Ultimate Guide to Investment Banking- Free PPT

The Glass-Steagall Act, which was implemented in 1933 as a result of the 1929 stock market disaster that caused several bank failures, gave rise to the concept of the new financial institution called "Investment Banking."

History of Corporate Finance

Commercial and investment banking activities were carried out jointly before 1929, but the situation deteriorated and became extremely unsafe during that year. This is because investors hurried to withdraw their money from banks to fulfill margin calls and for other reasons when the stock market declined. Still, some banks could not satisfy these requirements since they had also invested their clients' money in the stock market.

What is Investment Banking?

Investment banking is a pillar for significant and complex financial transactions. If the investment banker's client is considering an:

Acquisition
Merger
Sale

They could offer guidance on how much a firm is worth and how to organize a deal. In addition to this, underwriting the issues of new securities for a corporation, municipality, or other entity, these banks may raise money for businesses in several ways.

You may now be wondering what underwriting is. Let's talk about it first.

For businesses or other organizations, underwriting refers to acquiring money by selling investors stocks or bonds (such as in an IPO). Companies require capital to run and expand, and bankers assist them in obtaining that capital by pitching the firm to potential investors.

Underwriting often comes in three different forms:

Firm Commitment :

The underwriter guarantees that they will purchase the whole issue and be fully responsible for any unsold shares.

The best efforts:

The underwriter agrees to sell as many of the issues as is reasonably achievable at the agreed-upon offering price. Still, it is free to return any shares that aren't sold to the issuer without incurring any costs.

All-or-None:

If the entire issue is unable to be sold at the offering price, the transaction is terminated.

Basic Structure of Investment Banking

Front-office, middle-office, and back-office activities make up Corporate Finance. These are described below:

The front office

The front office is typically thought of as a revenue-generating position. Moreover, the front office is divided into two primary divisions: Investment banking and markets.

Investment banking: We advise businesses on mergers and acquisitions and various capital-raising techniques.

Markets: Markets are further separated into "research" and "sales and trading" (including "structuring").

Middle Office

Treasury management, internal corporate strategy, and internal controls are all part of this bank division.

Treasury Management: Corporate treasury is responsible for an investment bank's funds transfer pricing (FTP) framework, managing the capital structure, and monitoring liquidity risk.

Internal corporate strategy: This strategy comprises defining the bank's goals, simplifying its operations, and coordinating resources. This approach focuses on identifying growth opportunities, improving customer relationships, and ensuring efficient risk management to achieve long-term sustainability.

Internal controls: Internal control monitors and analyzes the capital flows of the company. The finance division is the primary advisor to senior management on critical matters like limiting the firm's global risk exposure and the profitability and organizational design of the firm's various businesses through specialized trading desk product control teams.

Back office

It is a crucial component of the bank. As the back office completes, the necessary transfers as well as data verifies completed deals to make sure they are accurate. Several banks have outsourced operations that several banks have outsourced.

Conclusion

Over the years, Corporate Finance has changed, starting as a partnership firm dedicated to underwriting security issuance, such as initial public offerings (IPOs) and secondary market offerings, brokerage, and mergers and acquisitions, and developing into a "full-service" range that includes securities research, proprietary trading, and investment management.