Investment banks are financial companies serving as intermediaries in complex financial transactions involving large sums of money. These organizations assist new companies in gaining access to the capital market as they prepare for an initial public offering (IPO) or when merging with another.

As investment banks are involved in companies going public, they may also provided brokerage services to enterprises and consumers. To put it simply, investment banks help companies raise capital for expansion or other business needs.

What is investment banking?

An investment bank is a financial institution that provides capital raising (underwriting) and M&A (mergers and acquisitions) advisory services to corporations, institutions, or even the government. It’s different from a bank’s investment banking division (IBD).

When most IBD only serves underwriting and M&A advisory, investment banks are far more complex. It acts as a “go-between” for companies and investors. They also handle the paperwork and registration process.

For example, suppose a company called Carsome looks to Vietnam to expand its business. An investment bank will advise Carsome on the type of funds to raise, then help it find investors. If Carsome chooses to acquire a company in Vietnam, the investment bank would evaluate companies that suit Carsome.

A few well-known investment banks in Malaysia are Maybank Investment Bank Bhd, Affin Hwang Investment Bank Bhd, CIMB Investment Bank, Kenanga Investment Bank Berhad, and Public Investment Bank Bhd.

Is it a commercial bank?

Technically yes, but in some senses, no. Usually, commercial banks focus on individuals. On the other hand, investment banks only provide individual services for HWNI (high-net-worth individuals). 

HWNI are those who meet certain criteria laid out in Schedule 6, Part I, Capital Markets and Services Act 2007: (1) Someone who has a gross annual income exceeding RM300,000 or equivalent in foreign currencies per annum in the last 12 months, (2) Someone who, jointly with their spouse, has a gross annual income exceeding RM400,000 or its equivalent in foreign currencies per annum in the preceding 12 months, or (3) people with at least RM3 million in total net personal assets, or total net joint joint assets with their spouse, excluding the value of the person’s primary residence.

In general, investment banks tend to focus on providing financial services for companies.

Investment banking in Malaysia is separated from commercial banks as stated in the Securities Commission Act 1993 by the Securities Commission of Malaysia (Suruhanjaya Sekuriti Malaysia). Together with Bank Negara Malaysia (BNM), it established prudential regulations for investment banks’ business and market conduct.

What do investment banks do?

Some investment banks allow consumers to set up trading accounts to purchase stock. Through their research arms, Investment Banks would issue advisories and analyses on particular stocks and industries. Investors can use these insights to guide their investment and make informed decisions. Technical investors can utilize the charting tools provided through the trading platforms. These are useful for day traders and sophisticated investors. Usually, they have three distinct divisions:

  1. Front office

Their services are mainly related to direct interaction with clients, such as investment banking, equity & credit research, and global capital markets reports (done by professional capital market analysts). Some banks also provide private wealth management for HNWI (high-net-worth individuals).

  1. Middle office

This one manages risk and determines transaction profits and losses of professional clients like insurance companies and government financial divisions. They also ensure the company’s adherence to government regulations and constraints.

  1. Back office

The back office handles operations and technology. They are responsible for ensuring that the technology and software used are advanced and functional. Trailblazing investment bank’s back office also deals with innovation in artificial intelligence; they develop new algorithms for trading.

Aside from technology, the back office’s works are also related to the bank system’s performance. They ensure all transactions go well; make sure that the system purchases and sells the accurate securities for the accurate price. In short, the back office deals with investment bank risk management.

While the crux of investment banks is to help companies go public or merge and provide corporate advisory services, some allow retail investors to utilize the same platforms and expertise. Investment banking services act as a bridge, connecting the two parties.

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