Question

What services do investment bankers provide to what groups of clients? What risks do investment bankers face and why?

Answer 1

Services provided by Investment Bankers:

1. Securities Underwriting is a process through which investment bankers purchase the securities like shares of corporate, government or municipal bonds and resell them at a profit . They bear the risk of selling the securities and hence charge fees to its clients.

2. Advisory Services: They take up advisory role when any company wants to raise capital through IPO, private placement, etc. Since they have best idea about current price levels and interest rate scenario they can guide companies in case of mergers and acquisitions and valuation of firms.

3. Market Making : They help in achieving the price discovery of a stock of a company. They organize road shows, perform calculation, compare with similar companies in the industry, etc to arrive at a price at which stocks can trade. Hence they aid in market making .

4. Proprietary trading and investment: They execute orders to sell or buy shares on behalf of the clients. They also trade their own surplus amount in high return riskier investments. It also helps in pension and retirement planning for older citizens and individuals who want to start retirement planning.

5. Mergers and Acquisitions: They help in valuation of firm and perform all legal and financial activities for mergers and acquisition.

Risk faced by Investment Bankers are
1. Regulatory risk:There are new regulations coming up during economic recession which cripples the profits of investment bankers. It sometimes reduces the activities performed by them and hence lowers profits.
2. Economic Risk: Interest rate risk, taxes ,etc all affect the performance of Investment Bankers. The interest rate risk lower the gains on investments by investment bankers. Higher taxes lower their profits

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well