Investment Banking

The U.S. investment banking industry includes 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. Investment banking is highly concentrated: the cost of capital tilts the competitive playing field in favor of the largest banks. The 50 largest firms generate more than 90 percent of the industry’s revenue, according to Hoover’s, a business research company. Investment banking is capital intensive and labor-intensive industry, yet it delivers a very high-value product.

In the securities industry, the largest number of firms can be found in New York City, with smaller pockets in financial centers like Atlanta, San Francisco, Chicago, Los Angeles, Charlotte, Dallas, and Seattle. In addition, some banks are moving some of their operations to cities where the cost of living is much lower than it is in New York City, Los Angeles, and Chicago. For example, Goldman Sachs has developed a strong presence in Salt Lake City, Utah, in recent years. Overall, the securities industry employs slightly more than 1 million, according to the U.S. Department of Labor. About 16 percent of the industry’s employees work in New York City. The next-largest numbers of workers are employed in Los Angeles/Long Beach/Anaheim, California (5 percent) and Chicago/Naperville/Elgin, Illinois (5 percent). Many of the largest U.S. companies also have offices in foreign countries.

The Players

The big firms—the so-called “bulge bracket” companies—have a substantial advantage over the competition because they have the financial resources and economies of scale to finance almost any size deal. These are known informally as bulge bracket banks because the largest banks can take the largest share of a stock offering, buyout deal, or any other type of financing. The biggest investment banks include JPMorgan Chase, Goldman Sachs, BofA Securities, Morgan Stanley, Citigroup, Barclays, Deutsche Bank, UBS, among others. Of course, the complete list of I-banks is substantially more extensive, but the firms listed above compete for the biggest deals both in the U.S. and worldwide. You have probably heard of many of these firms, and perhaps have a brokerage account with the commercial banking arm of one of them. While the brokerage presence of these firms covers every major city in the U.S., the headquarters of almost every one of these firms is in New York City, the epicenter of the I-banking universe. It is important to realize that investment banking and brokerage go hand-in-hand, but that brokers are one small cog in the investment banking wheel. Smaller investment banks compete by participating in syndications, operating in regional markets, or specializing in niche markets.

This raises a very important distinction in the world of investment banking. A number of firms have remained “pure” investment banks (Goldman Sachs, Morgan Stanley), while others have commercial banking arms (JPMorgan, Citigroup, Bank of America). Until recently, these two were completely separate entities; while the investment bank would provide M&A and other strategic financial advice to companies, the commercial bank would lend capital (often times the advice requires capital). However, as firms evolved, many found they could become “one-stop shopping” for M&A advice, bond offerings, etc. for clients. These global financial institutions are able to tap the vast network of deep relationships they have with small clients and turn those into large transactions as the clients become larger. Many of these investment banks with commercial arms are the biggest dealmakers on Wall Street.

According to Statista.com, the leading investment banks (by global revenue) worldwide, as of November 2022, were:

1. JPMorgan Chase: $5.37 billion
2. Goldman Sachs: $5.24 billion
3. Bank of America Securities: $3.70 billion
4. Morgan Stanley: $3.60 billion
5. Citi: $2.79 billion
6. Barclays: $2.13 billion
7. Credit Suisse: $1.70 billion
8. Jeffries: $1.52 billion
9. Deutsche Bank: $1.29 billion
10. RBC Capital Markets: $1.23 billion

The Forbes Global 2000 is an annual ranking of the top 2,000 public companies in the world in a range of categories. In total, there were 292 banks on the 2022 Global 2000 list, up from 289 the previous year. Forbes ranks the companies using a combination of four metrics: sales, profit, assets, and market value. In 2022, the top U.S.-headquartered companies were JPMorgan Chase (ranked #4), Bank of America (#9), Wells Fargo (#18), Citigroup (#27), Morgan StanleyMS (#36), and Goldman Sachs (#37). According to The Banker’s Top 1000 World Banks Ranking for 2022, total assets for global banks reached $154 trillion, up from $124 trillion in 2018.

There are several key organizations in the investment banking industry.

• The American Bankers Association describes itself as the “united voice of America’s banks." Its members employ 2 million women and men, hold $23.8 trillion in assets, safeguard $17.2 trillion in deposits, and extend $11.2 trillion in loans. It provides extensive continuing-education programs, publishes the ABA Banking Journal, and offers six professional certification programs in the areas of bank marketing, wealth management and trust, compliance and risk management, and retirement services.
• The CFA Institute offers certification and continuing-education opportunities. It has more than 190,000 members in 160 markets around the globe.
• The International Association for Quantitative Finance offers membership for both college students and professionals. Its Web site contains useful education and job-search resources. The association offers a variety of resources for students, including an overview of financial engineering, a list of colleges and universities that offer training in the field, and interview and resume tips.
• The Investment Company Institute is a “leading global association of regulated funds, including mutual funds, exchange-traded funds, closed-end funds, and unit investment trusts in the United States and similar funds offered to investors in jurisdictions worldwide.” Its members manage total assets of $29.7 trillion in the United States, serve more than 100 million investors, and manage an additional $8.1 trillion in assets outside the United States. The institute offers continuing-education opportunities and publishes the Investment Company Fact Book.
• The National Futures Association is the self-regulatory organization for the U.S. derivatives industry, including retail off-exchange foreign currencies, on-exchange traded futures, and OTC derivatives (swaps). The association offers year-round paid internships in its Futures Compliance, Swaps Compliance, and Market Regulation departments.
• The Securities Industry and Financial Markets Association is a trade organization for broker-dealers, banks, and asset managers. It offers the Securities Industry Institute, an executive development program for securities industry professionals that is held at The Wharton School of the University of Pennsylvania.