Editing Investment banking (section)

===Core investment banking activities===
Investment banking is split into [[Front office (finance)|front office]], [[middle office]], and [[back office]] activities. While large service investment banks offer all lines of business, both "sell side" and "buy side", smaller sell-side advisory firms such as [[boutique investment bank]]s and small broker-dealers focus on niche segments within investment banking and sales/trading/research, respectively.

For example, [[Evercore|Evercore (NYSE:EVR)]] acquired ISI International Strategy & Investment (ISI) in 2014 to expand their revenue into research-driven equity sales and trading.<ref>{{Cite web |title=EX-99.1 |url=https://www.sec.gov/Archives/edgar/data/1360901/000119312514292346/d768829dex991.htm |access-date=2024-02-28 |website=www.sec.gov}}</ref>

Investment banks offer services to both corporations issuing securities and investors buying securities. For corporations, investment bankers offer information on when and how to place their securities on the open market, a highly regulated process by the SEC to ensure transparency is provided to investors. Therefore, investment bankers play a very important role in issuing new security offerings.<ref name=Morrison /><ref>{{Cite web |title=Going Public |url=https://www.sec.gov/education/capitalraising/goingpublic |access-date=2024-02-28 |website=SEC.gov}}</ref>

====Front office====
''Front office'' is generally described as a [[revenue]]-generating role. There are two main areas within front office: investment banking and markets.<ref>{{cite web |title=Front Office |url=https://www.investopedia.com/terms/f/frontoffice.asp |website=Investopedia |access-date=29 January 2019 |archive-date=8 September 2021 |archive-url=https://web.archive.org/web/20210908154402/https://www.investopedia.com/terms/f/frontoffice.asp |url-status=live }}</ref>
* Investment banking involves advising organizations on mergers and acquisitions, as well as a wide array of capital raising strategies.<ref>IBCA [https://www.investmentbankingcouncil.org/blog/to-lead-to-follow-or-to-respond--an-investment-banking-strategists-playbook To Lead, To Follow or to Respond- An Investment Banking Strategist’s Playbook] {{Webarchive|url=https://web.archive.org/web/20210423034425/https://www.investmentbankingcouncil.org/blog/to-lead-to-follow-or-to-respond--an-investment-banking-strategists-playbook |date=2021-04-23 }} Retrieved 24 January 2020</ref>
* Markets is divided into "sales and trading" (including "structuring"), and "research".
<!-- This is, on average, the most prestigious and highest paid department in the bank with first year analysts typically making £60,000 upwards (depending on individual, team and firm performance). {{Citation needed|reason=Claim seems unsubstantiated; credible statistics would back this up. Sentence removed as there is no data or evidence to substantiate the claim that salespeople and traders make less than IBD colleagues, more generally speaking this statement seems both bizarre and inaccurate as broadly speaking trading is seen to be the best paid department at any bank, though stress and job security are less favorable than other front office roles.|date= March 2015}} -->

=====Corporate finance=====
{| class="wikitable floatright" | width="250"
|- style="text-align:center;"
| Corporate Finance transactions<ref name="icaew"/>
|-
|
* [[Mergers and acquisitions]] (M&A), and demergers involving [[private  company|private companies]].
* Mergers, demergers and takeovers of [[public  company|public companies]], including [[Listing_(finance)#Delisting|public-to-private]] deals.
* [[Management buy-out]]s, buy-ins or similar of companies, divisions or subsidiaries—typically backed by [[private equity]].
* Equity issuance by companies, including the listing of companies on a recognised stock exchange by way of an [[initial public offering]] (IPO) and the use of online investment and share-trading platforms; the purpose may be to raise capital for development or to restructure ownership.
* Financing and structuring [[joint venture]]s or [[project finance]].
* Raising [[Infrastructure debt|infrastructure finance]] and advising on [[public-private partnerships]] and [[privatisation]]s.
* Raising capital via the issuance of other forms of equity, debt, [[hybrid security|hybrids of the two]], and related securities for the refinancing and [[Restructuring|restructuring of businesses]].
* Raising [[seed capital|seed]], [[Startup_company#Investing_rounds|start-up]], development or expansion capital.
* Raising capital for specialist corporate investment funds, such as private equity, [[venture capital]], debt, real estate and infrastructure funds.
* [[Secondary market offering|Secondary equity issuance]], whether by means of private placing or further issues on a stock market, especially where linked to one of the transactions listed above.
* Raising and [[Debt restructuring|restructuring private corporate debt]], or debt funds.
|}
{{see|Corporate finance#Investment banking|Financial analyst #Investment Banking}}
{{also|Independent advisory firm|Boutique investment bank}}
[[Corporate finance]] is the aspect of investment banks which involves helping customers raise [[Funding|funds]] in [[capital market]]s and giving advice on [[mergers and acquisitions]] (M&A);<ref name="icaew"/>
transactions in which capital is raised for the corporation include those listed aside.<ref name="icaew">Shaun Beaney, Katerina Joannou and David Petrie [http://www.icaew.com/en/technical/corporate-finance/corporate-finance-faculty/what-is-corporate-finance-122299 What is Corporate Finance?] {{Webarchive|url=https://web.archive.org/web/20171113044048/http://www.icaew.com/en/technical/corporate-finance/corporate-finance-faculty/what-is-corporate-finance-122299 |date=2017-11-13 }}, Corporate Finance Faculty, [[ICAEW]], April 2005 (revised January 2011 and September 2020)</ref>

