Investment Banking Industry Overview

Excerpt from Investment Banking Report

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).

Competitive Landscape

Demand is driven by economic activity that results in company mergers, acquisitions, or public financing. The profitability of an investment bank depends on its ability to accurately assess both the value of a business transaction and the readiness of the market to buy the attendant debt or equity. Big firms have an advantage because large customer transactions require firms with substantial financial resources. Small investment banks can compete by participating in syndications and operating in regional markets or specialized industries. Investment banking is highly concentrated: the largest 50 firms generate more than 90 percent of industry revenue.

Products, Operations & Technology

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 industry revenue comes from brokerage and securities services; 30 percent from trading; and 25 percent from financial planning and asset management.