Investment bank

An investment bank is a financial institution that provides banking services to the capital markets.

Expanded Definition

Investment banks work with companies needing capital, usually the CFO, to work out the best method to obtain needed financing. Usually the company has the ability to issue stock, preferred stock, bonds, debentures, or a variety of debt instruments. The investment bank knows the markets and looks for the most cost effective source of financing that meets the company's requirements. They price the issue, decide what features are needed to make it profitable, estimate what bond rating it will likely succeed, and then shepard the deal through meeting legal requirements and finally issuing and distribution.

The quality of the company's finances, the price earnings ratio being paid on the market, and the earnings history of the company are key factors in deciding the optimum source of financing.

Private placements are possible. "Dog and pony show" presentations are common to major institutional investors to make them aware of the opportunity and seek their support for the issue.

Compare: Commercial bank

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Related Terms

• Bank
• Commercial bank
• Balance sheet

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