In Bangladesh, the term “merchant bank” refers to financial institutions involved in diverse commercial activities. These banks offer essential services such as issue management, insurance, and portfolio management. The Securities and Exchange Commission (SEC) in Bangladesh oversees merchant banks, while the Bangladesh Bank acts as a watchdog. The SEC sought suggestions from fourteen entities to transform them into commercial banks, following a decision made on August 17, 1997, and SRO No. 59 issued on April 24, 1996. Seven schools had already submitted similar letters of intent, and nineteen institutions had their registrations authorized by the SEC before this ruling. Presently, there are fifty merchant banks operating in the country, with a total paid-up capital of approximately 36 billion taka. This article will delve into the structure of investment banking, providing various examples for clarity.
You have now acquired a basic comprehension of investment banking. Researching the many positions offered by investment banks is the next stage. Numerous sub-industries make up investment banking, which is both an old and complex industry. If you apply for more than one job for a certain position, someone will likely ask you why you chose this one. Make sure you understand and are dedicated to the position you’ve chosen if you don’t want to bomb your first interview. For tips on types of investment banking, check out this guide specially for you.
Structure of Investment Banking
As part of the screening process, Merchant Bank must also do a crucial assignment. In underwriting, a third party commits to buy shares or debentures from a public limited company that the company has not yet bought. Those interested in issuing shares and debentures should, therefore, make it possible for everyone to subscribe to them. They are able to solicit regular people to support their commercial endeavors in this way. The danger of selling securities is something that underwriters are willing to take on. They could have to hold onto some inventory if they can’t locate enough buyers. The underwriters’ compensation comes from the profit they make from selling the offering to investors and broker-dealers, minus the amount they pay the seller. The structure of investment banking include:
Banking for Businesses
One such type of bank is a commercial bank. Customers can take advantage of a wide range of services, such as loans, certificates of deposit, savings accounts, bank overdrafts, and more. Lending money to people and then collecting interest on that debt is how these groups generate revenue.
Investment Banking Back Office
Investment Banking: How Does It Work? People working in operations and technology are often seen in the back office. The front desk is able to fulfill the investment bank’s needs with the help of the back office. Office operations, customer service, and human resource management are all responsibilities of those working in the back office.
Investment Banking Middle Office
These departments often work together, including corporate treasury, business strategy, compliance, risk management, and financial control. Making sure the investment bank doesn’t do something that could hurt the bank overall is the main job of the middle office. Whenever the firm is trying to raise capital, there is a lot of communication between the front and middle offices. This connection is necessary to make sure the company isn’t taking on too much risk when underwriting specific stocks.
Front Desk of Investment Banks
Are you interested in a career in financial banking? The front desk is probably where you’re picturing yourself working. Three main departments make up the front office: research, sales and trading, and investment banking. The revenue generation for the bank is the responsibility of this division.In the subfield of private banking known as “front office investment banking,” the bank advises clients on mergers and acquisitions and helps them raise financing through the capital markets.In a broad sense, sales and trade describe the activities of banks when they buy and sell goods for their clients and for themselves. They cover a wide variety of things and can be as simple or complex as the buyer desires. Banks and other financial organizations study businesses and write studies on their future profitability prospects. Experts in the financial sector buy these papers from the banks and utilize them for independent investment research.
Wealth Management Section
In contrast, the Wealth Management Division (WMD) addresses the needs of high-net-worth clients by crafting personalized financial strategies to manage substantial amounts of money. Billionaire clients seek personalized recommendations for diversifying their holdings. While similar to previous roles at AMD, the sole change would be greater collaboration. The investing goals and strategies of these clients differ significantly from institutional investors. Long-term client relationships are valued by both WMD and AMD, but WMD prioritizes personal connections. Workload and stress vary among categories, with the IBD and Research Division known for notoriously long hours. Capital markets and other divisions have more disciplined work hours, operating during market hours. Expect a stressful and fast-paced environment throughout the day due to the unpredictable market nature.
