Different Types of Investment Banks – What You Need To Know
Have you ever thought about all the different types of investment banks out there right now? Why is it crucial, in the world of corporate finance and business, to know what the top investment banks that you are able to deal with are? And, ultimately, what are their biggest benefits?
First of all, if you’re excited to deal with one investment bank, there are various types of investment banking services available across the globe. Investment bankers provide investors with management services, asset management, complex financial transactions, and services, including capital creation for corporations, organizations, and governments.
So, what is essential to understand about investment banking on capital markets, and so on? Let’s get to know more about these investment banks, shall we?
What are Investment Banks all about?
Investment banks are places where financial services are being produced for either corporate or institutional clients. These services include investing, raising capital, and ordering acquisitions and mergers.
As an activity, investment banking includes particular activities regarding financial services company or corporation that includes advisory-established financial transactions instead of:
- Governments
- Corporations
- Individuals.
Four banking divisions
There are four banking divisions as part of an investment bank’s front office:
- Investment Banking or Corporate Finance (IBD)
- Sales and Trading (S&T)
- Equity Research (ER)
- Asset Management (AM)
What are the main exercises practiced by these banks?
The main exercises being practiced by them are to underwrite debt financing and Equity securities issuance. That involves initial public offering (IPO) and advising mergers and acquisitions (M&As) for companies.
Those financial institutions also provide security sales, stock placement, and handling investing and trade brokering, especially for corporate clients and sovereign entities. They could be your planners, primary advisors, and managers regarding corporate restructuring, for instance, divestitures.
How does an Investment Bank work?
It’s crucial to understand that the advisory division of a particular bank is paid a certain wage for its services. The department that conducts trading operations obtains commissions depending on how well it performs in the market. Also, several financial organizations include a retail banking segment that generates income by providing loans to both individuals and companies.
Individuals working in finance can choose from various career paths. They can pursue a career such as financial advisor, trader, or salesperson. Even though these professions offer lucrative compensation, they usually require working long hours and dealing with a lot of stress.
What are the main sections of investment banks?
The section in these types of banks usually includes industry coverage and financial product groups. Ideally, industry coverage is established to separate groups in the bank, including expertise in the specific industry or market sector (technology or health care). The groups then develop client relationships with companies in different industries bringing financing services.
Their product group focuses on investment banking financial products, for instance, IPOs, M&As, and other financing types. There could also be separate products specializing in asset, leasing, leveraged, and public financing.
Three different categories of investment banking
Firms in this industry are to be distinguished into three categories – bulge bracket banks, boutique banks, and middle-market players. When it comes to boutique banks can be segmented into regional boutiques and high-end boutique banks.
Elite boutique banks somehow have similarities with bulge bracket banks than the regional boutiques. Investment bank classification is based mainly on size, but what we mean by the term size varies in the context and might refer to the size of the bank, the number of employees, or the average size of M&A deals.
Regional boutique
In terms of the firm’s size and typical deal size, the smallest banks are among the others. Regional boutiques often handle only a handful of up to a dozen employees. This type of investment bank doesn’t usually offer all the financial services that bulge bracket investment banks offer. It mainly specializes in a single area, for instance, hanging M&As in a specific market sector.
Elite boutique
Unlike regional boutique financial institutions, elite boutique investment banks are nearly similar to bulge bracket banks regarding the dollar value and the deals they manage (often over $1 billion). Its similarity with bulge bracket banks includes having a common size nationwide and in the international presence and operating dozens of offices within multiple countries.
But they often lack a global presence similar to major investment banks such as JP Morgan Chase & Company.
Middle-market
Middle-market investment banks occupy the middle ground between smaller regional banks and bulge bracket investment banks. This kind of financial institution often works on deals beginning around the regional level and going close to the bulge bracket level, which usually ranges from about $50 million to $500 million (or more).
Middle-market normally operates in the middle ground (geographical reach), with a substantially larger presence than regional boutiques, yet falling short on the multinational field of the bulge bracket banks.
What are Bulge bracket banks?
The major and international investment banking firms are easily recognizable names, including Goldman Sachs, Deutsche Bank, Morgan Stanley, and Bank of America. Bulge bracket investment banks are the largest regarding the number of offices and employees. Additionally, they handle the largest deals and clients who we could consider large corporations.
Bulge bracket banks usually handle multibillion-dollar M&A deals, yet they still depend on the overall state of the economy or of the particular client.
These firms usually handle deals priced in the low hundred million.
Conclusion
Investment banking is extremely popular in this field since it has many benefits to offer its clients. To excel in the field of investment banking, it is crucial to keep abreast of industry regulations and trends and cultivate robust relationships with clients and colleagues. It is equally essential to enhance skills to remain competitive and deliver quality service continually.
Excellent communication and negotiation skills are also critical, as investment banking professionals often work on high-profile deals with significant financial implications. Being able to communicate effectively and negotiate skillfully can make a significant difference in the success of such transactions.
Thus, continuous learning, networking, and skill-building are essential to achieving success in the competitive world of investment banking.
