Investment banks refer to. What is an Investment Bank? Types of investment banking activities

Important entities operating in the capital market are investment banks. It is difficult to overestimate their role; such banks and their associations are often practically the only sources of financing for large projects and huge transnational companies.

What is an investment bank? In the view of an ordinary citizen of the Russian Federation, a bank is a financial institution where you can come to place a deposit, take a loan, pay a communal apartment. But banks also perform other functions (see), more global, which play an important role in the development of the state's economy.

Banks have different activities. The bank's investment operations are investments of its own or temporarily borrowed funds for the purpose of making a profit. Banks can earn not only by issuing loans. Their task is to effectively manage capital, including by investing in various financial instruments.

Investment banks may carry out the following activities:

• analytical activity;
• company acquisitions and mergers;
• trading in securities;
• brokerage services;
• market maker services.

An investment bank is a bank that specializes in investment activities. This is its main function. Nowadays, most banks do not stand out separately as investment banks. They carry out this type of activity on an equal basis with others.

What is investment banking? The first investment banks appeared in the US at the beginning of the 20th century. The country's leadership decided to separate banks specializing in working with securities and investment activities.

The crisis in America, which peaked at that time, also happened due to the fact that many banks invested the funds raised in securities, and this was a rather risky business. To avoid the collapse of the financial system, the decision was made to separate. This is how commercial banks and investment banks appeared.

Activities of investment banks

The main source of resources for investment are funds that individuals and legal entities entrust to the bank for investment activities. At the same time, issuers also need some services (brokerage, advisory, mediation).

The bank is a trusted institution, because the transactions that are carried out through investment banks are safe transactions, so most customers trust the bank to make them on their behalf.

An investment banker is a professionally trained manager who performs analytical work and securities trading. Typically, banks have a branch network that allows them to conduct operational work, including in the regions. This is their competitive advantage in comparison with other investment associations.

Some banks are united in syndicates. Thus, they pool their resources to participate in those projects in which each individual cannot participate. This can be financing of large-scale international projects, loans to states, and so on.

Such investments are most often long-term and have a high degree of reliability, therefore they are attractive to banks; they can earn income for a long period, while not particularly risking.

Investment banks in the Russian Federation

What is an investment bank? There is no clear definition in the legislation of the Russian Federation, and, accordingly, there is no division into commercial and investment. All banks are universal and can operate on, if they have the appropriate permissions.

The securities market in Russia originated in the 90s of the last century. Its development was slow, it was aggravated by the low financial literacy of the population and the threshold of the 1998 financial crisis.

However, over time, the stock markets of the Russian Federation began to revive, business gradually got back on its feet. The country's potential is huge, there was only a shortage of resources, but this problem was partially solved by the development of the securities market and the arrival of foreign investors.

In addition, recently one could observe the return of capital back to Russia. In times of instability, large capital was withdrawn abroad using various schemes; until recently, the opposite trend was observed.

The legislation of the Russian Federation makes participation in investment processes of all participants equally accessible. The arrival of foreign capital stimulated the creation of national investment companies and banks.

The largest banks of the Russian Federation, which can be called investment, are:

• VTB Capital;
• Alfa Bank;
• TranscapitalBank;
• Rosbank;
• Sovcombank.

One of the most important participants in the Russian securities market is the Central Bank. He is the government's agent for the placement of government loans. The activity of the Central Bank is part of the monetary policy of the country. He regulates the money supply by buying securities or selling them, depending on the task.

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Investment banking is an important part of the modern market economy. Banks are subjects of the capital market, they accumulate funds that they use for investments.

In addition to securities trading, investment banks provide related services to market participants, such as: portfolio formation and management (see), advisory, brokerage, dealer services, and so on. Investment banks are major players that have great opportunities due to their material and technical base and wide branch network.

In most countries, commercial banks are universal - in addition to their main activities, they are engaged in investment, but in some states, investment banks are singled out separately.

Posted on the site 18.03.2009

To be sure, capital markets are frozen. It is not necessary to expect any placements, and even more so public ones. But now the reverse process is gaining momentum - buying back shares and bonds from the market, dealing with problem debts, restructuring problem assets and other special financial solutions.

Commercial and investment banks

The idea of ​​dividing banking into commercial and investment arose in the mid-30s of the XX century and became a natural consequence of the severe financial crisis known as the Great Depression. This was legally enshrined in the Glass-Steagall law, the main principle of which was the separation of risks accumulated by investment banks and the risks of commercial banks that work with the population, which means that their stability is in many ways the cornerstone of the stability of the financial system and the economy as a whole.

The Glass-Steagall Act was passed in 1933 to separate the activities of investment and commercial banks. The act was a response to the speculative operations of commercial banks in the securities market, which was one of the factors in the collapse of the American stock exchanges in 1929. Banks used deposits to play on the stock exchange and resell shares to their customers. The consequence of the law was the emergence of specialization of banks. In turn, the law caused great dissatisfaction in the professional environment, and banks even campaigned in support of the repeal of the law, arguing that diversification reduces risk. In 1999, the law was finally repealed and replaced by the Gramm-Leach-Bliley Act, which allowed the consolidation of commercial and investment banks, while a number of restrictions aimed at preventing conflicts of interest remained. Citibank was one of the first to take advantage of this law, merging with Travelers Group insurance company to form a banking group that provides a full range of financial services, including corporate and underwriting services under the brands Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation.

