Investment bank facts for kids

An investment bank is a special kind of company that helps other businesses and even governments get money. They don't usually lend their own money like a regular bank. Instead, they connect businesses that need money with people or companies who want to invest their money. These investors hope to earn a profit by lending money or owning a part of the business.

Investment banks also help businesses sell themselves, either partly or completely, to other people or companies. They act like a matchmaker, bringing together those who need money and those who want to invest.

What is Mergers and Acquisitions?

Long ago, investment banks started helping businesses do something new. They helped companies sell their entire business to another company, not just to individual investors. They also helped businesses decide which other companies they should buy. This work is called Mergers and Acquisitions (often shortened to M&A).

Today, M&A is a big part of what investment banks do. Some smaller investment banks focus only on M&A and don't help businesses borrow money or sell ownership.

How Businesses Get Money: Bonds and Stock

Investment banks often help businesses borrow money using a special contract called a bond. They also help businesses sell ownership using a contract called stock.

Most countries have rules that allow businesses to sell bonds and stock to the public. In return, the businesses must follow certain rules and share their financial information. This way, people who buy bonds or stock can trade them with others without being responsible for how the business is run.

Why Businesses Choose Investment Banks

Businesses might choose to borrow money from investors through an investment bank instead of a regular bank for a few reasons:

• They might get lower interest rates.
• The interest rate might stay the same for a longer time than a bank would allow.
• Investors might be willing to lend money to a company that a regular bank sees as too risky.

Business owners might also use an investment bank to sell part or all of their business to investors because:

• They can make a profit on the money they first put into the business. When a business is sold publicly, it might get a higher price because more buyers are interested.
• They can raise money for the business to grow even more.
• They can get funds to pay back money the business borrowed earlier.

So, investment banks work with two main types of clients:

• Businesses and governments that need to borrow money or sell ownership.
• People and other businesses that want to invest their money to earn a profit.

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  Many of the largest investment banks, including JPMorgan Chase, belong to the Bulge Bracket.