Inspiration from Investment Banking in 19th Century America.

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Here is an important piece of proof that history and tradition play a big role in the world of investment banking, the listed investment banks are JP Morgan, Citibank, Credit Suisse, Barclays Capital, Goldman Sachs, Merrill Lynch & Morgan Stanley all these banks average age is 172 years,

We have seen that some of the players in the world of investment banking started operating centuries ago, csp provider company list  now let’s try to find out the oldest Bank in the world and when it was founded, investment banking emerged in America in the 19th Century when the American economy was growing so fast that commercial banks could not serve the expansion of railroads, mining companies, and the heavy industry, the main activity of investment banks is now known as security underwriting, they bought financial securities like bonds and stocks from an issuer and resold these securities to a group of investors, we can say that investment banks serve as a bridge between demand and offer, between people who had capital and wanted to invest it and people who needed financing for one of their projects, the main clients that investment banks had in these early days, were government entities when these governments required financing they needed to issue bonds and sell them to investors, to do that they used the services of middleman or investment bankers as we call them today, the governments didn’t have the expertise to sell bonds on their own they didn’t know how to price them, they weren’t unbiased in the negotiation of proper terms and individuals investors did not think their interest would be protected without having a significant bargaining power, this is how prominent middleman came on the stage, their role was to negotiate great terms with the government, by a fraction of the bonds that the government wants to offer and sell the bonds to final investors, there is one important detail we should not forget though, before agreeing to distribute the government’s bonds the middleman contacted potentials investors and created a list with the ones who were ready to purchase the bonds, they had to be certain that they could resell all bonds issued and wouldn’t be stuck with any of these, as you can imagine when an investor buys government debt they can have two types of problems, the government can default and stop repaying its debt or it could try to renegotiate it, that’s why most investors felt more comfortable when they had and established middleman on their side, in 1842 8 American state defaulted because their economies relied heavily on the production of cotton and the price in that year was too low, these States could not repay their loans and refuse to do it, which put at risk the the capital of the investors who bought these securities, the middle man who arranged this sale reacted in a decisive manner all the attempts of these States to raise new capital were unsuccessful, the result of these action was that the defaulted states agreed to a restructuring plan which satisfied the investors and repaid them their capital, this episode proves how important investment bankers were in the 19th century in America, Such episodes increase their reputation which allowed them to work with top tier investors, csp sbi  all issuer were debt and equity wanted to work with middle man who could contact top tier investors, we can conclude that investment banking services were born because they were needed by both investors and finances, these so called middle man brought to the table something very important their reputation, the quality of a security was associated with a name of the investment banker who sold it to the market, this align the goals of investment bankers and investors,

So this was the event since America’s investment banking grew so fast, I hope this article was very informative for you, Thank you.

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