The debate about which model is more efficient - the American concept with the separation of banks or the European one with its system of universal banks - has been going on for quite some time. Ironically, these disputes will be resolved by a new global crisis, which in its scale and possible scenarios is already comparable to the Great Depression and which completes the previous long cycle of development of the economic system.

The collapse of Wall Street

What happened in the USA? And something happened that no one could have imagined a year ago: the entire financial industry, the pride of Wall Street, disappeared. No more "big five from Wall Street", and that's what the world's largest investment banks were called. This "five" included investment banks Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs.

The era of investment banking began in the US 75 years ago with the aforementioned legislative separation. Of course, historically in Great Britain, France and other European countries there was a conditional division. The so-called merchant banks were in the UK (merchant banks), in France (banques d'affaires), but the investment industry in its modern sense began to emerge in the United States. For many years, brokerage was the main source of income for investment banks: until May 1975, there was a fixed commission that banks charged their clients. This flat fee allowed investment banks to successfully weather the 1973 oil shock crisis. The abolition of the fixed brokerage commission led to a decrease in the profitability of the brokerage activities of investment banks. In turn, compensation was required from new sources of income, often more risky. Investment banks began to manage their own and borrowed capital. Ahead of investment banks were waiting for 30 years of prosperity. They began to grow rapidly, recruit thousands of people, expand around the world, opening offices from Moscow to Mumbai. Wall Street giants also settled in the City of London by buying smaller merchant banks such as Warburg, Schroders, etc.

The capital market business—sales and trading—has always been a key component of the investment bank model. Unlike the advisory unit, it was much more expensive for banks to ensure the effective operation of sales and trading. Special IT-technologies are needed, a huge number of people and many other things, the installation and maintenance of which are quite expensive. According to some calculations, the cost of cooling the investment bank's trading floors, which are packed with computers on a typical New York summer day, would be enough to equip a small village somewhere in Africa. At the same time, M&A bankers need much less in terms of infrastructure. A few beautiful meeting rooms for clients, Power Point, Excel, access to multiple databases and a BlackBerry are enough to get the job done.

Thus, investment banks had already made significant investments in infrastructure, and cash was needed to maintain it, and fees were steadily declining. Something had to be done to make better use of the existing infrastructure.

Then new departments appeared in investment banks, dealing with trade at their own expense. Investment bank Salomon Brothers was the first to create a department for trading securities at its own expense (proprietary trading). Now he not only bought and sold securities of clients, but also began to make his own bets on the movements of the markets. The pursuit of superprofits forced to take more and more risks. Of course, so-called “Chinese walls” soon appeared between the various divisions of investment banks, designed to ensure that confidential information about the state of companies, about upcoming transactions and releases would not be distributed to those departments that deal with trade and analytics. At the same time, these restrictions in global investment banks, as a rule, are very strict. For example, if an investment banker from IBD wants to talk to an analyst from equity research, then this conversation can only take place in the presence of a compliance person who must monitor the progress of the conversation and make sure that information is not leaked . At the same time, analysts from equity research can be involved in IBD projects, but in this case they lose the opportunity to cover this company for some time. At the same time, there was an active development of various financial products, more and more complex financial instruments appeared, in particular, credit and financial derivatives and financial engineering products that were developed and issued by investment banks. At the same time, banks created departments for trading in these instruments, where they invested their own and borrowed funds.

Financial innovations have made banks extremely dependent on the movements of the stock markets. The low interest rate policy pursued by the Fed after the 2001 crisis led to a liquidity bubble in the capital markets and laid the foundation for the US mortgage crisis that marked the beginning of the global financial crisis.

September 2008 was probably the most dramatic month in the history of modern finance. The banks that survived the crises of the nineteenth and twentieth centuries collapsed overnight. During this highly turbulent autumn, Credit Suisse's Moscow office even issued an analytical report on the state of the Russian stock market called "The autumn we shall never forget".

So, only in September 2008 did not become Silver State Bank (1996 1, bankrupt), Lehman Brothers (1850, bankrupt; business in the USA was bought by Barclays, in Asia and Europe - Nomura), Merrill Lynch (1914 - bankrupt). , bought by Bank of America), AIG (1919, nationalized), Ameribank (1906, bankrupt), HBOS (1695 and 18532, bought by Lloyds TSB), Washington Mutual (1889, bought by J.P. Morgan Chase), Bradford & Bingley (1851, nationalized).

October was even more terrible in terms of falling prices for stock assets: the fall reached the level of 50-90% of all-time highs. The series of bank failures continued. In October, Wells Fargo (1854) bought the Wachovia Bank (1908). Morgan Stanley was forced to sell a 21% stake to the Japanese financial group Mitsubishi UFJ Financial Group (MUFG).

