and Speyers amongst others. During the later part of the 19th century there was also a requirement of finance from the private sector corporations; it is also during this time that other German immigrant (some of whom had financial family backgrounds) made their presence felt in the American financial markets. Notable amongst them were Seligam, Lehman, Kahn, Loeb and Goldman. All of them prospered due to their privileged access to European capital and the already existing branch networks developed along the way. In addition to the incorporated commercial banks, some financial services were also provided by auctioneers, speculators, brokers (including foreign exchange), merchants and shippers.
It would be reasonable to expect that investment banking systems, processes and methodology would also find their origin in British and European merchant banking practices.
With the passage of time the bankers started influencing corporate policy of their clients through memberships to corporate boards and committees; with the result that there was long term loyalty between the banker and the client, ensuring better revenues and margins to the banker. Today, the leading US Investment Banks have a dominant market position and are a force to reckon with in the financial markets both domestically and internationally.
Given the many verticals and diverse functions associated with most investment banks, the young academically inclined with suitable work expertise under the belt would be able to find relevant employment. Although, the varied specializations would range from human resources to operations research to investment analysis and portfolio management; it would be unfair to leave out economists, annuity specialists, practitioners of general management and real estate specialists. This of course would not deny others who specialize in sales and marketing, business promotion and advertising amongst other areas of specialization. Thus, it would be relevant for the persons seeking employment in investment banks to communicate with relevant niche human resource and employment organizations.