In common english, what exactly do investment banks do?

Question

Please no jargon, something that a high schooler can understand. What exactly does a frim such as GoldmanSachs, MorganStanley do? Something secuirities?

Answer 1

Investment banks have several functions.

1. Match buyers of securities with sellers
2. Help corporations raise cash by issuing new stock (shares of ownership in the company), or new bonds (borrowing from the public).
3. Work with the federal government & federal agencies to find investors for government bonds,
4. Aid companies in mergers and aquisitions

Answer 2

I think it is very important for someone to answer these questions for you so that you can decide whether you want to be an investment banker. I suggest that you go to an Ivy League school, major in something like eocnomics, then ask these questions when you get an interview for an investment banking job. Some of these questions suggest that you havn't done the first iota of research (" Is it possible to open your own investment banking firm?" - Yeah sure - some big corporation is going to come to you and ask you to underwrite its new bonds and assume the risk of sales. If they don't sell, the underwriting agreement is that you buy them. Do you have the kind of money that says that a corporation would trust you to be able to buy the remaining bonds from its $500M bond offering?) Have you even read the Wiki description of securities underwriting? Do you know anything about securties?

Answer 3

They enjoy an enormous benefit from corporate law by providing a "fairness" opinion. When a company is being acquired or targeted to be acquired, the board of directors of that company has a legal obligation to its shareholders to obtain a "fairness" opinion from a third party who is "independent" as to whether the price offered was a fair price. On the other side of the equation, the acquiring company may also hire investment bankers to provide a fairness opinion of the target just to cover their rear as well. That is why during periods of acqusitions, Investment bankers make so much money. In summary, Investment Bankers provide a very expensive service that allows board of directors to cover their rears.

The other activities relating to security business do generate profits but no where near what they make in providing "fairness" opinions.

Answer 4

Investment banks help companies and governments raise money by issuing and selling securities in the capital markets (both equity and debt). Until the late 1990's, the United States maintained a separation between investment banking and commercial banks.

A majority of investment banks also offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities.

Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side".

The "buy side" constitutes the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment. Many firms have both buy and sell side components.

Answer 5

Ranto that was a fantastic answer. You pretty much covered everything in a few simple lines.

Investment banks help bring investors money to business so that they can grow.

Answer 6

investment banks finance initial public offerings. this means that if a company wants to be traded on the Nasdaq, they put up the money to do so. they also handle corporate accounts. Goldmans and Morgan are private equity firms. they invest capital into private companies and bring them public on the nyse for a profit. they also manage assets as well as trade securites for clients.

Answer 7

T A K E Y O U R M O N E Y

Answer 8

managing people's money for investments