However, on September 15, when Lehman Brothers was declared bankrupt in the market, there was a feeling of panic. This is how some prominent representatives of the investment banking community reacted to this event.

“On Monday, September 15, when Lehman Brothers fell, it became clear: a disaster! Before that, there was no such feeling,” recalls Ruben Vardanyan (Troika Dialog). “That was the biggest blow.”

Yuri Solovyov (VTB Capital): “This was accompanied by a huge increase in spreads. For Russian issuers, they expanded by 2-3 times. Everyone got the realization that no one is eternal and even such a big player can surrender. After this blow, many were never able to recover.

“The world has changed overnight. There was an unpleasant feeling that the process of the collapse of the financial system was out of control,” comments Alexander Pertsovsky (Renaissance Capital) 3 .

I must say that in the US, the difference between commercial banks and investment banks in terms of regulation is that the latter are controlled only by the US Securities and Exchange Commission (SEC). By October 2008, only two of the big five banks had survived, and the surviving banks were also on the brink of a long-term abyss. Therefore, the management of these banks faced a choice: the sale of shares to strategic investors or a change in legal status. In conditions of liquidity deficit and, in fact, the absence of their own permanent sources of funding, investment banks faced the issue of financing their own activities. In addition, Morgan Stanley and Goldman Sachs remained outside the Fed's financial support for the banking sector, as they were investment banks, which means that the Fed could not support them with its injections.

The US Federal Reserve allowed Morgan Stanley and Goldman Sachs to change their legal status from independent investment banks to bank holdings.

The new status of Morgan Stanley and Goldman Sachs is a double-edged sword: organizations will have to pay a share of their freedom for help from the regulator. Investment banks now have access to emergency Fed loans on an ongoing basis. As investment banks, Morgan Stanley and Goldman Sachs could only count on temporary access to an emergency lending program.

However, now, in addition to the Securities Commission, banks are subject to the regulation of the Fed, the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

In Europe, although the situation in the industry was no better, the failures of large banks were avoided. Many banks that are active players in this market have attracted significant funding from the state or their current shareholders.

In particular, the Swiss investment banks UBS and Credit Suisse used various sources of assistance: UBS attracted financial assistance from the country's government by selling convertible bonds to the state in the amount of $5.2 billion (after the exchange of bonds for shares, the Swiss government will own about 10% of the bank), and Credit Suisse managed to attract about $9 billion from private investors against the backdrop of its regular quarterly losses, including, for example, the Qatari state fund Qatar Investment Authority. In addition, the Swiss National Bank created a special fund, where UBS, more than other European banks affected by the credit crisis, transferred about $60 billion in distressed assets. Banks are faced with the difficult question of choosing a further development strategy, with the emphasis apparently being placed on reducing the scale of the investment banking business and focusing on asset management. Although it is obvious that these issues have not yet been finally resolved.

From investment banks to universal

All of the above can be summed up in the words of Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, who said: “The American model of an independent investment bank has failed. From now on, the investment component will exist in universal banks. US investment banks, including the most famous ones, were actively involved in speculative operations with dubious assets and as a result suffered huge, and for many unbearable, losses” 4 .

Companies of both the financial sector and the real sector suffered from the crisis, but the investment banking business suffered almost the most. There are reasons for this: the key assumptions of the business model, based on the assumption that there will always be access to cheap liquidity, turned out to be the most fragile in the face of an unexpected and massive liquidity drawdown. When the market realized that this business model did not work in the face of sharply reduced and highly expensive access to liquidity, the value of shares and debt of investment banks greatly decreased. Some could not survive in the new conditions or were forced to look for strategic partners. Among investment banks, only those who have their own financial capital and the ability to use it will survive.

In conditions of, let's say, sufficient liquidity, REPO is the main way of financing investment banks. So when a trust issue arises in the market, or one of the big players gets into trouble, the whole system can feel the consequences. In particular, such a situation arose with the KIT Finance bank, which ceased to fulfill its obligations under REPO transactions. Almost at the same time, credit lines of foreigners, and then Russian market participants, began to be cut off - everyone stopped giving loans and renewing repo lines.

Some smaller investment banks have weathered the credit crunch much better than the larger players, thanks to good capital bases and little exposure to subprime mortgages.

Within the universal banks, the investment bloc's appetites will depend heavily on how the group weathered the credit crunch.

Many large universal banks, such as Citigroup, are very complex and seem a bit unwieldy, but many, such as HSBC and J.P. Morgan benefit from a secure deposit base.

As a result of the crisis, capital adequacy ratios will be raised and there will be a general focus on what an investment bank or investment unit of a banking group does. At the same time, there will be restrictions both on the part of the regulator and on the part of shareholders.

Banks that have suffered serious losses in investment activities will try to reduce the share of high-risk and high-yield business. Credit Agricole is almost out of investment banking, and UBS, based on market information, is splitting its asset management business from the investment bank, which may be spun off from the holding and then sold.

At the same time, a number of banks, including J.P. Morgan, Barclays, BNP Paribas and Deutsche Bank are going to take advantage of the current situation. In particular, Barclays acquired the American business of Lehman Brothers, and J.P. Morgan, in fact, consolidated the US investment business.

