Investment banks are private companies that work with governments, corporations, and individuals. Their primary role is as an investor and the banks work to raise capital for their clients by underwriting deals. They also act as their client’s agent when issuing securities.
How Investment Bankers are Helpful
The bankers that work at these financial institutions are called investment bankers. They do the work necessary to raise capital for the client and they draft prospectus documents when necessary to help a client make a corporate offering on the stock markets.
These banks are different from traditional banks. Traditional banks take deposits from customers. They also lend their money to borrowers. Chicago Investment Bank make money not from interest on private sector loans but rather by selling services to governments, companies and individual investment funds including hedge funds. They get paid through the commissions earned on their deals.
Some examples of what investment banks do include raising money to provide capital for a government that wants to build an airport in its jurisdiction. They might also finance companies that are building highways or other municipal projects. They sometimes work directly to issue bonds that serve as capital for their clients.
Importance of Bonds in Banking Sector
When they are in this position, they plan the issuance of the bond, and they price it accordingly. The bond has to be priced right. If it is too high, it could turn some investors away and if it is too low it will not make enough revenue for the client. These bonds are managed and documented with the US Securities and Exchange Commission or the SEC.
Other deals that the banker will do include equity financing deals. If a company wants to raise more money to grow, it will place an initial public offering or IPO on the market. The investment banker helps by drafting a prospectus which details all the terms of the offering as well as any risks that come with an investor purchasing shares.
Investment professionals also assist with deals by doing the underwriting. They manage any risks that come with the deal by buying securities from the issuers and also selling them to institutional buyers or the public. They will buy these securities for a certain price and then add a markup to that prices. This is one way that investment banks get to make money as well as even out any risks they take on when assuming the underwriting that they do.