1. Securities underwriting

Securities underwriting is the most original and basic business activity of investment banks. The scope of underwriting of investment banks is very wide, including bonds issued by the country's central government, local governments, and government agencies, stocks and bonds issued by enterprises, securities issued by foreign governments and companies in the country and the world, securities issued by international financial institutions, etc. In the underwriting process, investment banks generally weigh whether to form an underwriting syndicate and select an underwriting method based on the underwriting amount and risk level. There are four common underwriting methods:

The first type

underwriting. This means that the lead underwriter and its syndicate members agree to purchase all of the securities issued at an agreed-upon price and then sell those securities to their clients. At this time, the issuer does not bear the risk, and the risk is transferred to the investment bank.

Second type

Tendering. It is usually carried out when investment banks are in a situation of strong passive competition. Securities issued using this method are usually bonds with higher creditworthiness and are popular with investors.

The third type

Consignment sales. This is generally caused by the fact that the investment bank believes that the credit rating of the security is low and the underwriting risk is high. At this time, the investment bank only accepts the entrustment of the issuer and sells securities on its behalf. If not all the securities issued within the specified time plan are sold, the remaining portion will be returned to the securities issuer, and the issuance risk will be borne by the issuer itself.

The fourth type

Sponsored promotion. When an issuing company increases capital and expands its shares, its main targets are existing shareholders, but it cannot ensure that all existing shareholders subscribe for its securities. In order to prevent it from being difficult to raise the required funds in a timely manner, or even causing the company's stock price to fall, the issuing company generally Investment banks should be entrusted with the issuance of new shares to existing shareholders, thereby transferring risks to the investment banks.

2. Investment banks play the triple roles of market makers, brokers and traders in the secondary market. As market makers, after the underwriting of securities is completed, investment banks are obliged to create a highly liquid secondary market for the securities and maintain market price stability. As a broker, an investment bank represents a buyer or seller, brokering transactions at the price proposed by the client. As traders, investment banks have the need to buy and sell securities on their own account. This is because investment banks accept the entrustment of customers and manage a large number of assets, and must ensure the preservation and appreciation of the value of these assets. In addition, investment banks also conduct activities such as risk-free arbitrage and risk arbitrage in the secondary market.

The issuance of securities is divided into two types: public offering and private placement. The previous securities underwriting is actually a public offering. Private placement issuance, also known as private placement, means that the issuer does not sell securities to the public, but only to a limited number of institutional investors, such as insurance companies, mutual funds, etc. Private placement is not subject to the regulations of public issuance. In addition to saving issuance time and issuance costs, it can also bring higher returns to investment banks and investors than trading securities of the same structure in the public market. Therefore, in recent years, Private placement offerings continue to grow in size. But at the same time, private equity issuance also has shortcomings such as poor liquidity, narrow issuance coverage, and difficulty in public listing to expand corporate visibility.

3. Mergers and Acquisitions

Corporate mergers and acquisitions have become the most important business components of modern investment banks in addition to securities underwriting and brokerage business. Investment banks can participate in corporate mergers and acquisitions activities in many ways, such as: looking for mergers and acquisitions targets, providing consulting to hunter companies and prey companies on purchase and sale prices or non-price terms, helping hunter companies formulate merger and acquisition plans, or helping prey companies target For hostile takeovers, formulate anti-takeover plans, help arrange financing and bridge loans, etc. In addition, mergers and acquisitions often include activities such as the issuance of "junk bonds", corporate restructuring, and asset restructuring.

IV. Project Financing

Project financing is a technical means of package financing for a specific economic unit or project planning arrangement. The borrower can only rely on the cash flow of the economic unit. The proceeds are used as a source of repayment and the assets of the economic unit are used as security for the borrowing. Investment banks play a very key role in project financing. They closely link government agencies, financial institutions, investors and project sponsors related to the project, and coordinate lawyers, accountants, engineers, etc. to conduct project feasibility studies. , and then organize the financing required for project investment through the issuance of bonds, funds, stocks or lending, auctions, mortgage loans, etc. The main tasks of investment banks in project financing are: project evaluation, financing plan design, drafting of relevant legal documents, relevant credit ratings, security price determination and underwriting, etc.