Today, investment banks are reshaping businesses in different ways. The main thing is that they understood how important it is to have their own deposits, they realized that relying only on the investment banking market is very dangerous. Both Morgan Stanley and Goldman Sachs have applied for a banking license. First of all, because deposits represent a more stable funding, respectively, the risks are much lower.

The bank receives another advantage if it is universal and deals with corporate lending. In this case, a more stable relationship develops between the company and the bank, and the bank can offer a full range of services that a company may need at any stage of its life cycle. Thus, it binds the company and the bank much stronger.

Nevertheless, I would like to emphasize that all financial institutions have problems today, and the incorporation of investment banking structures into a universal bank is not a panacea. The crisis showed that problems arose not only for investment banks in their pure form, but also for commercial banks with a serious retail business, such as: RBS, HSBC, etc. Almost all banks faced the problem of insolvency from corporate borrowers, whose business was hit hard from the economic downturn. There is not a single financial institution that does not face the problem of recapitalization. The banking systems of entire countries were on the verge of collapse, in particular, serious problems arose in Iceland, the Baltic states, Kazakhstan and a number of other countries.

For example, in Kazakhstan, where banks were actively attracting financing from foreign banks, in the conditions of the crisis in the global credit markets, the available liquid resources were sharply reduced, which led to an increase in the cost of borrowed funds. The contraction in lending and higher rates on bank loans led to a decrease in the value of assets, especially real estate (housing and commercial properties). Loan quality continued to deteriorate due to significant volumes of construction lending as the value of collateral fell. Against this background, there was a sharp drop in bank stock quotes (by 90% compared to peaks) and an increase in bank CDS spreads to a record (default) mark (3,000 points). The government had to take urgent action to support the banking system. A comprehensive program to support the banking sector in the amount of $11 billion was adopted, of which $5 billion is provided for supporting the capital of banks. 4 largest banks (BTA, Kazkommertsbank, Halyk-Bank and Alliance-Bank) were recapitalized by purchasing 25% of the changed authorized capital. The rest of the money is intended to fill the Troubled Assets Fund, which will purchase non-performing assets from banks at fair market value.

Thus, all financial institutions will emerge from the current crisis with different, but losses, so there is no need to wait for rapid growth, a rapid surge in trading activity and a recovery in risky operations of banks. The investment bank model included in the universal bank will be more conservative.

Financialization as the main cause of the financial crisis

Clearly, this crisis is in many ways unique compared to previous financial shocks. There is something special about it, if only because this crisis can be considered the first crisis of the global economy and the global financial system. At the same time, this crisis is also distinguished by the huge set of anti-crisis measures that are being taken by the governments of developed and developing countries to overcome the consequences of negative trends in the financial and real sectors. Today we are talking about trillions of dollars directly aimed at maintaining the economic system and billions of dollars indirectly stimulating the economy.

Consider a package of anti-crisis measures for a number of major economies and Russia.

USA. Deposit guarantees increased from $100,000 to $250,000 Economic Stabilization Law passed, which establishes a $700 billion Troubled Asset Rescue Program Treasury has broad authority to buy a wide range of instruments, including investment in specific mortgages, mortgage and related securities, asset-backed securities and floating rate debt instruments (ARS). The Treasury Department has announced a capital provision program under a distressed asset buyout plan that will use the first $250 billion to inject capital into U.S. banks, savings associations, and certain financial-only banking, savings, and lending institutions. The Treasury Department has identified 9 organizations for participation in the program, which will receive $125 billion of this amount: Wells Fargo, Bank of America, J.P. MorganChase, Citigroup, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of NY Mellon and State Street.

United Kingdom. Increased deposit guarantees from £35,000 to £50,000 The government injected capital into British banks in the amount of £37bn The Royal Bank of Scotland will receive £20bn ($34bn) - the state will acquire £5bn of preferred shares and will repurchase £15bn of common stock. An additional £17bn ($30bn) was provided by HBOS and Lloyds TSB following their merger. £250bn offered in loan guarantees. £200bn is being provided under the Bank of England's liquidity program.

Germany. A Financial Market Stabilization Fund of up to €80 billion ($109 billion) has been set up to buy back bank shares. The state guaranteed interbank loans in the amount of €400 billion ($549 billion). Unlimited guarantees were introduced for all household deposits in German banks (previously guarantees were limited to €20,000)

France. A €40bn ($55bn) fund has been set up to buy shares in French banks. Guarantees provided on interbank loans in the amount of €320bn ($437bn) until the end of 2009

Russia. The government allocated 950 billion rubles. ($36.3 billion) to provide 10-year subordinated loans to financial institutions. The Central Bank of the Russian Federation received the right to issue short-term unsecured loans to Russian banks. During the first auction (October 23), the Central Bank of the Russian Federation placed 400 million rubles. ($15 billion). The list of collateral accepted by the Central Bank of the Russian Federation as collateral for refinancing has been expanded. Vnesheconombank was allocated $50 billion to pay off debts of banks and companies on foreign loans maturing. The amount of insured deposits has been increased to 700 thousand rubles. from 200 thousand rubles. The Deposit Insurance Agency was allocated 200 billion rubles. ($7.7 billion) to recapitalize the banking sector, as well as exclusive powers to prevent bankruptcy, including establishing control over banks. The Central Bank of the Russian Federation received the right to reimburse banks for losses incurred as a result of transactions with counterparty banks whose license and the right to intervene in the Russian capital markets to support share prices were revoked.

