What is investment banking?
Investment banking covers several distinct but related areas:
- Financial Advisory - including advice on capital structure as well as mergers and acquisitions (M&A)
- Debt and Equity Capital Raising - or known as “capital markets underwriting”
- Sales and Trading - of debt and equity securities, currencies and commodities
What are the core services of investment banks?
- To connect capital with opportunities
- Provide financial and strategic advice to customers, be they governments and public agencies or private corporations
- Where allowed by regulators, investment banks can act as principals to a transaction, or they can play a hybrid role as principal and intermediary
Are all regulated banks, investment banks?
- Not all companies or organisations providing investment banking services are regulated banks. Independent banks, often called investment banking boutiques, or IPO advisors, do not engage at all in the execution of financial transactions, preferring to offer pure advisory services.
- Until late 2008, many prominent stand-alone investment banks such as Goldman Sachs and Morgan Stanley were not, in fact, “banks” and were consequently, not regulated as such by the government.
Returns to investors can be influenced by how well an investment bank manages risks. What are these risks?
- Credit risk
- Market risk
- Liquidity risk
- Legal risk
- Regulatory and Compliance risk
- Other risks regulators and banks identify
What are ‘bulge bracket’ investment banks?
These are investment banks that provide all of the investment banking services globally, from New York to London to Hong Kong and beyond. Some examples of ‘bulge bracket investment banks are:
- JP Morgan (US)
- Barclays Capital (UK)
- Credit Suisse (Swiss)
- Deutsche Bank (German)
What are some other smaller global players?
Beyond this bulge bracket group there are smaller global players, such as UBS and HSBC, and regional investment banks, such as Japan’s Nomura, Australia’s Macquarie, Singapore’s DBS and Brazil’s Pactual.
What are some examples of investment bank boutiques?
These mainly focus on financial advisory, including M&A and distressed advisory. Some global players include:
- Moelis & Co.
- Alvarez & Marsal
Other boutiques can focus on a sector such as: