investment banker

A person representing a financial institution that is in the business of raising capital for corporations and municipalities.

Investopedia Says:
An investment banker may not accept deposits or make commercial loans. Investment bankers are the people who do the grunt work for IPOs and bond issues.

Related Links:
What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop. IPO Basics Tutorial

Firm, acting as underwriter or agent, that serves as intermediary between an issuer of securities and the investing public. In what is termed Firm Commitment underwriting, the investment banker, either as manager or participating member of an investment banking syndicate, makes outright purchases of new securities from the issuer and distributes them to dealers and investors, profiting on the spread between the purchase price and the selling (public offering) price. Under a conditional arrangement called Best Effort the investment banker markets a new issue without underwriting it, acting as agent rather than principal and taking a commission for whatever amount of securities the banker succeeds in marketing. Under another conditional arrangement, called Standby Commitment, the investment banker serves clients issuing new securities by agreeing to purchase for resale any securities not taken by existing holders of Rights.

Where a client relationship exists, the investment banker's role begins with pre-underwriting counseling and continues after the distribution of securities is completed, in the form of ongoing expert advice and guidance, often including a seat on the board of directors. The direct underwriting responsibilities include preparing the Securities and Exchange Commission registration statement; consulting on pricing of the securities; forming and managing the syndicate; establishing a selling group if desired; and Pegging (stabilizing) the price of the issue during the offering and distribution period.

In addition to new securities offerings, investment bankers handle the distribution of blocks of previously issued securities, either through secondary offerings or through negotiations; maintain markets for securities already distributed; and act as finders in the private placement of securities.

Along with their investment banking functions, the majority of investment bankers also maintain broker-dealer operations, serving both wholesale and retail clients in brokerage and advisory capacities and offering a growing number of related financial services. See also Flotation Cost; Secondary Distribution; Underwrite.

One who brings new securities (e.g., stocks or bonds) to the market.
Example: An investment banker persuaded a municipality that needed to raise money to allow his firm to bring the securities to market, including pricing the issue.

A broker of stocks who acts as an underwriter of securities. The investment banker can act as principal by buying the entire issue from the selling corporation or from selling shareholders, or as agent by selling the offering on a "best-efforts" basis. In either event, the investment banker sells the issue to other dealers who together with the lead banker have formed an underwriting syndicate. Members of the syndicate in turn sell the shares to the investing public and to institutional investors such as pension funds (see retirement plan) or mutual funds. Investment banking is not banking as generally defined, and investment banking activities are illegal for commercial banks.