Companies in this industry underwrite, originate and maintain markets for clients issuing securities; they may also offer advisory services, help facilitate corporate mergers and other deals, or act as principals in buying or selling securities on a spread. Major companies include Goldman Sachs, JP Morgan Merrill Lynch, and Morgan Stanley (all based in the US), as well as Barclays (UK), Deutsche Bank (Germany), Macquarie Group (Australia), Nomura (Japan), and UBS Investment Bank (Switzerland).
Worldwide revenue for investment banks is about $240 billion, according to Deutsche Bank. The industry is clustered in financial hubs such as London and Hong Kong. Investment banks increasingly are ...view middle of the document...
The new environment also means more industry oversight by the federal government, which had to step in and bail out dozens of financial services firms with billions of dollars of taxpayers' money.
The primary revenue sources of the investment banking industry are from actively trading financial instruments, providing asset management services for wealthy clients and retirement and investment funds, placing new debt and equity issues with public and private investors, and from fees associated with mergers and acquisitions (M&As). Investment banks also buy new debt and equity issues for their own accounts, acting as the market "maker," and are active securities and currency traders. About 45 percent of US industry revenue comes from brokerage and securities services; 30 percent from trading; and 25 percent from financial planning and asset management.
The industry assembles and supplies the capital required by businesses to expand, merge, and acquire other businesses. Investment banks are intermediaries between corporations issuing new debt and equity securities and investors that buy the securities. An investment bank buys new securities from the issuing company at a negotiated price and resells them to its investor base, other investment banks, and the investing public. This arrangement, called underwriting, allows the investment bank to assume the risk of the new issue for a profit on the difference between the purchase price and the offer price. The investment bank may act as the maker of the market for the new securities, facilitating trades between buyers and sellers. Investment banks perform a variety of other financial services, such as M&A advice and market analysis.
The major investment banks have research staff that performs the risk, economic, and financial analysis used to support internal operations, from acquisitions and mergers to formulating trading positions in world, US, and regional markets. The profitability of an investment bank is directly related to the quality of its research analysis. Big investment banks employ a large number of salespeople, analysts, and traders in a network of offices, and may operate a trading floor.
Investment banks use cutting-edge communication and computing technology to support their operations. Dedicated, fully redundant, high-speed networks interconnect all major offices (domestic and foreign). Computing facilities and critical data are distributed among operations and backup sites. Backup facilities can be placed in service automatically in real-time without loss of data. Investment banks have traditionally kept their technology in-house. However, low trading volumes, increased regulations, and other customer demands has many companies looking to save money by outsourcing some of their IT functions.
Investment banking is largely a matter of developing relationships with potential buyers of new securities and with corporations or governments that want to issue new...