Investment Banking

Investment bank — a financial intermediary specializing in arranging capital raising for corporate clients and governments, advising on M&A, trading securities, and risk management. Leading global investment banks (Goldman Sachs, Morgan Stanley, JPMorgan, Deutsche Bank) shape the infrastructure of the world's capital markets.

Capital Markets. Equity Capital Markets (ECM): arrangement of IPOs, SPOs, rights, and convertible bonds. Underwriting: the bank assumes placement risk, guaranteeing the company a certain amount. Bookbuilding: collecting orders from institutional investors to determine price and allocation. Debt Capital Markets (DCM): arranging bond issuance (investment grade, high yield, EMTN, structured notes). Loan syndication: organizing and coordinating a pool of lending banks for large transactions.

M&A Advisory. Sell-side advisory: representation of the seller or target. Tasks: preparation of the information memorandum, conducting the auction process, negotiations with buyers, deal closing. Buy-side advisory: representation of the buyer. Tasks: searching for targets, due diligence, deal structuring, financing. Fee structure: retainer plus success fee (percentage of the deal size on the Lehman scale — sliding from 1–2% for small to 0.1–0.25% for mega-deals).

Sales and Trading — trading divisions of the investment bank. Sales: working with institutional clients, disseminating ideas, arranging execution. Trading: maintaining the market (market making). Research: equity and fixed income analytics for clients (regulated by MiFID II — separated from banking). Prime Brokerage: comprehensive services for hedge funds (financing, clearing, technology, capital introduction).

Regulatory environment: the Glass-Steagall Act (1933) separated commercial and investment banks; its repeal (1999) allowed the creation of universal banks. The Volcker Rule (2010, Dodd-Frank) limited proprietary trading by banks. MiFID II in Europe changed the structure of payments for research. Basel IV tightens capital requirements for trading books. Conflicts of interest between divisions are regulated by information barriers (Chinese walls).