We have talked about banks. But recently I read about investment banks. But what is an investment bank? An investment bank is a specialized type of bank that performs large and complex financial transactions, commonly for other corporations or governments.
An investment banker will provide a number of banking services similar to what other bankers offer. The distinction is that they specifically work with business entrepreneurs, professionals, and investors.
Investment bankers increase money by issuing and selling securities in the main market and helping public and private companies in raising funds in the capital markets (both equity and debt). They may also offers strategic tips to their clients on specific transactions such as mergers, and acquisitions and other kinds of financial transactions.
Duties range from advising, raising money, underwriting, brokerage services, forex services, research, and asset management.
Investment banking is a business of developing long-term relationships. If You have job as an investment banker, you have to become close to the person who possess giant piles of money, in the hopes that one day they will do massive deals with their giant piles of cash, and give you some of it.
If you are at the weekly meeting of an investment-banking group and everybody is going around the room saying about what they did last week, and someone says “I did a billion-dollar merger and earned an $8 million fee for the bank,” and you say “I played Settlers of Catan with Elon musk,” you win, because the expected value of proximity to a giant pile of cash is so much higher than the value of an reality fee from a normal-sized pile of fund.
One result of this is that banks are always rejoices to give freebies to the possessors of giant piles of funds. “We’ll do this work for Facebook at no charge, because the opportunity there is so vast, and we want them to owe us one.”
The possessors of giant piles of dollars are, often, clever. Also they got to possess all of that cash because they like hanging on to their bucks.
One obvious result here is that if you happen to possess a giant pile of cash you can get free or discounted investment-banking services pretty much forever. You perform a multibillion-dollar acquisition, your banker comes to you with a bill, you look at this person in disappointment and say “a bill? I thought we were friends,” her/his heart skips with joy, she tears up the bill, she goes back to her bosses and says “the giant pile of cash thinks we’re friends,” her bosses congratulate her on her success in relationship-building, everyone is rejoice, and they all salivate to think about how much cash they’ll make on your next, trully big deal. And then you do the next, trully big deal, and you repeat this process forever.
