What Are Investment Banks 1 Hour Webinar Recording

What are Investment Banks? Investment banks are different from commercial banks. Many people are not clear about this difference. You should know this fact that unlike commercial banks, investment banks don’t take deposits.

Investment banks main jobs are help other firms and companies as well as individuals raise cheap capital by underwriting the issuance of new securities. This process is also known as IPO. IPO stands for Initial Public Offering. IPOs are planned when a startup or a new company thinks it’s the right time to go public. So investment banks play an intruemental role in IPOs. Watch the video below that explains in detail what are investment banks.

Investment banks also help other companies and firms in Mergers and Acquisitions also known as M&As. So investment banks act as financial intermediaries in a host of business activities. The clients can be corporations, hedge funds, pension funds, other financial institutions and governments. Sometimes it happens a foreign government wants to raise debt by selling bonds. An investment bank can provide the foreign government its services in selling the bonds. Size is always of importance. So the the major services provided by these banks are as said above are underwriting the issuance of new securities and M&As. Famous investment banks are Goldman Sachs, JP Morgan, Bank of America. Investment banking is a quintessential American innovation. Many of these banks also have retail operations as well to cater for the small retail investors.

2008 came as a big blow to the investment banking industry. It was the year the neo-liberal economic orthodoxy that ran the world for 30 years suffered a heart attack of epic proportions. Not since 1929 has the financial community witnessed 12 months like it. Lehman Brothers went bankrupt. Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester all came within a whisker of doing so and had to be rescued.

Some argue that the collapse of Lehman Brothers was the catalyst that ushered in the stock market crash in 2008 as it put tremendous pressure on other investment banks as well as other big banks and hedge funds who were counter party to most of the transactions on the balance sheet of Lehman Brothers. In order to cover the margin calls, most hedge funds had to sell stocks and this put tremendous pressure on other banks and corporations whose stocks started falling sharply. Investment banking industry is still recovering from the massive blow that it suffered during the 2008 stock market crash.

Now as an investor you can make money both when the market goes up as well as when the market goes down. When the stocks started falling, short sellers started selling the stocks of banks and companies that were being perceived to be not very sound. This started a snow ball effect that started the stock market crash of 2008. You can read our previous post on how the new millionaires are making money.