COLLEGE OF BUSINESS ADMINISTRATION
SPECIAL TOPICS IN FINANCIAL MANAGEMENT
Investment Banker
What is Investment Banking?
Investment banking is the act of raising capital for firms, through either
issuing debt or selling equity. Investment banking also includes the
peripheral tasks of managing M&A, advisory, and other corporate finance
services. In fact, smaller firms may not have specific investment bankers,
and the same roles may be handled by the corporate finance
departments.
Investment bankers are expected to have an excellent grasp of the
investment climate, with knowledge of popular investment vehicles.
Should a company wish to perform an IPO, investment bankers are often
key contributors to this process. It is the job of the investment banker to
maximize investment returns, and therefore, attempt to set the IPO at the
highest price possible.
Functions of Investment Banker
One of the functions of a finance manager is to raise money so that the
firm he/she working for can support its operations, including future
expansion. Moreover, when finance managers look for assistance, they
normally go to a financial intermediary like an investment bank. An
investment bank is a middleman engaged in raising long-term funds for
businesses and government agencies. It provides advice to the issuing
corporation on the prices and securities to be issued. The usual functions
of investment bankers are as follows:
1. Originate securities issues through negotiations between the
officers of the issuing firm and officers of the investment bank.
a) The initial discussions are concerned with determining the
amount of capital to be raised, the security to be issued, and
the particular terms and conditions of the issue.
b) The investigation looks into the financial capability of the
firm if the issuances of the securities satisfy the investors.
CPAs are hired to scrutinize the books, audit, and developed
the required financial statements. Lawyers are hired to
investigate the legal aspects of the issue.
c) The negotiation finalizes the details concerning the securities
to be issued. The spread of the underwriters (I.e.,the
difference between the price of the security to be issued and
the amount to be remitted in addition to out-of- pocket costs
incurred by the investment bank) are also computed.
d) The registration ensures that all requirements on the new
issues are submitted to the SEC where all the material
information about the security is disclosed.
Presenter: Marah Kaye Abellar Instructor: Michelle H. Lagasca, LPT
COLLEGE OF BUSINESS ADMINISTRATION
SPECIAL TOPICS IN FINANCIAL MANAGEMENT
2. Underwrite the issues by guaranteeing their sale in the primary
capital market.
a) The investment banker assumes the risk and responsibility of
remitting the entire amount to the issuing company less the
amount of the spread agreed upon on a given closing date.
b) The underwriter may invite other investment bankers to
spread out the risk of selling the securities to the public
through an underwriting syndicate. The originating house
becomes the “manager” of the underwriting syndicate.
c) A part of underwriting is market stabilization. The syndicate
manager places the bid in the secondary market at its
offering price to stabilize the market price of the stock.
3. Manage the distribution of the securities to the ultimate investors.
Members of the underwriting syndicate form a selling group
consisting of dealers who will contact the ultimate investors.
4. Give advice to the corporate clients on long-term financial matters.
Presenter: Marah Kaye Abellar Instructor: Michelle H. Lagasca, LPT