This work may involve, i.a., subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. 
A [[pitch book]], also called a confidential information memorandum (CIM), is a document that highlights the relevant financial information, past transaction experience, and background of the deal team to market the bank to a potential M&A client; if the pitch is successful, the bank arranges the deal for the client.<ref>{{Cite web |title=Confidential Information Memorandum (CIM) {{!}} A Detailed Guide |url=https://morganandwestfield.com/knowledge/confidential-information-memorandum-a-detailed-guide/ |access-date=2024-02-28 |website=morganandwestfield.com |date=27 July 2023 |language=en-US}}</ref> 

Recent legal and regulatory developments in the U.S. will likely alter the makeup of the group of arrangers and financiers willing to arrange and provide financing for certain highly leveraged transactions.<ref>{{cite journal|last1=Katz|first1=Jeffrey|last2=Zimmerman|first2=Scott|title=Recent Developments in Acquisition Finance|url=https://www.transactionadvisors.com/insights/recent-developments-acquisition-finance|journal=Transaction Advisors|issn=2329-9134|access-date=2014-11-10|archive-date=2017-01-19|archive-url=https://web.archive.org/web/20170119071112/https://www.transactionadvisors.com/insights/recent-developments-acquisition-finance|url-status=dead}}</ref><ref>{{cite web |last1=Taritsa |first1=Lawrence |title=Everything You Need to Know About Corporate Finance |date=June 2020 |url=https://romeromentoring.com/everything-you-need-to-know-about-corporate-finance/ |publisher=Romero Mentoring |access-date=15 September 2022 |archive-date=15 September 2022 |archive-url=https://web.archive.org/web/20220915134543/https://romeromentoring.com/everything-you-need-to-know-about-corporate-finance/ |url-status=live }}</ref>

=====Sales and trading=====
{{main|Sales and trading}}
On behalf of the bank and its clients, a large investment bank's primary function is buying and selling products.<ref>{{cite web |title=What's the role of an investment bank? |url=https://www.investopedia.com/articles/investing/111114/whats-role-investment-bank.asp |website=Investopedia |access-date=29 January 2019 |archive-date=29 January 2019 |archive-url=https://web.archive.org/web/20190129181351/https://www.investopedia.com/articles/investing/111114/whats-role-investment-bank.asp |url-status=live }}</ref> 

''Sales'' is the term for the investment bank's sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on a [[caveat emptor]] basis) and take orders. Sales desks then communicate their clients' orders to the appropriate bank department, which can price and execute trades, or structure new products that fit a specific need. 
Sales make deals tailored to their corporate customers' needs, that is, their terms are often specific. Focusing on their customer relationship, they may deal on the whole range of asset types. 
(In distinction, trades negotiated by market-makers usually bear standard terms; in [[Market maker|market making]], traders will buy and sell financial products with the goal of making money on each trade.
See under [[trading desk]].)

''Structuring'' has been a relatively recent activity as derivatives have come into play, with [[structurer|highly technical and numerate employees]] working on creating complex financial products which typically offer much greater margins and returns than underlying cash securities, so-called "yield enhancement". In 2010, investment banks came under pressure as a result of selling complex derivatives contracts to local municipalities in Europe and the US.<ref name="IB_FT">{{cite news
| url = http://www.ft.com/cms/s/0/0fb16d54-de18-11df-88cc-00144feabdc0,dwp_uuid=eddfd4e0-4bc3-11da-997b-0000779e2340.html
| date = 22 October 2010
| title = UniCredit municipal deal nullified
| author = Rachel Sanderson
| work = [[The Financial Times]]
| access-date = 23 October 2010
| archive-date = 8 November 2010
| archive-url = https://web.archive.org/web/20101108203020/http://www.ft.com/cms/s/0/0fb16d54-de18-11df-88cc-00144feabdc0,dwp_uuid=eddfd4e0-4bc3-11da-997b-0000779e2340.html
| url-status = live
}}</ref> 

''Strategists'' advise external as well as internal clients on the strategies that can be adopted in various markets. Ranging from derivatives to specific industries, strategists place companies and industries in a quantitative framework with full consideration of the macroeconomic scene. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way [[structurer]]s create new products. 

