馃攳
INVESTMENT BANKING EXPLAINED | Introduction, History, Lifestyle - YouTube
Channel: Fortunly
[0]
Investment Banking is one of the most
[2]
profitable fields in the financial
[3]
industry in 2018 investment banks made
[7]
over thirty nine billion dollars in
[9]
revenue and that was just in the US if
[11]
Investment Banking sounds like a foreign
[13]
language to you you're not alone this
[15]
high-stakes industry continues to baffle
[18]
even banking professionals with its
[20]
complexity nonetheless with salaries
[22]
starting at a hundred and forty thousand
[24]
dollars a year it's no surprise that so
[27]
many people dream of becoming the next
[29]
wolf of Wall Street others are just
[31]
curious about how this glamorous
[33]
industry works unfortunately it's not
[35]
all yachts nightclubs and champagne the
[38]
job itself is extremely stressful and
[40]
some investment bankers work more than a
[42]
hundred hours per week after all
[45]
something had to trigger Patrick Bateman
[47]
in American Psycho so what is Investment
[50]
Banking why is it so lucrative
[52]
and how do investment banks differ from
[54]
commercial banks
[55]
[Music]
[63]
before we explain how investment banking
[66]
works let's turn back the clock to see
[68]
how it all began from the early 19th
[71]
century commercial banks in the u.s.
[73]
performed the functions we now associate
[75]
with investment banks but during the
[77]
Civil War this all changed the tale of
[80]
investment banking begins with
[82]
Philadelphia financier Jay Cooke no not
[85]
that kind of cook in 1861 Cooke
[88]
established the first ever American
[89]
investment bank to help fund the federal
[92]
government's war efforts as such the US
[95]
government became one of investment
[96]
banking first clients back then the
[100]
government had to issue bonds to raise
[101]
enough money to support its rapidly
[103]
growing economy and complete
[105]
infrastructure projects like building
[107]
the railways bonds are like IR used
[110]
between lenders and borrowers and are
[112]
typically used to finance expensive
[114]
projects in many cases investment banks
[117]
would buy these bonds then sell them on
[119]
to private investors for a profit today
[121]
investment banks practically do the same
[124]
just with different parties involved the
[126]
question is where are those billions of
[129]
dollars in revenue coming from well the
[131]
business model is actually pretty simple
[133]
investment banks purchase assets that
[135]
hold monetary value otherwise known as
[137]
securities and then sell them on to
[140]
third parties for a fee this process is
[142]
called underwriting so why don't clients
[146]
and investors just save money and make
[147]
the deal themselves one of the biggest
[150]
perks of making this kind of deal is
[152]
that the middleman is responsible for
[154]
distributing the securities if they
[156]
can't find enough investors they have to
[158]
keep some securities themselves when you
[161]
think about it investment bankers are
[163]
basically risk taking middlemen between
[165]
clients and investors now this isn't
[168]
exclusive to investment banks commercial
[170]
banks take on risks as well but here's
[173]
where the difference lies commercial
[175]
banks deal with individuals and small to
[177]
mid-sized companies giving out smaller
[180]
sums of money like individual mortgages
[182]
and small business loans they make their
[185]
profits through the interest they charge
[187]
on the other hand investment banks
[189]
much larger risks they deal with huge
[192]
companies and high risk startups acting
[195]
as a bridge between companies and
[196]
investors in the process they can earn a
[199]
huge amount in fees all of this sounds
[202]
great in theory but let's be honest
[204]
Investment Banking doesn't have a great
[206]
reputation we all lived through one of
[208]
the worst financial disasters in history
[210]
the subprime mortgage crisis of 2008
[213]
here's what happened in 2001 the Federal
[217]
Reserve increased bank's liquidity by
[219]
lowering the federal funds rate this
[221]
enabled US banks to give out more loans
[223]
in order to do this the banks lowered
[226]
their standards and started giving loans
[228]
to pretty much anyone regardless of
[230]
whether they had a job or any money at
[232]
all these are known as subprime
[235]
mortgages but you may want to think of
[237]
them as less than desirable loans of
[239]
course commercial banks couldn't just
[242]
give out loans endlessly so to make room
[245]
for new borrowers they sold their old
[247]
loans onto investment banks investment
[249]
banks repackaged those subprime loans
[252]
and sold them on to investors without
[254]
disclosing how insecure those loans were
[256]
at the time that didn't seem to matter
[259]
it was one big party borrowers were
[261]
buying homes investors were profiting
[264]
and banks kept on selling their loans so
[266]
they could give out new ones but after
[268]
every massive party comes an equally
[271]
massive hangover
[271]
after years of good times interest rates
[274]
started rising suddenly subprime
[276]
borrowers couldn't afford to pay back
[278]
their loans and started filing for
[280]
bankruptcy causing everyone involved to
[282]
start panicking in the space of a few
[284]
months the American economy had been
[286]
crushed by the greatest banking collapse
[289]
since the Great Depression what happened
[291]
was that investment bankers had created
[293]
a massive bubble with their
[295]
irresponsible trading and when that
[297]
bubble burst every
[298]
one felt the effects so at this point
[301]
you're probably convinced that
[302]
investment banks are evil and we'd be
[305]
better off without them right wrong the
[308]
2008 subprime mortgage crisis is just
[310]
one of many crises throughout banking
[312]
history the market has crashed before
[314]
and will undoubtedly crash again but
[317]
it's worth remembering that investment
[319]
banking for all its flaws helped build
[322]
America the first railroads mines and IT
[325]
companies would never have seen the
[327]
light of day if it weren't for the
[329]
support of investment banks and as we
[331]
look towards an environmentally
[333]
sustainable future we'll need investment
[335]
banks to help us rebuild America too so
[338]
what does the future hold for investment
[340]
banking many have speculated the
[342]
crowdfunding platforms like Kickstarter
[344]
will take over as the preferred method
[347]
for funding innovative projects but
[349]
that's not going to happen while
[350]
crowdfunding certainly can help small
[353]
projects get off the ground it's not
[355]
reliable enough to support the renewable
[357]
energy revolution the world so
[358]
desperately needs on the other hand
[361]
investment banks are already pouring
[363]
billions of dollars into alternative
[365]
energy projects of course it's not just
[367]
renewable energy projects that stand to
[369]
benefit we can expect Investment Banking
[372]
to play a role in every world-changing
[374]
innovation in the near future companies
[376]
will always need large investors and
[378]
investors will always be on the lookout
[381]
for new opportunities
[382]
that's why investment banking is here to
[385]
stay
[386]
[Music]
[391]
you
Most Recent Videos:
You can go back to the homepage right here: Homepage