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 Bank of America, Goldman Sachs, and Morgan Stanley (all based in the US), as well as Barclays (UK), BNP Paribas (France), Nomura (Japan), UBS Group and Credit Suisse (both based in Switzerland).
Total investment bank revenues at the 12 major US and European institutions in the sample increased 28% year over year to $194.2 billion in 2020, Coalition Greenwich's Investment Banking Index shows. Overall, the global investment banking industry has struggled in the aftermath of the financial crisis and ensuing regulatory changes that have made it harder to profit from their traditional lines of business.
The US investment banking industry includes about 4,000 establishments (single-location companies and units of multi-location companies) and annual revenue of about $105 billion.
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 and technological resources and global networks. Small investment banks can compete by participating in syndications and operating in regional markets or specialized industries. The US industry is concentrated: the eight largest firms generate more than 60% industry revenue.
The global financial crisis of 2008 dramatically altered the landscape of the investment banking industry as investment activity screeched to a halt and yields dwindled. Since the demise of firms such as Lehman Brothers and Bear Stearns and the late-2000s recession, investment banks have entered a new era in which the creation of innovative but risky financial instruments has taken a backseat to more conservative investment strategies, in part because of increased government oversight. More recently, technology has intervened to disrupt the investment banking sector on multiple fronts. Traditional firms are facing competition from financial technology (aka fintech) startups offering alternative financing instruments like initial coin offerings that bypass the capital-raising process formerly controlled by banks and venture capitalists. Wall Street is also facing increasing competition for top talent from technology firms, which may appeal more to younger workers.
Although US banking regulations that were put in place after the 2008 financial crisis are under review, firms for the past several years have been operating in an environment characterized by stricter capital, leverage, and liquidity requirements, and a renewed focus on core businesses. Restrictions on risky but potentially lucrative activities, such as proprietary trading, have put a squeeze on profits. As a result, many large investment banks are balancing cost-cutting measures with technology investments in order to build profitability. Smaller "boutique" investment banks are gaining favor in the today's altered landscape and participating in ever-larger deals.
Products, Operations & Technology
The primary revenue sources of the investment banking industry are from actively trading financial instruments, providing asset management services for
Sales & Marketing
Finance & Regulation
Regional & International Issues
Also includes the following chapters:
Quarterly Industry Update
Trends and Opportunities
Call Preparation Questions
Glossary of Acronyms