A business can expand, only if it raises sufficient capital. This can be done by issuing stock or by assuming debt. Generally, the former is preferred, since stockholders are the owners of the company and are entitled to dividends, while creditors have to be paid interest, and the company has to ensure the eventual repayment of principal.
✔A lucrative field all by itself, a career as an investment banker is challenging, yet equally interesting. Your aptitude matters, and attitude counts in this career line.
This is not a job for the fainthearted. Risk is no anomaly to this profession. You have to mold yourself with it. As an investment banker you need to roll your bank into earning rich profits.
It is also the investment banker's duty to tour a company if their client is to go through a process of acquisition or merger. The concept of merger and acquisition will be discussed shortly. Know that investment bankers are known to work hard. Very hard. They, more often than not, are driven to work their fingers to the bone to stand true to their role.
Once the investment banker decides to underwrite the issue, the securities -- both debt as well as equity -- are purchased by the investment bank at the agreed price, thus guaranteeing the issuer of receiving funds.
This guarantee holds good even if the investment banker is unable to resell the issue due to undersubscription. In this case, the investment bank is forced to hold a part of the issue.
In case of oversubscription, the investment bank earns a huge profit by selling the issue for a high mark-up. The risk and reward, thus, are proportional. Sometimes, investment bankers may be required to buy the issue in the open market to peg prices.
In case of an acquisition, a larger company takes over the smaller company. If the target has a strong brand name, the acquirer prefers retaining it. One must note that an acquisition does not result in the formation of a new company.
An investment banker may be called upon to work for the buy side or the sell side. The latter involves finding an acquirer with a strong strategic fit, while the former involves pursuing a suitable target. An investment banker's advice may be sought, when the prudence of a merger or an acquisition is questionable.
❒ Investment bankers are also called upon for facilitating private placements. -- Many a time, companies may decide to opt for private placement to avoid the hassles associated with public offering.
In case of private placements, companies do not have to register the placement with the Securities and Exchange Commission (SEC) or submit audited reports on a yearly basis to the SEC. Sometimes, companies that were previously public, may also decide to become private to tide over difficult times.
The bottom line: People who are comfortable with the idea of crunching numbers, working long hours, and have excellent analytical and interpersonal skills may explore their opportunities with a career in investment banking.