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Investment Banking - Overview, Guide, What You Need to Know

what is Investment Banking Overview
Published on Oct 03, 2022

The investment banking industry facilitates corporate fund-raising activities to serve various businesses and investors. You can utilize stocks and secure debt financing with the help of investment bankers. This post will describe everything you must know about the scope of investment banking and how it delivers valuable financial services. 

What Is Investment Banking? 

The meaning of investment banking is a unique category of bank facility where the value of transactions is many times greater. It is one definition of investment banking. Clients can use it for business deals involving mergers and acquisitions (M&A) or initial public offers (IPOs). 

Therefore, fund managers and corporations assign the function of an intermediate institution to the reputed investment banking services. Doing so assures a highly transparent and mutually beneficial deal lifecycle that satisfies all the parties involved in the deal.  

Why Use Investment Banking? 

While we have explained the meaning of investment banking (IB) concisely, it is reasonable to wonder whether using it is necessary and important for the efficient execution of M&A deals or fund-raiser underwritings. 

So, an introduction to the scale and significance of investment banks can help you realize why IB services are essential for high-value transactions.


Importance of Investment Banking 

The IB industry creates a reliable, fast, transparent ecosystem for investors, corporations, and fund managers. Therefore, multiple entities can succeed in deal execution without additional resources. IB is indeed crucial for protecting everyone’s interests, as highlighted below. 

  • Investor bankers have experience in handling large transactions by combining several strategies. Therefore, they save time by analyzing the financial models through standardized professional solutions. 

  • Also, all parties have a better chance of a balanced deal closure because the investment banking services facilitate the impartial or objective evaluation of buyer negotiation terms. 

  • Besides, investment banks must enforce a strong accountability culture to maintain and grow their brand. So, the clients can acquire the best deals and terms. 

  • You can stay relaxed so that no external party will access the confidential data involved in the deal negotiation, evaluation, and optimization. Investment banks are committed to keeping your organizational and stakeholder data secure. 

  • Strategic Benefits of Investment Banks 

    You might experience some operational and performance efficiencies since the investment banking services reduce the financial risk burden to you and your stakeholders. Moreover, it is one of the strategic benefits of allowing investment banks to guide your M&A deals and capital market management. 

    If an organization invests its resources in alternative solutions, it will be liable to stay relevant to the latest legal and ethical developments in investment banking regulations. Additionally, there is the risk of neglecting or delaying your core operations due to unsuccessful deal execution. 

    You can avoid these undesirable deal outcomes by employing expert investment bankers to execute the deals and fund-raising programs. 

    Also Read: PSD2 and MiFID II – Game Changers for the European Banking Sector 

    Example of Investment Banking Services 

    Strategists can leverage the unique business information services (BIS) available as a benefit of investment banking. It helps to reduce the overheads of financial modeling, regulatory compliance, and communication methods. So, the success rate of deal closing increases, favoring the timely progress of project activities. 

    For example, business leaders can improve the quality of their valuation data by assessing it through investment bank facilities. Some clients can use IB for bankruptcy, damage claims, or litigation assistance. 


    Corporate use cases of investment banking also address deal evaluation, company research, investment exit strategy, and buyer-company screening. 

    Different Types of Investment Banking 

    |1| Middle Market Investment Banking 

    If an investment bank serves clients in multiple states, it is a middle market IB that handles 50 million to 500 million USD. Mid-market investment banks are rarely multinational but are experts in one or two primary services. E.g., Stifel, Robert W. Baird & Co., etc. 

    |2| Bulge Bracket Investment Banking 

    This category of investment bank provides “full services” across all mergers, litigations, deal evaluations, and fund-development projects. Most of their clients belong to Fortune 500 corporations, the world’s wealthiest and most significant enterprises. 

    Their transactions often include billions of dollars, and no border limits their scale. i.e., these investment banks are virtually present in every recognized country. Think of Morgan Stanley or Goldman Sachs if you want to get an idea of the scale of bulge bracket investment banks. 

    |3| Regional Boutique Investment Banks 

    Sometimes, investment banks remain active in a defined geographic area; thus, their financial portfolio is never as extensive as the mid-market or bulge bracket IBs. Furthermore, they can focus their resources on a few service categories. The transactions might consist of 50 to 100 million, while the staff is often less than fifty. 

    |4| Elite Boutique Investment Banks 

    The other variations of investment banking services provide their services to all industries and narrower sectors. Still, one type of investment banking, an elite boutique, offers unique services exclusive to only one industry. 

