Types of Investment Banking Explained

Investment banking is a broad field that encompasses various roles and specializations. There are several types of investment banking, each with its own unique focus and responsibilities.

Mergers and acquisitions (M&A) investment banking involves advising companies on mergers, acquisitions, and divestitures. This can include identifying potential targets, conducting due diligence, and structuring deals.

Equity capital markets (ECM) investment banking focuses on raising capital for companies through initial public offerings (IPOs), follow-on offerings, and other equity transactions. In contrast, debt capital markets (DCM) investment banking raises capital through debt issuances, such as bonds and loans.

Corporate finance investment banking provides advisory services to companies on strategic matters, including restructuring, refinancing, and turnaround situations.

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Investment banks are a type of financial service provider that offers a range of services to institutional clients. They provide financial advisory services, including capital raising, mergers and acquisitions, and hedge, mutual and pension fund advisory services. Investment bankers work long hours, sometimes stressful, and are responsible for facilitating IPOs, book building, and mergers and acquisitions.

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Bulge bracket investment banks are the best-known and largest financial companies, with offices around the world. They are asked for advice on deals worth more than $1 billion and provide a wide range of services to their clients. These services include underwriting, M&A, sales and trading, equity research, asset management, commercial banking, and retail banking.

Investment banks advise a wide range of clients, including governments, corporations, and institutions. Their services include helping governments raise money, trade securities, and buy or sell crown corporations, as well as providing research and corporate finance advice to corporations. They also work with institutional investors to help them trade securities and provide research.

Here is a breakdown of the services offered by investment banks:

JP Morgan Chase is the most famous and respected financial bank in the world.

It has an impressive global reach, offering its services in more than sixty countries.

The bank has managed to carve out an 8% share of the investment banking business, despite being in a highly competitive market.

JP Morgan Chase provides a wide range of services, including private banking, asset management, treasury and security, investment banking, and merchant banking.

These services cater to the diverse needs of its clients and have helped the bank establish a strong reputation in the industry.

Morgan Stanley is a global banking powerhouse with a significant presence in major financial hubs like London, Tokyo, and Hong Kong.

Their main office is located in New York, but their reach extends far beyond the US borders.

Morgan Stanley offers a wide range of services, including wealth management, institutional stocks, and investment management.

Their services also cover prime trading, custody, settlement, and clearing.

Investment banks are frequently divided into categories based on their size, status, region, and industry focus. The largest global banks that offer all products and services and operate in all regions are known as bulge bracket investment banks.

These banks work on the largest deals, usually worth over $1 billion USD, and have the widest brand-name recognition. They include banks like J.P. Morgan, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, Barclays, UBS, and Deutsche Bank.

Bulge bracket investment banks have offices all over the world, which allows them to provide better service to their clients who live in different countries. The main banks, also known as the bulge bracket banks in investment banking, are listed below:

Smaller firms, often called mid-market banks, and boutique investment banks also make up a large part of the market. These banks offer a variety of products and services, but tend to work on smaller deals, such as those worth less than $1 billion.

For more insights, see: Why Middle Market Investment Banking

Corporate finance is a crucial part of investment banking, and it's where the magic happens. It's the process of helping companies raise capital, advise on mergers and acquisitions, and restructure their finances.

One of the key roles in corporate finance is capital raising, which involves helping companies sell stocks or bonds to investors. This can be done through an initial public offering (IPO), where a company issues shares to the public for the first time.

There are three types of underwriting: firm commitment, best efforts, and all-or-none. Firm commitment means the underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares. Best efforts means the underwriter commits to selling as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility.

In addition to capital raising, corporate finance also involves advising on mergers and acquisitions (M&A). This process involves helping companies find, evaluate, and complete acquisitions of businesses. Investment banks use their extensive networks and relationships to find opportunities and help negotiate on their client's behalf.

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Here are the main steps in the mergers and acquisitions process:

Corporate finance also includes restructuring, which involves helping companies reorganize their finances and operations to improve their performance. This can involve reducing debt, selling assets, or reorganizing the company's structure.

