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What do American investment banks do?

(economywatch.com)
Updated: 2008-09-22 10:20

American Investment Banks offer a variety of services involving formation of capital. They raise money for companies using methods such as IPO, private placement, offering bonds etc. This is done to assist public and private corporations in raising funds in the capital market. Most American Investment Banks offer other services also such as providing assistance for mergers, acquisitions and other types of financial services.

Transacting with American Investment Bank is necessary because:

American Investment Banks help organizations in capital raising, guarantee by underwriting, foreign exchange management etc. It offers these services by performing public offerings, acting as a broker and accomplishing mergers and acquisitions. It conducts secondary offerings or manages negotiations to handle distribution of blocks of previously issued securities and maintains markets for securities already distributed. Besides these advisory services in case of issues involving huge financial transaction, purchasing and managing assets and trading securities. They use their rich experience and market insights to guide investors and provide valuable forecasts. Access to foreign institutional intermediary and alternative asset management clients is also provided. However American Investment Banks differ from commercial banks because they usually don't offer services like accepting deposits or extending out credit directly. But this distinction has become negligible in the sense that nowadays most of the commercial banks in America also extend out services akin to that of investment banks.

Management of Wealth - Number of people holding more than US$ 1million in financial assets is growing at an annual rate of more than 8% globally and the total wealth of these High Net Worth Individuals (HNWI) is expected to grow to US$51.6 trillion by 2011. The estimates are quite impressive and it seems that the world economy is growing richer and richer. This affluence is in fact a cycle of wealth and is an induction of the famous Keynesian Multiplier process. In simple terms an increase in one's wealth has enhanced his demand resulting in a push in another person's wealth. But such a growth can't be fueled by increase in consumption demand alone. It has become a common knowledge that investment is also rising. This is true as one can see Warren E. Buffett, an American investor and now the second richest person on earth. Buffett unambiguously was enormously fortunate but his investments were astutely chosen too. Choice of securities is not only a difficult job but also a task about which people are rarely aware of. American Investment Bank comes to aid an investor in choosing stocks according to his ability and risk preference. It provides counseling for investment and brokerage services. This saves busy people from lot of hassles. It takes care of their asset management and help them with possible options that can potentially make them richer.

Foreign Retail and Corporate banking services - American Investment Bank provides banking and securities services in foreign countries also. This helps in handling the overseas clients. A foreign branch can help MNCs (multinational corporations) hedge financial risks arising out of uncertain economic conditions and unstable political climate. Also local customers who travel abroad frequently can approach the bank at the time of necessity. Foreign branches also aids in earning foreign exchange to the country.

Service to SME - American Investment Bank finances to Small and Medium Enterprises (SME) to help them grow amid tough price war and quality contest. This in turn helps the American industry to retain its competitiveness and prevents large market players from becoming near monopolist.

Care to be exercised before getting into business with an investment bank:

It is utmost important that the investment banker should be chosen with great precaution. Investing huge sum of money on the advice of a naive can land the investor in great financial trouble. Previous track record and number of awards won usually speaks genuinely about the performance of the American Investment Bank so far.

American Investment Banks are meant to meet mostly long term needs. So the viewpoint should under no circumstance turn myopic. Minor losses at any point doesn't imply that the worse situation will persist. Altering intentions can undermine the whole investment plans