Investment Bank

Unlike commercial banks, investment banks do not mainly take deposits from the public and make everyday loans. Their work centres on large financial transactions.

A key role is underwriting. When a company wants to raise money by selling shares in an initial public offering or by issuing bonds, an investment bank helps price the securities, prepare documents and find investors, often guaranteeing to buy any that remain unsold.

Investment banks also advise companies on mergers and acquisitions, helping them buy, sell or combine businesses and negotiate terms. Many have trading divisions that buy and sell shares, bonds, currencies and derivatives for clients and for themselves, and research teams that analyse companies and markets.

For example, an investment bank might advise a company on buying a competitor for 2 billion and then help it raise the money by issuing bonds.

Investment banks earn fees for advice and underwriting, and profits from trading. Many large banking groups combine investment banking with commercial and retail banking.