by DollarBillionaire™

High-Performance Individuals understand banking and the various types of banks that exist.  Here we define what Investment Banking is and give a broad overview of how these banks operate.


In this Teaching Document, you will find the DollarBillionaire ™ Guidance Notes on Investment Banking.

Written by Barron Hall. Revised and Updated Tuesday 06 August 2019.

Table of Contents: [toc]


Investment Banking

Investment Banking - Definition

Investment Banking is a bank that provides a Business Advisory Service and a Capital Raising Service for corporate clients.  These services include advising clients on initial public offerings, stock purchases, mergers and acquisitions, capital raising, restructuring, the trading and marketing of derivatives, currencies, securities, and equities.  Investment Banks raise money for companies that need money for growth but do not have money, and they obtain this money from investors who are keen to invest their capital.

What is “Investment Banking”

Investment Banks deal with high net worth individuals, businesses, governments, private and public companies, private equity firms, and other institutions.  They do not deal directly with the public man in the street, like commercial banks do.  They act as an intermediary between those who need money for business purposes and those who have excess money and are wanting to find a good investment.  So these banks are in effect the middleman between the investing public and companies that issue securities like shares and bonds.  They provide valuable business advice on complex arrangements like mergers, takeovers, and IPO offerings.

The Investment Banking Industry is divided up into the upper tier “Bulge Bracket“, the mid-level businesses “Middle Market” and the specialized business “Boutique Market“.

An example of an Investment bank is Goldman Sachs.

Investment Banking Services

Primary Service 1: Investment Banks act as an intermediary between businesses seeking finance and investors.  They help companies to raise capital and help investors to find good investments.

Investment Bank efforts are either classified as “Buy Side” or “Sell Side“.  This involves buying and selling of securities. These banks analyze, create, promote and sell securities to investors.  This involves the underwriting of the securities and then bringing them to the marketplace.  The investment banks also buy securities on behalf of Unit Trusts, Mutual Funds, Pension Funds, Private Equity Funds, Hedge Funds, and Insurance Companies.  In this way, Investment banks assist institutional investors who invest with other people’s money to trade securities and to do market research.

Investment Banks are involved in underwriting the raising of capital.  Capital might be raised by the selling of existing stocks or bonds to investors. Alternatively, the capital might be raised by an Initial Public Offering (IPO).  There are three main approaches to underwriting.  (1) A firm commitment whereby the investment bank takes on board the entire issue and guarantees any unsold shares. (2)  All or Nothing whereby the investment bank will not raise any capital unless the entire share offering can be sold. (3) Best Effort whereby the investment bank tries to sell as many shares as possible but will return any unsold shares to the issuer without the bank having to buy them.

Primary Service 2: Investment Banks Supply advice to businesses.

Investment Banks assist with Mergers and Acquisitions by helping a business to find, evaluate, negotiate, and acquire a target business.  They assist in the negotiations and restructuring of a merger and/or acquisition and can assist either side to the deal.  The investment bank would advise their client as to the potential worth of a target company.  They can make recommendations on how best to structure the deal, be it a sale, an IPO, an acquisition or merger.  They will assist with the creation of all of the documents required to support the transaction.

The 12 steps involved in a Merger and Acquisition (MAA) include (1) Setting an Acquisition Strategy (2) Listing suitable Target Criteria (3) Finding a suitable target (4) Planning the Acquisition (5) Performing Business Valuations (6) Undertaking Negotiations (7) Doing Due Diligence (8) Drafting a Heads of Agreement (9) Drafting a Sale and Purchase Contract (10) Signing of the contract (11) Financing the deal (12) Final Implementation of all Plans.

Secondary Services of Investment Banks

Investment Banks may also get involved in Sales and Trading.    Many investment banks also undertake other forms of banking like Commercial Banking (Retail Banking).

Top investment banks include JPMorgan Chase, Goldman Sachs, BofA Securities, Merrill Lynch, Morgan Stanley,  Citibank, Credit Suisse, and Barclays.

Graphic: Investment Banking Services

Investment Banking


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