The crisis is far from over, and developed and developing countries have already spent trillions of dollars in total to support the economy. Not to mention the huge damage suffered by the stock markets, losing about $25 trillion in capitalization in 2008, which is about 40% of the market value. The fall of markets in developed countries amounted to about 30-35%, in developing countries - up to 60-70%.

The current financial crisis has two main causes:

Monetary policy (policy of cheap money);

Weak regulatory systems.

The policy of cheap money created an illusion of permanent availability of liquidity, which distorted the motivation of economic entities, and regulatory systems were unable to counteract such incorrect motivation. And here is the result: a totally wrong assessment of risks, the reassessment of which, expressed in almost universal, sharp and deep drop in asset prices, we are now seeing.

The financial sector is the first recipient of any crisis phenomena in the economy. At the same time, investment banks, in a certain sense, being at the forefront of the economy, react faster than many to the opportunity to earn money. But the higher you fly, the harder it hurts to fall. The use of own balance sheet, active debt financing, and the issuance of various derivative instruments put banks in a difficult position in the face of deteriorating financial market conditions.

The situation is aggravated by the fact that many large financial institutions are public companies. In the context of our problem, the majority of Western investment banks are public. Any public company is under pressure from its shareholders, customers, and investors to see their earnings grow. There is another refraction of the agency problem, when, on the one hand, it is necessary to properly serve customers so that it brings them the greatest benefit and meets their interests, and on the other hand, every quarter to demonstrate a constant increase in income for shareholders and investors. But there is a more important feature of investment banks, which calls into question the possibility of the publicity of this business. Initially, investment banks operated as partnerships. The management of Russian Troika Dialog, for example, adheres to the position that not all types of business should be public, and have formed a private business model in their company, which is jointly owned by management. And yet, what is the investment banking business? What does it produce? If you read the website of any investment bank, any brochure that is handed out at student presentations as part of the annual recruiting process, then a clear answer to this question appears: an investment bank is people, people who generate new ideas for business. In a growing market, a real “running around” between banks in pursuit of big bonuses begins. And in a crisis situation, large-scale layoffs begin. And then what is left of the business? It is likely that the public investment bank model is not justified due to its inherent shortcomings.

In this vein, I would like to mention the phenomenon of financialization. Its emergence is associated with the rapid development of financial markets, which determined the flourishing of financial institutions and the increase in their role and influence in the economy.

The American economist Gerald Epstein, who published a book entitled Financialization and the World Economy in 2006, defines this process as “the rise of “shareholder value” as the main mode of corporate governance, the growing dominance of the financial system built on the capital market over financial system built on banks' own capital. And the American economist Greta Krippner described financialization as "a method of accumulation in which profits are increasingly generated through financial channels rather than through trade or the production of goods."

Quantitatively, the degree of financialization of the economy can be measured by the ratio of the main indicators of the development of the financial market and GDP. For example, the US stock market in 1970 was only $136 billion (13.1% of GDP), by 1990 it had grown to $1.67 trillion (28.8%), and at its peak in October 2007, the capitalization of the American economy was already $18.5 trillion (135% of GDP). But the derivatives market grew the fastest. In 2007, trading volume in all derivatives reached $1.2 quadrillion, 87 times the size of the US economy. At the same time, the largest share among derivatives after the abolition of the system of fixed exchange rates in the 70s is occupied by financial derivatives.

One of the main problems of financialization is the difficulty with risk assessment. At the same time, within the framework of this model, the so-called “neoliberal paradox” is inevitably formed for companies in the non-financial sector, which complicates the situation in the company in the conditions of crisis phenomena in the economy. Investor relations is an extremely important activity for a public company that does not ignore the secondary market for its shares. Therefore, companies constantly need to show profit in order to maintain their stock prices and ensure their growth. This is a necessary condition - both in a favorable economic environment and in the event of a stagnation of the economy. In an environment of increasing competition or slowing growth, a non-financial company that wants to continue to please investors has several options to do so. Firstly, it is possible to reduce costs, including through layoffs, secondly, to use "creative" accounting, and thirdly, to make a profit through financial transactions.

Thus, among the clients of the Madoff pyramid, in addition to large banks (HSBC, BNP Paribas, Santader, etc.) and funds (Fairfield Greenwich Group, Tremont Capital Management, etc.), there were many non-financial sector companies that hoped to increase profits not at the expense of its main activity - the production of goods and services or trade, but just at the expense of financial transactions.

