Investment Bankers

The financier Jay Cooke founded the first investment bank in the United States in 1861. Jay Cooke & Company, which was located in Philadelphia, provided loans and sold bonds to help finance the Union war effort. The bank failed during the financial crisis of 1873.

Investment banks grew rapidly after the Civil War. They played a major role in the development of our nation’s railroad system and the development of heavy industry. From the early days of the IB industry through the mega-mergers in the corporate world today, investment bankers have played a central role in the American capitalist economy.

The investment banking industry is currently in a state of transition. “Large banks, hammered for their own failures and those of the government, are going through endless rounds of cost cuts and redundancies to pay for fines and ever more compliance,” according to The Economist. A growing number of companies—including Comcast Corp. and AbbVie Inc.—are no longer using the services of investment banks during the merger and acquisition process. Many banks are moving away from trading activities (instead focusing on expanding their wealth management divisions). And boutique firms such as Perella Weinberg Partners LLP and Moelis & Co. are gaining market-share as the larger “bulge bracket” banks restructure and reduce staff or departments. In 2016, the Wall Street Journal offered the following prediction about the future of the investment banking industry: “Trading will migrate to hedge funds. Jobs in the back office and stock-research departments will be done by machines. The heavy lifting of funding and capital allocation will shift from banks to giant asset managers, pension funds, and sovereign-wealth funds. Pressure on margins will persist, forcing investment banks to unbundle offerings and start charging for services like research and pricing data that they used to give away to win business. In short, investment banks will be smaller, more specialized, and home to technologists instead of traders. Instead of mastering the universe, they will seek to dominate smaller domains.”