Corporate financial management is actually the provision of consulting, planning or operation by investment banks as financial advisors or business management advisors to clients. It is divided into two categories: the first category is to conduct in-depth research and analysis of a certain industry, a certain market, a certain product or securities based on the requirements of the company, individual, or government, and provide a more comprehensive and long-term decision-making analysis The second category is to help the enterprise make suggestions and propose contingency measures when the enterprise encounters difficulties in operation, such as formulating development strategies, rebuilding financial systems, selling and transferring subsidiaries, etc.

5. Fund Management

Fund is an important investment tool. It is organized by fund sponsors, absorbs scattered funds from a large number of investors, and hires people with specialized knowledge and investment experience. Experts invest and make profits. Investment banks have close ties with funds. First, investment banks can act as fund sponsors to initiate and establish funds; second, investment banks can act as fund managers to manage funds; third, investment banks can act as fund underwriters, helping fund issuers sell benefit certificates to investors. .

The financial advisory business of an investment bank is the general term for the planning and consulting business of a series of securities market businesses undertaken by investment banks for companies, especially listed companies. It mainly refers to the professional financial advice provided by investment banks during the company's joint-stock reform, listing, refinancing in the secondary market, mergers and acquisitions, asset sales and other major transaction activities. The investment consulting business of investment banks is the link and bridge that connects the primary and secondary markets and communicates with investors, operators and securities issuers in the securities market. It is customary to position the scope of investment consulting business as providing investment advice and management services to investors participating in the secondary market.

6. Asset Securitization

Asset securitization refers to the issuance of securities through investment banks using certain assets of a company as guarantee. It is a type of financing that is very different from traditional bonds. new financing methods. The company that performs asset conversion is called the originator of asset securities. The originator classifies various illiquid financial assets held by the sponsor, such as housing mortgages, credit card receivables, etc., into a batch of asset portfolios, and sells them to specific trading organizations, that is, buyers of financial assets (mainly Investment banks), and then specific trading organizations issue securities-backed assets as guarantees of the purchased financial assets to recover the purchase funds. This series of processes is called asset securitization. The securities of asset securitization, that is, asset securities, are various types of debt bonds, mainly in the form of commercial papers, medium-term bonds, trust certificates, preferred stocks, etc. Purchasers and holders of asset securities can receive repayment of principal and interest when the securities mature. Securities repayment funds come from the cash flow created by the secured assets, that is, the due principal and interest repaid by the asset debtor. If the secured assets default and refuse to pay, the repayment of the asset securities is limited to the amount of the securitized assets, and the originator or purchaser of the financial assets has no repayment obligations exceeding the asset limit.

7. Financial Innovation

According to different characteristics, financial innovative instruments, namely derivatives, are generally divided into three categories: futures, options, and swaps. There are three strategies for using derivatives, namely arbitrage, increasing returns and improving investment management of securities. Through the establishment and trading of innovative financial instruments, investment banks have further expanded the business space and capital gains of investment banks. First, investment banks act as brokers to buy and sell such financial instruments on behalf of clients and collect commissions; secondly, investment banks can also obtain a certain amount of spread income, because investment banks often first buy and sell derivative instruments as the counterparty of their clients, and then find another client. Make opposite offsetting transactions; thirdly, these innovative financial tools can also help investment banks control risks and avoid losses. Financial innovation has also broken the boundaries and traditional market divisions between banks and non-banks, commercial banks and investment banks in the original institutions, intensifying competition in the financial market.

8. Venture Capital

Venture capital, also known as venture capital, refers to the financing of emerging companies in their start-up and expansion stages, which is characterized by high risks and high returns. Emerging companies generally refer to companies that use new technologies or new inventions to produce new products, have great market potential, and can earn profits well above average profits, but are full of great risks. Due to the high risk, ordinary investors are often reluctant to get involved, but these types of companies need the most financial support, thus providing investment banks with a broad market space.

Investment banks are involved in venture capital at different levels: first, using private equity to raise capital for these companies; second, sometimes making direct investments in certain companies with great potential and becoming their shareholders; third, making more investments Banks set up "venture funds" or "entrepreneurship funds" to provide sources of capital to these companies.