Opportunities for business development in the medium term

What's in store for the investment banking business? To be sure, capital markets are frozen. It is not necessary to expect any placements, and even more so public ones. But now the reverse process is gaining momentum — buying back shares and bonds from the market, working with problem debts, restructuring problem assets, and other special financial solutions. For a company that knows for sure that it can weather the crisis and that, just as important, has free or potentially free cash resources, the most reasonable thing to do now is to buy its bonds at a significant discount from par, up to 50% . After the fall in EBITDA at times, for many companies the question arose not only of debt repayments, but even of interest payments. Thus, many companies need to restructure their debts or declare default and bankruptcy.

In the part of the equity capital market, most transactions will involve creditors who will buy shares in companies as part of debt restructuring.

The M&A market and its prospects are rather contradictory. On the one hand, in a situation where there is no light at the end of the tunnel, many companies that have spare cash to finance purchases may want to hold on to stocks, on the other hand, we have witnessed a situation of unequal position of companies in which they find themselves during the crisis. Although, most likely, the state will play a special role in the M&A market.

It cannot be said that the current crisis will put an end to the investment banking business. Companies need funding, risk management tools and investments. And capitalism itself cannot be imagined without the systems of financial markets that ensure its functioning, and in particular investment banking.

Today we will talk about what an investment bank is. This term is commonly understood as a specialized financial structure that specializes in raising capital for international corporations, as well as the governments of various states.

In addition, such organizations provide their clients with various types of services, including brokerage, consulting, and also create analytical reports.

In modern economic literature, the term "investment bank" means a specialized structure that organizes the issue, as well as the placement of shares / bonds. In addition, this organization advises clients on various issues related to financial markets.

An investment bank, in fact, is a financial intermediary that provides its clients with a huge variety of services. Organizations of this type can act as an underwriter when placing shares / bonds of the company on the stock exchange.

It is important to note that an investment bank is not a traditional lending institution. This is due to the fact that it does not provide services that are typical for most traditional lending institutions, including depository and lending operations.

In modern domestic legislation, there are no rules regarding the activities of investment banks. Thanks to this feature, almost any domestic credit institution is able, if necessary, to play the role of an investment bank.

Investment bank. Peculiarities

The key difference between an investment bank and a traditional lending institution is that it uses different financial instruments to redistribute the money supply. The traditional bank generates income from direct lending, as well as from cash and settlement services to customers. Investment banks receive the main income from operations with / bonds, as well as from brokerage and dealer operations. Advisory services can act as an additional source of income for investment banks.

An investment bank has the following characteristics:

1. It is a universal large commercial structure that deals with a full list of operations with shares / bonds on the market.
2. The main activity of such structures is to raise capital for clients with the help of shares / bonds.
3. Similar structures operate in the wholesale financial markets.
4. The basis of the portfolio of such structures are non-government stocks/bonds.
5. Structures of this type specialize in long-term and medium-term investments.

Main types of investment banks

All investment banks existing in the international market can be divided into two main types:

1. Structures of the first type specialize in the placement of shares/bonds, as well as their trading.
2. Structures of the second type specialize in long-term lending.

The first type of the described structures usually plays the role of organizers of the issue of shares/bonds. When performing these operations, they also act as guarantors, who, regardless of the result of the placement of bonds / shares, pay a predetermined amount for them.

The clients of such structures are the governments of various states, as well as large companies that, in need of investment capital, resort to issuing bonds / shares. In this case, investment banks independently determine the optimal volume of securities issue, as well as the period of their issue and placement conditions. In addition, they can ensure the circulation of issued shares/bonds in the secondary market.

Also, investment banks of the second type can act as intermediaries in the placement of Euroshares and Eurobonds. They can advise their clients and help them choose the best investment strategy.

The second type of organizations described differs from the first not only in the functions performed, but also in the organizational structure. These organizations may be public or private, and may have a mixed structure. The key task of organizations of the second type is long-term and medium-term lending to various sectors of the national economy. They can also lend to targeted projects involving the introduction of innovative technologies.

Services

Investment banks provide their clients with a range of specialized services, including:

1. Implementation of a feasibility study for investment projects. This service includes evaluation of the effectiveness of projects, as well as the creation of investment programs and the preparation of all necessary project documents.
2. Creation of emission portfolios. This service involves the creation of specialized programs that allow the company to raise the necessary amount of capital. Employees of the investment bank evaluate the situation on the market in order to develop an optimal schedule for issuing shares / bonds.
3. Underwriting. This service involves the organization of the issue of shares / bonds of the enterprise, as well as a guaranteed repurchase of issued securities, regardless of the results of the placement.
4. Creation of stock/bond portfolios for large investors. This service involves an analysis of the current state of the financial market and the formation of an optimal investment portfolio based on the data obtained.
5. Brokerage and dealer services that involve the performance of various operations in the stock market on behalf of clients.

There are many credit institutions on the domestic market that perform the functions of investment banks, among which organizations such as Sberbank, Alfa-Bank, VTB Group, etc. deserve special attention.

Surely many have heard of such a specialty as an investment banker. But not everyone knows what people in this profession do. In essence, investment bankers are trading agents helping their clients invest their money wisely. They also carry out various operations aimed at making a profit for them. Most often, this is the purchase and sale of securities, which the specialist conducts on behalf of his client. This is in short. In fact, this topic is much more meaningful.

