Functions of Investment Banker | How does Investment Banking Work? | Corporate Finance | Management Notes
Investment bankers are the middlemen or agent of security offering company and investors. Investment bankers are organized security selling institutions or individuals those purchase securities from issuing company and sell to investors. Investment banker play crucial role on making market and distribution of securities. Primary function of Investment banker is to help companies in raising capital.
What does an investment banker do?
Serves as Market maker
When investment bankers purchase the share of public issuing company and sell to the investor, investment banker is making the market keeping the stock liquid. The underwriters maintains an inventory in the stocks, quotes bid and asked prices, and stands ready to buy and sell it at those prices. Thus investment banker also helps to maintain an active secondary market in the stock of small and newly established company.
Underwriting is a kind of risk sharing process during the process of raising funds. Investment banker guarantees funds raising company of full subscription. When the companies try to raise money through initial public offerings in the capital markets ,those securities that are not subscribed during the IPO issuance are purchased by the investment bankers. These investment bankers sell these IPOs to the investor at higher price where the difference between selling price and purchase price is the profit of investment banker also called as spread.
Investment banker charges underwriting commission for sharing risk and selling securities of the company with that company. As a part of underwriting there a formation of temporary group of investment banks and broker-dealers named as underwriting syndicate who come together to sell new offerings of equity or debt securities to investors.
Investment banker is expert in issuing securities or raising funds. They help many companies for raising funds, so they have good experience and expertise on issuing the securities. Normally while firm is going to issue the securities firm take advices from the Investment banker about the prices and entire process.
Investment banker sell that newly issued securities using expertise and experience gained from various securities issue. Investment bankers ultimately sell their securities to the investor.