Banks also undertake risk through [[proprietary trading]], performed by a special set of traders who do not interface with clients and through "principal risk"—risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. 
Here, and in general, banks seek to maximize profitability for a given amount of risk on their balance sheet. 
Note here that the [[FRTB]] framework has underscored the distinction between the "[[Trading book]]" and the "[[Banking book]]" 
- i.e. assets intended for active trading, as opposed to assets expected to be held to maturity - 
and market risk [[capital requirements]] will differ accordingly.

The necessity for numerical ability in sales and trading has created jobs for [[physics]], [[computer science]], [[mathematics]], and [[engineering]] [[PhD]]s who act as [[Quantitative_analysis_(finance)#Front_office_quantitative_analyst|"front office" quantitative analysts]].

=====Research=====
{{see|Financial analyst|Quantitative analyst|Economic analyst}}
The [[securities research]] division reviews companies and [[Securities research|writes reports]] about their prospects, often with "buy", "hold", or "sell" ratings. Investment banks typically have [[sell-side analyst]]s which cover various industries. Their sponsored funds or proprietary trading offices will also have buy-side research.
Research also covers [[credit risk]], [[fixed income]], [[macroeconomic]]s, and [[Quantitative analysis (finance)|quantitative analysis]], all of which are used internally and externally to advise clients; alongside "Equity", these may be separate "groups". 
The research group(s) typically provide a key service in terms of advisory and strategy.

While the research division may or may not generate revenue (based on the specific compliance policies at different banks), its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients.<ref>{{Cite web |title=Research Rules Frequently Asked Questions (FAQ) |url=https://www.finra.org/rules-guidance/key-topics/research-analyst-rules/faq |access-date=2024-02-28 |website=FINRA.org |language=en}}</ref> Research also serves outside clients with investment advice (such as institutional investors and high-net-worth individuals) in the hopes that these clients will execute suggested [[trade idea]]s through the sales and trading division of the bank, and thereby generate revenue for the firm.

With [[MiFID II]] requiring sell-side research teams in banks to charge for research, the business model for research is increasingly becoming revenue-generating. External rankings of researchers are becoming increasingly important, and banks have started the process of monetizing research publications, client interaction times, meetings with clients etc.

There is a potential conflict of interest between the investment bank and its analysis, in that published analysis can impact the performance of a security (in the secondary markets or an initial public offering) or influence the relationship between the banker and its corporate clients, and vice versa regarding [[material non-public information]] (MNPI), thereby affecting the bank's profitability.<ref>{{Cite web |title=Investment Banking Interview Questions |author= |work=Wall Street Prep |date= |access-date=17 December 2021 |url=https://cdn.cdo.mit.edu/wp-content/uploads/sites/67/2021/05/Wall-Street-Prep-Interview-Prep-Guide-2021.pdf |archive-date=17 October 2021 |archive-url=https://web.archive.org/web/20211017003524/https://cdn.cdo.mit.edu/wp-content/uploads/sites/67/2021/05/Wall-Street-Prep-Interview-Prep-Guide-2021.pdf |url-status=live }}</ref>
See also {{slink|Chinese wall#Finance}}.

====Middle office====
This area of the bank includes [[treasury management]], internal controls (such as Risk), and internal corporate strategy.

[[Corporate treasury]] is responsible for an investment bank's funding, capital structure management, and [[liquidity risk]] monitoring; it is (co)responsible for the bank's [[funds transfer pricing]] (FTP) framework.

[[Internal control]] tracks and analyzes the capital flows of the firm, the finance division is the principal adviser to senior management on essential areas such as controlling the firm's global risk exposure and the profitability and structure of the firm's various businesses via dedicated trading desk [[product control]] teams. In the United States and United Kingdom, a [[comptroller]] (or financial controller) is a senior position, often reporting to the chief financial officer.

=====Risk management=====
[[File:Risk in Banking.jpg|thumb|Risk in banking]]
{{see|Financial risk management#Investment banking}}
{{see also|Bank#Capital and risk|Treasury management#Banks|Quantitative analysis (finance)#Risk management|Financial analyst#Middle office}}
Risk management involves analyzing the [[market risk|market]] and [[credit risk]] that an investment bank or its clients take onto their balance sheet during transactions or trades. 

Middle office "Credit Risk" focuses around capital markets activities, such as [[syndicated loan]]s, bond issuance, [[restructuring]], and leveraged finance. 
These are not considered "front office" as they tend not to be client-facing and rather 'control' banking functions from taking too much risk. 
"Market Risk" is the control function for the Markets' business and conducts review of sales and trading activities utilizing the [[value at risk|VaR model]]. 
Other Middle office "Risk Groups" include country risk, operational risk, and counterparty risks which may or may not exist on a bank to bank basis.

