Loading the player...

What is an 'Investment Bank - IB'

An investment bank (IB) is a financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients. Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank and Lazard. Some investment banks specialize in particular industry sectors. Many investment banks also have retail operations that serve small, individual customers.

BREAKING DOWN 'Investment Bank - IB'

The advisory divisions of investment banks are paid a fee for their services, while the trading divisions experience profit or loss based on their market performance. Professionals who work for investment banks may have careers as financial advisers, traders or salespeople. An investment banker career can be very lucrative, but it typically comes with long hours and significant stress.

Because investment banks have external clients but also trade their own accounts, a conflict of interest can occur if the advisory and trading divisions don’t maintain their independence (called the “Chinese Wall”). Investment banks’ clients include corporations, pension funds, other financial institutions, governments and hedge funds. Size is an asset for investment banks. The more connections the bank has within the market, the more likely it is to profit by matching buyers and sellers, especially for unique transactions. The largest investment banks have clients around the globe.

Investment banks help corporations issue new shares of stock in an initial public offering or follow-on offering. They also help corporations obtain debt financing by finding investors for corporate bonds. The investment bank's role begins with pre-underwriting counseling and continues after the distribution of securities in the form of advice. The investment bank will also examine the company’s financial statements for accuracy and publish a prospectus that explains the offering to investors before the securities are made available for purchase.

RELATED TERMS
  1. Investment Banking

    A specific division of banking related to the creation of capital ...
  2. Financial Intermediary

    An entity that acts as the middleman between two parties in a ...
  3. Investment Banker

    Someone working at an institution raising capital for companies, ...
  4. Universal Banking

    A banking system in which banks provide a wide variety of financial ...
  5. Wholesale Banking

    Banking services between merchant banks and other financial institutions. ...
  6. Merchant Bank

    A bank that deals mostly in (but is not limited to) international ...
Related Articles
  1. Personal Finance

    What is an Investment Bank?

    An investment bank is a financial intermediary that performs a variety of services.
  2. Managing Wealth

    What's Investment Banking?

    An investment bank is a special type of bank involved in a variety of large and complex financial services for major institutions.
  3. Insurance

    The Rise Of The Modern Investment Bank

    Get to know a little bit about the institutions whose actions help to guide free markets.
  4. Insights

    How Investment Banks Make Money

    Take a look at methods through which investment banks make money, such as investment research, asset management, and brokerage and underwriting services.
  5. Investing

    What's the Role of an Investment Bank?

    Investment banks provide financial advice to businesses and governments and help them raise capital through the sale of stocks, bonds and other products.
  6. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  7. Personal Finance

    The World's Top 10 Investment Banks

    These banks come out on top as measured by revenue numbers, global reach, employee headcount, income, and a number of other factors.
  8. Personal Finance

    Private Banking Vs. Wealth Management: Not Quite the Same

    Discover the various ways in which private banking and wealth management services coincide, as well as the significant differences between them.
  9. Managing Wealth

    The World’s Top 8 Investment Banks

    The easiest way to rank investment banks is through figures such as revenue numbers and employee headcount.
RELATED FAQS
  1. What are some roles of an investment bank?

    Explore the world of investment banking and discover the various functions that investment bankers serve, such as handling ... Read Answer >>
  2. What is the difference between a correspondent bank and intermediary bank?

    Read about the differences between intermediary banks and correspondent banks, why their role is necessary, and where the ... Read Answer >>
  3. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
  4. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  5. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
  6. How do investment banks help the economy?

    Learn more about the functions of investment banks in a modern economy and how investment banks have been treated differently ... Read Answer >>
Hot Definitions
  1. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  2. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  4. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  6. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
Trading Center