Investment Banks

What is an investment bank?

An investment bank helps businesses and governments sell new securities and also makes secondary markets for the securities as brokers and dealers.

What do investment banks do in the primary market?

They help businesses and governments raise money by selling new securities.

What do investment banks do in the secondary market?

They act as brokers and dealers to buy and sell previously issued securities.

How are investment banks different from commercial banks?

Investment banks don't accept deposits or make loans

What is a universal bank?

A universal bank offers both commercial and investment banking services, plus insurance and brokerage services.

What is a primary offering?

A new issue of stocks or bonds sold to raise funds.

What is an IPO?

An Initial Public Offering is a company’s first public sale of securities.

What is a seasoned offering?

It's a new issue from a company that already has similar securities trading in the market.

when making a public offering, what does the company have to decide?

whether it will have the issue underwritten or sold on a best-efforts basis.

What are the three steps to bringing securities to market?

Origination, underwriting, and distribution.

What happens during origination?

The investment banker helps the issuer analyse the feasibility of the project, amount to raise, type of financing, security characteristic design, provide advice and prepare official sale documents.

What is underwriting in investment banking?

The investment bank guarantees to buy the new securities at a fixed price, taking on price risk.

How do investment banks reduce underwriting risk?

By forming underwriting syndicates to share the risk.

What is distribution in investment banking?

It’s the process of reselling the securities to investors as quickly as possible at the offering price.

What happens if securities don’t sell quickly?

The syndicate breaks up and members sell at any price they can get.

What is brokerage?

Acting as a middleman to earn a commission by matching buyers and sellers.

What is dealing?

Making a market by being ready to buy or sell a security.

What is project finance?

Financing large projects where the project itself is funded, not the company, usually with limited recourse and syndicated loans.

What services do investment banks offer in mergers and acquisitions (M&A)?

Identifying targets, pricing deals, providing advice, negotiating, and arranging financing.

What is venture capital?

a source of equity funding used to finance the growth of new businesses, typically after the founders' funds are used but before an IPO.

What are the common characteristics of venture capital investments?

Substantial control over management decisions, Some protection against downside risks, A share in the company’s capital appreciation

Why do venture capitalists require control in companies they invest in?

To protect their investment, guide strategic decisions, and help ensure the business succeeds.

what are the different venture capital stages?

Seed financing (capital provided at idea stage), start-up financing (product development and initial marketing), first-stage financing (initiate manufacturing and sales), second-stage financing (company expansion).

What is financial technology (fintech)?

Fintech is new technology that aims to improve and automate the delivery and use of financial services.

What is the core purpose of fintech?

To help companies, business owners, and consumers better manage their financial operations, processes, and lives using specialised software and algorithms.

What are some common applications of fintech?

Cryptocurrency, Digital lending, Payments, Blockchain, Digital wealth management