Front office risk teams, on the other hand, engage in revenue-generating activities involving debt structuring, restructuring, [[syndicated loan]]s, and securitization for clients such as corporates, governments, and hedge funds. 
Here "Credit Risk Solutions", are a key part of capital market transactions, involving [[Structured_finance#Structure|debt structuring]], exit financing, loan amendment, [[project finance]], [[leveraged buy-out]]s, and sometimes portfolio hedging. 
The "Market Risk Team" provides services to investors via derivative solutions, [[Portfolio manager|portfolio management]], portfolio consulting, and risk advisory.

Well-known "Risk Groups" are at [[JPMorgan Chase]], [[Morgan Stanley]], [[Goldman Sachs]] and [[Barclays]]. 
J.P. Morgan IB Risk works with investment banking to execute transactions and advise investors, although its Finance & Operation risk groups focus on middle office functions involving internal, non-revenue generating, operational risk controls.<ref>{{Cite web |url=http://www.jpmorgan.com/pages/jpmorgan/investbk/solutions/riskmgmt |title=Risk Management Consulting {{!}} J.P. Morgan<!-- Bot generated title --> |access-date=2013-02-23 |archive-date=2013-03-19 |archive-url=https://web.archive.org/web/20130319012103/http://www.jpmorgan.com/pages/jpmorgan/investbk/solutions/riskmgmt |url-status=live }}</ref><ref>{{Cite web|url=http://careers.jpmorgan.com/student/jpmorgan/careers/europe/business/ops|title=J.P. Morgan &#124; Operations – internships and graduate roles<!-- Bot generated title -->|access-date=2013-02-23|archive-date=2013-05-15|archive-url=https://web.archive.org/web/20130515111915/http://careers.jpmorgan.com/student/jpmorgan/careers/europe/business/ops|url-status=live}}</ref><ref>{{Cite web|url=http://careers.jpmorgan.com/student/jpmorgan/careers/us/business/finance|title=J.P. Morgan &#124; Business areas – Finance<!-- Bot generated title -->|access-date=2013-02-23|archive-date=2013-01-27|archive-url=https://web.archive.org/web/20130127155125/http://careers.jpmorgan.com/student/jpmorgan/careers/us/business/finance|url-status=live}}</ref> The [[credit default swap]], for instance, is a famous credit risk hedging solution for clients invented by J.P. Morgan's [[Blythe Masters]] during the 1990s. 
The Loan Risk Solutions group<ref>Barclays Risk Loan http://www.barcap.com/client-offering/investment-banking.html {{Webarchive|url=https://archive.today/20130407181316/http://www.barcap.com/client-offering/investment-banking.html |date=7 April 2013 }}</ref> within Barclays' investment banking division and Risk Management and Financing group<ref>{{Cite web |url=http://www.goldmansachs.com/what-we-do/securities/prime-brokerage/risk-mgmt-and-financing.html |title=Goldman Sachs {{!}}  Prime Brokerage – Risk Management and Financing<!-- Bot generated title --> |access-date=23 February 2013 |archive-url=https://web.archive.org/web/20180707170827/http://www.goldmansachs.com/what-we-do/securities/prime-brokerage/risk-mgmt-and-financing.html |archive-date=7 July 2018 |url-status=dead }}</ref> housed in Goldman Sach's securities division are client-driven franchises.

Risk management groups such as credit risk, operational risk, internal risk control, and legal risk are restrained to internal business functions — including firm balance-sheet risk analysis and assigning the trading cap — that are independent of client needs, even though these groups may be responsible for deal approval that directly affects capital market activities. 
Similarly, the ''Internal corporate strategy'' group, tackling firm management and profit strategy, unlike corporate strategy groups that advise clients, is non-revenue regenerating yet a key functional role within investment banks.

This list is not a comprehensive summary of all middle-office functions within an investment bank, as specific desks within front and back offices may participate in internal functions.<ref>{{Cite web|url=https://www.goldmansachs.com/careers/divisions/finance/|title=Goldman Sachs &#124; Finance|website=Goldman Sachs|access-date=2022-02-01|archive-date=2022-02-01|archive-url=https://web.archive.org/web/20220201000705/https://www.goldmansachs.com/careers/divisions/finance/|url-status=live}}</ref>

====Back office====
The back office data-checks trades that have been conducted, ensuring that they are not wrong, and transacts the required transfers. Many banks have outsourced operations. It is, however, a critical part of the bank.{{Citation needed|date=February 2016}}

=====Technology=====
Every major investment bank has considerable amounts of in-house [[software]], created by the technology team, who are also responsible for [[technical support]]. Technology has changed considerably in the last few years as more sales and trading desks are using electronic processing. Some trades are initiated by complex [[algorithms]] for [[Hedge (finance)|hedging]] purposes.

Firms are responsible for compliance with local and foreign government regulations and internal regulations.