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Investment banking is a field of banking that aids individuals, companies or governments in raising capital. In commercial banking, the institution collects deposits from clients and gives direct loans to businesses and individuals. Unlike commercial banks and retail banks, investment banks do not take deposits. From 1933 (Glass-Steagall Act) until 1999 (Gramm-Leach-Bliley Act), there remained a strict separation maintained between the two types of banking in the United States. Since 1999 that practice has moved to an open environment whereby commercial banks may also participate in the investment banking side. Other industrialized countries, including G8 countries, have historically not maintained such a separation.
Through investment banking, a company or institution typically generates funds in two different ways. They may draw on public funds through the capital market by selling stock in a company, and they may also seek out venture capital or private equity in exchange for a stake a company.
In addition to the acquisition of new funds, this type of banking also offers advice and guidance for a wide range of transactions that private or public a company might engage in.
Traditional investment banks focus on industry coverage and product coverage groups. Industry coverage is usually aimed a specific industry, such as healthcare, industrials, or technology, and the bank may develop relationships with corporations within the industry to bring in business for a bank. Product coverage often has a focus on financial products, such as mergers and acquisitions, leveraged finance, project finance, asset finance and leasing, structured finance, restructuring, equity, and high-grade debt and generally work and collaborate with industry groups on the more intricate and specialized needs of a client.
Many banks also look to specialize in a particular market segment such as small or microcap companies, private wealth or blue-chip capital.
Core group of financial transaction include:
Generally, any sale of securities to more than 35 people is deemed to be a public offering, and requires the filing of registration statements with the regulatory authorities. The offering price is predetermined and established by the issuing company and the investment bankers handling the transaction. The term public offering is equally applicable to a company's initial public offering, as well as subsequent offerings. Forms of public offerings include:
* Initial Public Offerings
* Follow-on Offerings
* Senior & High-Yield Debt
* Convertible Securities
* Preferred Securities
* Registered Directs
A private placement refers to the sale of securities to a relatively small number of investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds, but may also include individuals or trusts. A private placement is in effect, the opposite of a public issue, in which securities are made available for sale on the open market. Forms of private placements include:
* Private Equity
* Senior Debt
* Subordinated Debt
* Convertible Securities
The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.
* Exclusive Sales
* Acquisition Advisory
* Management Buyouts
* Leveraged Buyouts
* Fairness Opinions