Investment banks assist corporations and governments to raise funds by issuing and selling securities in capital markets. They also provide advice to corporations regarding mergers and acquisitions, commodity and equity securities, and the trading of derivatives. Further, they underwrite stock and bond issues. Unlike commercial banks, investment banks do not directly make loans and take deposits. They, however, invest their own money into a project or company as a direct investment, carrying full risk. They can also raise money for a corporation from a high net worth individual that provides investment known as a private equity, or they can raise money from a hedge fund that makes direct investments in corporations. This is known as venture capital; it is a loan with collateral as security.
Investment banks deal with different business units. These are the Corporate Finance, Research, and Equities. The Corporate Finance unit, also known as the Investment Banking Division, is involved in managing the finances of a corporation; this includes dealing with disposals, acquisitions, and mergers. The Research unit investigates, values, and recommends clients about shares and government and corporate bonds. The Equities unit, which is also known as Sales and Trading, buys and sells shares on behalf of the bank’s clients or the bank. An investment bank can make huge profits through Proprietary Trading, or the management of its own capital.
The combination of retail banking and investment banking is the universal bank, or financial services company. This entity handles retail and commercial lending, as well as offshore banking and more. It also sometimes engages in the sale of insurance products in a bank. Besides this, investment banks sometimes get confused with brokerages, or firms that help people choose and buy stocks, mutual funds, and bonds. Some brokerages and investment banks have common owners. Some brokerages also offer investment banking services and some investment banks provide brokerage.