Getting an education

Few manage to achieve success in the financial sector without first undergoing training at a university. Moreover, without the presence of desire, aspiration and special thinking, not every person who graduated from the relevant faculty can take such a position as an investment banker.

Where does the one who becomes them study? As a rule, at the Faculty of Finance or Economics. There are technical universities that have them all over the country. If prestige is important, then you should apply to one of the five following institutions, which are the most rated and popular:

• St. Petersburg State University;
• Financial Academy under the Government of the Russian Federation;
• High School of Economics;
• Lomonosov Moscow State University;
• Moscow State Institute of International Relations.

Graduates of these universities who have received a diploma in the specialty "Finance and Credit" or "Banking" are more likely to be accepted for the previously mentioned position.

The role of the specialist

It also needs to be dealt with. An investment banker is a financial professional who saves a company money and time by identifying the risks involved in a project. So it helps to determine whether it is worth translating into reality.

He is also an expert on the current investment climate. He is approached by various institutions in order for the specialist to give recommendations regarding the development planning of their company. This makes sense because the investment banker can advise on the best course of action given the current state of the economy.

Mediation between investors and the company

It is also the responsibility of the specialist. The expert is an intermediary between the investor and the company when the company intends to start issuing bonds or shares.

At this stage, the banker assists them with navigating regulatory requirements, and evaluating financial instruments as necessary to maximize income. In other words, he brings the representatives of the company to the implementation of the Initial Public Offering - the initial public offer.

Conducting an IPO

After its implementation, the investment bank (IB) buys back most of its shares. Or even all of them. It is very beneficial for them.

Primary shares are cheap. By purchasing a significant part of them, the bank becomes authorized on behalf of this company, which conducted the IPO. Subsequently, he sells all the shares in the market at an inflated price. This has benefits for the company itself. After all, it leaves the IPO straight to the information security.

In this rather complex chain of sequences, the investment banker plays a crucial role. It is on his shoulders that the miscalculation of risks, prospects, and multi-level analytics of various economic aspects lies.

Specificity of activity

Above, a little was told about what constitutes such a person as an investment banker. Who it is is clear, so now we can talk in more detail about his other duties. There are many of them, with the exception of the notorious mediation and development of plans.

People in this profession are required to process tons of confidential information about companies that are their clients. Accordingly, they must respect trade secrets and not use them for personal gain.

They are also required to comply with the rules of conduct of their investment bank, which are provided for by the internal regulations of the firm. Therefore, they sign an appropriate confidentiality agreement. This Code sets out limited conditions regarding the processing of sensitive commercial data. Confidentiality is so important that it is not uncommon for one investment banker to have no contact with other employees of the organization on business matters.

In addition, there is a conflict of interest in this area or the potential for one. It usually happens when the trading and advisory divisions of investment banks begin to interact. Why? Because information security is doing business, both for themselves and for external clients.

About personal qualities

Many financiers and economists would like to become such a specialist as an investment banker. Who is this expert, and what he does, was described above. Now - a few words about what qualities he should have.

In addition to an appropriate educational diploma, a potential banker must have excellent numeracy, written and verbal communication skills, and an absolute ability (preferably comparable to desire) to work as long as required. This is one of the reasons why many fail to do their jobs. Not everyone is ready to forget about their personal lives and spend the night in the office. For many, this is difficult and exhausting.

But these are not all the qualities that an investment banker should possess. Who certainly has to be thrifty, disciplined, proactive, patient, attentive and purposeful - it's him. In addition, you can not do without decency, honesty and responsibility. But the most important thing is the ability to think analytically, instantly respond to unforeseen situations, and instantly find "spare" optimal solutions that can save the day.

The salary

The activity of this specialist cannot be called easy. But why do so many people aspire to a position like an investment banker? Pay is the main reason. According to official data, even a novice specialist can receive about 200 thousand rudders per month.

And this, one might say, is the minimum that an investment banker can count on. The salary of a professional with many years of experience may well be $1,000,000. And even more. But for this you need to have a good education, take additional courses abroad in the field of management, economic analysis and finance, and have about 10 years of experience in large companies and investment banks.

The beginning of the road to success

Even the above information is enough to understand that becoming an investment banker just won't work. You need education and skills. And also decide in which area you want to express yourself.

Such specialists are needed in the corporate finance department. They just do advisory duties.

The department of mergers and acquisitions of companies is a kind of "elite". Why? It is clear even from the name of the department. Which, by the way, often cooperates with corporate finance.

Bankers are also needed in the public finance department. The tasks there are one-plan, and they consist in the sale of securities. Only cooperation is conducted only with state institutions.

The last department where an investment banker can work is called analytical. It assumes constant contact with the company's management, the study of financial reports, market trends and many other operations of a corresponding nature.

Turning to an expert

Now I would like to draw attention to 6 key trends. Investment advice from the Swiss banker Andreas Feller will help you understand everything related to a given topic, even for a beginner.