In addition to these services, corporate finance also involves working with various product groups, such as mergers and acquisitions, debt capital markets, equity capital markets, and restructuring. These groups work on specific deal types, but often work across all industries.

Here are some examples of product groups:

Industry groups, on the other hand, specialize in a specific industry and often work with individual companies in that industry on an ongoing basis.

There are several types of banks, each with its own unique characteristics and functions.

Commercial banks, for example, provide basic banking services to individuals and businesses, such as accepting deposits and making loans.

Investment banks, on the other hand, specialize in raising capital for corporations and governments through the sale of securities.

Middle market banks are a special category that falls between bulge bracket banks and regional specialty banks. There are more of these banking institutions than regional specialty banks, but fewer than bulge bracket banks.

They might offer a wide range of financial services or focus on a few key areas. These banks typically operate in more than one state, but their influence is not global.

The deals middle market banks are interested in usually range from $50 million to $500 million.

Regional Banks are the smallest financial institutions, serving only one area and offering limited services. They're often found in specific regions, like California, and focus on niche areas like mergers and acquisitions.

These banks typically have a small team of around a dozen people and handle deals worth 50 to 100 million US dollars for both small and large businesses in their area.

Getting into investment banking is a challenging task, with sometimes as many as 100 applicants for every position.

The most common job titles in investment banking, from most junior to senior, are:

Investment bankers work long, sometimes stressful hours, and must be prepared to adapt to changing client needs and market conditions.

Bank careers can be exciting and challenging, but it's essential to know what bankers actually do. Investment bankers, for example, provide financial advisory services to institutional clients, often working long hours and dealing with stressful situations.

A typical day for an investment banker involves capital raising, which includes selling securities to investors and facilitating IPOs. This process can be complex, as investment bankers must estimate a company's value before it goes public on the stock market.

Full-service investment banks offer a wide range of services, including underwriting, mergers and acquisitions (M&A), sales and trading, equity research, asset management, commercial banking, and retail banking. In contrast, the investment banking division of a bank provides only underwriting and M&A advisory services.

Investment banks have different divisions, such as sales and trading, which helps institutional investor clients buy and sell securities like stocks, options, and bonds. Salespeople and traders must divide up large orders, match buyers and sellers, and get clients prices that are as close as possible to what they desire.

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Here's a breakdown of some key services offered by investment banks:

The job outlook for bank careers is looking up. The U.S. Bureau of Labor Statistics projects that securities, commodities and financial services sales careers will grow by 7% from 2022 to 2032, which is faster than the 3% growth projected for all occupations nationwide.

Investment bankers, in particular, can expect a good salary, with an average annual salary of around $118,200. This is according to Payscale data from January 2024.

The growth of foreign economies is also expected to lead to further employment in the American financial industry, making the U.S. an attractive place to work in finance.

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Careers in banking can be challenging to break into, but with the right preparation and experience, you can set yourself up for success. Investment banking is a highly competitive field, with a ratio of 100 applicants to 1 position.

To get into investment banking, you'll want to check out guides on how to ace an investment banking interview and practice with real interview questions. Taking courses on financial modeling and valuation can also give you a competitive edge.

Investment banks offer a range of services, including underwriting, M&A, sales and trading, equity research, and asset management. The most common job titles in investment banking, from most junior to senior, are Analyst, Associate, Vice President, Director, Managing Director, and Head, Vice Chair, or other special titles.

As an investment banker, you'll work long hours and have a high level of responsibility. You'll be expected to provide financial advisory services to institutional clients and facilitate mergers and acquisitions, IPOs, and other financial transactions.

Here are the typical job titles in investment banking, listed from most junior to senior:

Analysts spend their days helping their team compile research related to their clients' financial needs and putting that research into documents and presentations to share with key stakeholders. Associates work on similar tasks, but may also be responsible for checking the work of analysts and getting in front of clients.

If you're interested in becoming an investment banker, you can start by pursuing a graduate degree or MBA, which can give you a competitive edge in the job market.