What are the Types of Investment Banking?

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Equirus Wealth

09 Dec 2022 5 min read

Investment#Investment#Finance

The term Investment banks albeit fancy may put people off due to the sophistication and complexity of the financial world. Investment banking is that part of the banking practice where specialists assist individuals and businesses in providing financial advisory services and enabling raising capital for business growth.

Who are investment bankers?

They are the catalyst between entities issuing capital, investors, and enterprises proposing to go public. They are investment professionals who have the required in-depth understanding of the financial services industry, analytical expertise, and persuasive communication skills to lend support to the institutional clientele to conduct activities like raising capital, mergers and acquisitions, corporate restructuring, etc. In the event they are assisting enterprises to go public, they are often called merchant bankers. They either buy all the securities and resell them to retail investors or sell them on behalf of the issuing entity and charge a fee for this representative service, generally as a lump sum and a percentage of the quantum of shares sold. They play an integral role in the financial growth of the organization.

What encompasses the role of an investment banker?

Investment bankers can be involved in a range of financial advisory activities for corporate entities:

  • Raising capital and related – Book building, drafting the prospectus, IPOs (Initial public offerings), FPOs (Follow-on public offerings), rights issue, bonus issue, etc.,
  • Raising capital via debt – Bond issuance, pricing, etc.,
  • Fund management advisory services – Hedge fund, mutual fund, pension fund advisory
  • Private equity or private placement of capital
  • Mergers, acquisitions, Joint ventures, and divestitures
  • Corporate restructuring
  • Debt and Equity advisory services

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Types of investment banking

Investment banking is an integral part of the economy, they enable the optimization of return on investments and facilitate low-cost financing for the industrial sector. There are different types of investment banks that undertake different roles in ensuring the smooth functioning of the economy and the well-rounded development of the financial system.

  1. Bulge bracket investment banks:

These are the most common and recognizable financial services firms. Typically, they have a global presence. Some popular names in this category are Citibank, Barclays, BoA, Sachs, JP Morgan, etc. They offer a range of services, including retail banking, mortgage lending, and a variety of other banking-related activities. Although the origins and the exact definition of “bulge bracket” may not be known, it is an accepted terminology in the industry circle and refers to well-known investment banks which have a global presence. They cater to clients which a very high surplus. Their typical deal size could range over $1 billion. They also offer a range of services that encompasses advisory and research. They operate as a ‘one-stop-shop’ for their clientele.

  1. Mid-market Investment banks:

They are a tad bit smaller than the bulge bracket investment banks. Their deal size is smaller than that of their larger counterparts. They may not be very known names and may not have an expansive geographic presence. They tend to have a telling presence in one geography at a time. Their local presence is quite evident. They, too offer a range of services and often have extensive investment banking expertise. Typically, medium-sized businesses utilize their services. They are more economical as compared to their high-tier counterparts.

  1. Elite Boutique Investment banks:

This type of investment bank offers a limited number of services. They often specialize in a single industry. They may also offer specialized services about a single stream of advisory services. For example, there are boutiques that offer private equity services only or mergers and acquisitions advisory services exclusively.

  1. Regional Boutique Investment banks:

These cater to local companies. They are active in the loan financing type of activity which is needed for the early stage start-ups. Private equity investors are skeptical about investing in early-stage start-ups. They enable funding through angel investors and venture capitalists. Their transaction size could be minuscule in comparison to the rest of the types of investment banks. However, they tend to cater to a larger set of audience.

Investment banks in India

There are several Investment banks in India. The top 5 which cater to a wide range of corporates include – HDFC Bank, ICICI Bank, Axis Bank, Credit Suisse Securities (India), Deutsche Equities India, Edelweiss Financial Services, etc.,

These are some of the bulge-bracket investment banks which offer a range of services to Tier I companies in India. They have multiple subsidiaries which carry out different forms of services.

Every type of investment bank has its own set of pros and cons. They cater to different segments within the ecosystem. They all play an equally robust and integral role in the country's economic development.

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