To put it simply, investment bankers are the middlemen between investors and bankers when it comes to stock. An investment banker performs a number of services that help both the investors and the company in question. This is why they are so important to the financial market. Here are some things they do:
1. Buy and re-sell stock
This form of investment banking does not follow the traditional manner. These investment banks purchase stock from companies who have just had their IPO (initial public offering). In the next step, these companies sell it in the market at a higher price to what they had previously bought it for. This is a major risk, but due to their expertise, they are usually successful at it. Some of the largest corporations in the world are investment banks including JP Morgan, Morgan Stanley, Deutsche Bank, Barclays, and others.
2. Providing advice to clients
The clients of an investment banker include corporations, pension funds, hedge funds, the government of its country and other large financial institutions. Investment banks provide advice as to what is the ideal step that should be done. The Chinese wall is a concept where there is a discord between the advisory and trading divisions of the bank. It is crucial that they maintain their independence otherwise they will not be giving appropriate advice to their clients.
3. Help find investors for debt financing
Debt financing is a way of raising capital for projects through corporate bonds. Corporate bonds are much harder to come about, as compared to government bonds. Therefore, investment bankers are needed to find a client for these corporate bonds.
4. Financing large projects
Traditional banks are usually much smaller than investment banks. This is due to the fact that they do not undertake projects as big as investment banks do. The only way that large projects get funded besides an IPO and selling stocks is through an investment bank. This is why they are so crucial for the functioning of the economy.
5. Asset management and brokerage service
Finally, investment banks also help regular investors. This is because they take money from a client and use it to help those clients make more money. This is done in two main ways. The first is that they select stocks. The second is that they secure mutual funds for their clients as well.
As you can see, investment banking is crucial for the economy and this is the reason why becoming an investment banker is such a lucrative proposition.