The Department of Research
S&T, AM, and institutional clients receive comprehensive business and industry study reports from the research division to aid in the decision to buy, sell, or hold public shares. Those who put their money into publicly traded companies depend on these reports. Keep in mind that a Chinese firewall separates the Research Division and the IBD. Consequently, the organization implemented this precaution to prevent the Research Division from accessing any sensitive information held by the Internal Business Department. Although Research is considered as the bank’s front desk, even if it doesn’t immediately generate revenue.
Capital Markets Section
Clients can get help with risk management, acquiring capital, and purchasing and selling financial items from the Cash Markets Division (CMD). It is common practice for individuals to sell and trade (S&T) in several financial markets, including those for stocks, commodities, foreign exchange, fixed income, and high-margin goods and derivatives. Building strong relationships with clients, providing sound investment advice, and ultimately selling them financial goods are the core responsibilities of the sales team. But traders want to make transactions, which is what customers want, as cheap as possible while also protecting themselves.
Investment Banking Division Section
The Investment Banking Division (IBD) not only advises clients on M&A deals and business transactions but also assists companies in securing financing through the loan and equity capital markets. The two main divisions within IBD are items and companies, with distinctions in financial or service offerings. Products like Equity Capital Markets (ECM), Debt Capital Markets (DCM), leveraged financing, and mergers and acquisitions (M&A) fall under this category. Business and coverage groups differ in their target customers, including financial institutions, healthcare, natural resources, real estate, consumer and retail, and technology, media, and telecommunications. Industry groups oversee companies in a specific sector, but their small size limits detailed division information. Malaysian teams’ modest size makes multiple industry groups improbable. Collaboration between product and industry groups is crucial for settling deals, with product groups offering diverse sector representation and industry groups choosing from various funding options.
Banking for Merchants
Financial underwriting, lending, financial consulting, and capital raising are some of the services that a “merchant bank” offers to HWNIs and big businesses. Supporting MNCs is a key activity for merchant banks that focus on international trade.
Banking on Global Transactions
The Societe Generale Group’s Global Transaction Banking (GTB) covers a broad variety of operations, including as managing cash, acting as a correspondent bank, offering foreign trade financing, factoring, and currency services, among many others. Businesses and financial institutions worldwide rely on GTS for domestic and global payments, cash and liquidity management, trade financing, and commercial cards. They work together with the government as well.
Managing your Investments
There is more to “investment management” than simply trading equities. Additionally, it incorporates investment strategies and money management. Creating a plan for the purchase and sale of stock holdings, whether for the near or distant future, is an obligation of management. Additional areas that could be covered include banking, planning, and all things related to finances. Understanding the structure of investment banking is crucial for anyone navigating the financial industry.
Asset Management Section
Pension funds, endowments, foundations, insurance companies, and national wealth funds are some of the external parties that the Asset Management Division (AMD) helps out with investments and consultancy. “Pension plans” are one kind of organization. Due to its nature as an investment product, AMD is further classified into several subcategories. Common investment vehicles include real estate, infrastructure, and private equity.
FAQ
How Secure are Structured Investments?
Due to their complexity and inherent risk, structured notes are typically unavailable to regular clients. Structured notes are just like any other kind of trade: they can lose money. Some structured notes may receive an extension of primary protection. The idea might be completely or partially lost on others who don’t.
In Investment Banking, what are Structured Products?
Structured products are securities that combine asset allocations with both safe and risky investments; they are a kind of financial tool. The use of derivatives allows for the proper management of risk. Structured products, which are investment solutions, can meet an investor’s specific preferences.
Does Investment Banking Include any Risk?
Market risk, also called “macro risk,” is an inevitable part of doing business. Financial institutions consider it the most important element. The potential for financial loss due to fluctuations in the market is known as market risk. Potential factors to think about include inflation, interest rate risk, and currency exchange rates.
Final Words
We will go into more depth on the typical structure of an investment bank in this chapter. This chapter uses famous trading firms like Goldman Sachs and Morgan Stanley to show how the previously outlined structure operates. Aside from that, it goes over the main areas of the front and back offices’ functionalities and how they are organized to provide the greatest possible service to clients. Summing up, this topic related to structure of investment banking is crucial for the success of any organization.
