Investment Banking

Investment banks acts as intermediaries between an issuer of securities and the investing public, distributing an offering through their dealer networks or direct sales to clients. Services offered, in addition to underwriting, typically include asset securitization, structuring corporate mergers and acquisitions, and arranging private placements of debt or equity securities. When working with clients, an investment banker offers his or her expert advice and counseling on pricing securities to be offered for sale, filing the registration documents with government agencies, managing the sales distribution syndicate, and communicating periodically with the investor community.

Investment banks, in addition to the services mentioned above, have an array of investment products and services that they offer clients through private banking or wealth management divisions or through their broker-dealer networks. Clients may choose from a wide variety of investments, including mutual funds, separately managed accounts, private equity, and hedge funds.

Investment banks, too, see their fortunes rise and fall with the rhythm of the economy. An investment bank’s lifeline is its ability to gauge the market cycle months, if not years, in advance to keep its deal pipeline flowing. The largest banks have a competitive advantage because large transactions require the financial muscle that only a handful of deep-pocketed investment banks can offer.

In the largest investment banks, typically called the bulge bracket banks because they are active players in every part of a new securities offering, there are several distinct career fields: equity research, fixed-income research, sales and trading, capital markets (the classic mergers and acquisitions area), and asset management for retail (individual) investors and institutional clients (pension funds, governments, etc.). Boutique I-banks, smaller firms that specialize in one or more fields, will concentrate in two or more of these functional areas. Some of these positions offer plenty of mobility, most often from analyst positions to capital markets or asset management.

Careers in investment banking can be extremely lucrative. New graduates with MBAs can earn $100,000 to $300,000, and they also receive healthy bonuses. Managing directors earn minimum base salaries of $500,000 (but many earn millions of dollars a year) and annual bonuses of $250,000 to $500,000, according to WallStreetOasis.com, a financial industry career planning Web site. In recent years, banks have significantly reduced bonuses (especially) for lower-level workers due to declining revenue. But it’s important to keep the big picture in mind amidst talk of earnings declines. Wall Street investment banking professionals still earn roughly five times more, on average, than workers in other industries.

The U.S. investment banking industry includes about 4,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $105 billion in 2021, according to Dun & Bradstreet. Worldwide, investment banks generated $132 billion in revenue in 2021. The 50 largest firms generate more than 90 percent of the industry’s revenue, according to Hoover’s, a business research company. Major investment banks include Goldman Sachs, Lazard, BofA Securities, Morgan Stanley, and Jefferies.

The investment banking industry is facing increased disruption as its traditional profit centers are eroded by competition from financial technology (i.e., fintech) companies, which use technology to provide some investment banking services to customers; increasing regulations (in some countries); competition from dedicated investment management firms such as Vanguard; and other developments. “From initial public offerings, to mergers and acquisitions, to research and trading, investment banks are getting smaller, leaner, and scrambling to keep up with innovations,” according to Killing the I-Bank: The Disruption of Investment Banking, from CB Insights, a company that “analyzes data on private companies in emerging industries to provide predictive intelligence.”