An investment bank is a type of bank that acts as an intermediary between investors and companiesgovernments and institutions seeking capital to grow or expand their business or functions.
An investment bank can be a stand-alone entity or a division within a large bank or financial institution. A small investment bank, or boutique, typically offers two areas of service: mergers and acquisitions, and advisory and underwriting. A full-service investment bank additionally offers sales and trading, equity research and asset management services.
The investment banking activities defined are:
- Mergers and acquisitions, or M&A. M&A is an advisory role serving buyers and sellers. Its functions include consolidating businesses or assets through specific categories of financial transactions such as mergers, acquisitions, takeover bids, consolidations, asset purchases and management acquisitions. .
- Subscription. Underwriting is the act of assuming the risk associated with a business, investment or loan in lieu of a premium. Underwriting, including capital raising, is a service that helps companies raise funds or go public through a initial public offering, or IPO. The raising of capital takes place within the primary market.
- Sales and trading. Sales and trading involves traders buying and selling securities either on behalf of the investment bank or for the bank’s clients. Sales and trading functions within the secondary securities market. The team members act as agents for its clients and can also negotiate the capital of the company.
- Equity research. Equity research is the study of a company and its industry to make a buy or sell recommendation on invest in his actions. The team helps clients make informed investment and trading decisions. The research may also apply to an acquirer of a potential acquisition transaction or to determine the price at which to bid for the securities of a target company.
- Asset Management. Asset management is the practice by which portfolio managers and financial advisors attempt to increase total wealth over time by acquiring, holding and trading investments that have the potential to increase in value. Clients range from institutional investors to high net worth individuals who have a wide range of investment styles.
It is important to understand the difference between a commercial bank and an investment bank. The most important distinctions are their functions and their target customers. Commercial banks receive deposits and make loans for individuals and businesses. Alternatively, investment banks deal in trading securities and obligations and work with institutional and government clients as well as high net worth individuals.
Here is a breakdown of the global market share by revenue of the top investment banks as of December 2021, according to Statistica:
- JPMorgan Chase & Co. (symbol: JPM) – 9.6%
- Goldman Sachs Group Inc. (GS) – 9%
- Morgan Stanley (MRS) – 6.7%
- Bank of America Corp. (BAC) – 6.4%
- Citigroup Inc. (VS) – 4.9%
- Barclays PLC (BCS) – 3.8%
- Credit Suisse Group Ltd (CS) – 3.6%
- Jefferies Financial Group Inc. (I F) – 2.7%
- Deutsche Bank AG (comics) – 2.5%
- UBS Group AG (UBS) – 1.9%