First of all, the specialist notes the phenomenon of the digital revolution. Now is the time when the volumes of knowledge and projects accumulated by science are rapidly being implemented. Take, for example, unmanned vehicles or delivery using drones. Everything modern, relevant and able to make life easier is a key area of ​​investment. This trend also includes dotcoms - companies whose business model is based on work in the World Wide Web. Their main principle is to expand the client base and its subsequent monetization.

The second global trend is the rapid economic recovery in Asian countries, especially in China. Since 2005, China's annual production has quadrupled! And now there are several directions for the development of the economy, where knowledgeable people are investing. We are talking about food security, defense, healthcare and green energy. Against this background, there is an increase in the middle class in China. Which is a good direction for investing in consumer sector enterprises.

Urbanization

This is the next important trend. The role of cities in the development of society has recently been increasing. Here, the prospects are also observed in the Asian markets. After all, everyone knows how many people live in China and India. Accordingly, in this case, the most important factor in GDP growth is the development of infrastructure and the construction of residential buildings. In the medium term, investments in these areas and in the production of household appliances can bring good profits.

The fourth trend is similar to the third. It has to do with the so-called frontier markets. This term is used to designate countries with high growth potential, which have not yet developed to the level of countries with strong economies. These include Vietnam and Africa.

True, in this case, the risks are great. Investing in frontier markets needs to be done carefully and selectively. That is, follow the principles of a diversified portfolio.

Global Approach

The last two trends are associated with it. The fifth is to change the way of life around the world. Life expectancy is increasing, and so is the demand for medical equipment and healthcare services. Accordingly, the option of investing in pharmaceutical companies is becoming increasingly popular.

The sixth trend, in turn, is associated with global changes in the energy sector. More and more attention is attracted by enterprises dealing with new energy sources. A striking example is the popularization of solar panels.

Opinion of another specialist

Considering such an interesting topic, I would like to turn to the works of such a specialist as Alexey Borisovich Inozemtsev. Investment banker, entrepreneur, strategist - these are his main activities. And he has a very unusual approach.

The expert advocates the management of financial capital through the mechanisms of partnership and cooperation. He considers this to be better than an intense struggle, without which it is difficult to do in the investment business. But if you succeed in switching to this model, you will be able to discover new professional horizons.

However, it's all about the approach. Everyone has his own. But the expert recommends investing in education. This is an investment in the future of the country. Since education is the main point of growth, and from the point of view of both the individual and society. If everyone is sufficiently intellectually developed, then the financial sector can be brought to a new level of development by joint efforts.

Such conclusions can be drawn from the words of Alexei Borisovich. Thoughts are correct, but you need to understand that the implementation of the described will require a lot of effort, time and public mobilization.

Idioms

Finally, it is worth noting the best statements of investment bankers. Many of them have a motivating and instructive meaning.

Here is one such phrase: "Ultimately, a professional investor tends to play with other people's finances." The phrase belongs to Robert Kiyosaki. Billionaire, a major American businessman, financial observer and investor who started out as a simple sales agent in the Xerox Corporation.

He also owns this expression: “A professional investor will not invest in an asset that can justify itself only when moving in one direction. Or in a program that does not allow you to exit it at the right time. This can even be attributed to certain commandments that good financiers must comply with.

And in conclusion, you can quote this phrase: “The most valuable asset is time. Many people don't know how to use it. They work to make others rich, but do nothing to make themselves wealthy.” And indeed it is. In fact, many people have opportunities to increase their capital. Especially investment bankers who have the relevant knowledge and experience.

This is a financial and credit institution that provides consulting services on transactions related to the purchase or sale of a business, assists in, is an intermediary in transactions with securities, commodities, currencies, derivative financial instruments, as well as providing reports and analytics on markets and the areas of activity in which it is engaged.

Appearance investment banking is connected, first of all, with the general development of the banking system throughout the world. Financial and credit institutions have reached a level of development when the products and tools they use no longer allow meeting the needs of their customers and. Also one of the main reasons for the appearance around the world investment banks This is an increase in the amount of free cash in private individuals.

It must be understood that the banking sector plays a huge, if not a key role in the global economy. Banks are a link between individuals and the service sector, trade, the manufacturing sector, as well as the agricultural sector. And it is this big role that pushes banks around the world to expand the types and nature of their own activities, including in the investment direction.

Main activities of investment banks

As mentioned earlier, banks develop in the direction that they are prompted by the clients themselves, namely, in the direction of meeting their needs. Based on needs, services investment banking are:

• analytical and consulting work
• control
• securities trading
• issue of securities
• market research and everything related to it
• support in transactions related to mergers or acquisitions
• determination of the fair price and financial valuation of the asset
• derivative transactions.

Of course, it is worth noting here that not all investment banks are engaged in providing a full range of services, this requires high costs and highly qualified personnel, which not every bank can boast of.

Investment banking clients

Clients investment banking the widest range of people interested in investing free funds with the aim of multiplying them acts. By classifying customer data, we can distinguish:

• households and cooperatives
• companies, firms, production
• large financial organizations (investment and pension funds, insurance companies, etc.)
• governments of countries (raising funds for the implementation of infrastructure projects, etc.)