    An elite boutique investment bank rivals the bulge bracket IBs in dollar valuation. Yet, its staffing and client acquisition philosophy stays concentrated on one industry. For example, Rothschild is an elite boutique IB facilitating investment banking services to the oil and gas industry. 

    Related: Top Trends that Will Shape Investment Banking in 2022 

    Clients in Investment Banking 

    Investment banks serve municipalities and government organizations to manage their large-value transactions in the public sector. Meanwhile, private sector players like renowned funds demand the services of investment banks to expand the wealth of their benefactors/supporters. 

    Some projects are joint efforts by public and private enterprises. Such a PPP (public-private partnership) finds the IB industry helpful when negotiating the terms of engagement. 

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    What Does an Investment Banker Do? 

    IB employees have a set of duties and responsibilities that vary across the investment banks. To know what the role of investment bankers encompasses, you must understand the following components of investment banking services. 

  • Investment bankers help organizations raise capital through debt or equity solutions via public or private transactions. 

  • They must understand mergers and acquisitions (M&A) deals and know how to handle financial planning analysis (FPA) projects. 

  • IB professionals also learn valuation standards to create reports for their employers’ clients. 

  • These individuals have acute expertise in financial modeling, feasibility studies, and investment research services. 

  • Investment bankers handle pitchbooks and guide all parties throughout the deal life cycle, including the investment exit strategy. 

  • Finally, investment bankers must survive and thrive in fast and stressful work schedules without letting exhaustion, emotion, or personal problems impact their output. 

    How to Get into Investment Banking? 

    You require relevant skills to build a career as an investment banker. Consider the following skillsets, roles, and job descriptions to understand the scope of investment banking jobs. 

  • Team spirit is essential to succeed in the investment bank and related departments. You cannot do everything, and it is okay to rely on others under some circumstances. 

  • Analytical skills allow an investment banker to formulate balanced deal insights and sustainable portfolio advice. You require these skills in the development of an investment banking strategy. 

  • Risk management means understanding the stakeholders’ risk exposure in M&A deals or capital market studies. 

  • Communication skills help you prevent misunderstanding and improve buyer negotiations while saving time for every involved party. 

  • Financial modeling requires a sound understanding of mathematical, accounting, and business administration principles. 

  • Legal awareness helps you notice critical regulatory changes, raising the compliance standards of your organization. 

  • Additionally, you must hold relevant academic qualifications and genuine workplace experience to get the position of an investment banker in a reputable IB division. A degree in finance, business administration, economics, or mathematics is the minimum requirement in most investment banks. 

    Related: Who Are Investment Bankers and What Do They Do? 

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    Advantages and Disadvantages of Investment Banking 

    If there is a profit, there will be some pain to accompany you if you want to acquire it. Investment banking exists to streamline your fund-raising or portfolio activities. However, if you do not practice due diligence when selecting investment banking services, you might unpleasantly discover the disadvantages of investment banking. 

    1| The Advantages of Investment Banking 

  • The scale of investment banking services is many times greater than what a regular corporate bank account can provide. 

  • Economic growth accelerates as more enterprises benefit from investment banks and hire more people. Job growth increases the purchasing power of the masses, promotes consumption, and accelerates the circulation of wealth. 

  • Established work models remove the guesswork from the deal lifecycle and refinancing strategy. 

  • Regulatory compliance increases since investment banks maintain the data on the latest rules and policies that govern company ownership, funding, and bankruptcy. You do not need to worry about authorities suddenly penalizing you for a business deal. 

  • Cross-border partnerships increase because businesses and investors can tap into foreign resources to acquire mutually beneficial financial outcomes. 

  • 2| Disadvantages of Investment Banking 

    High risks are inevitable in investment banking transactions, most of which are purely electronic fund transfers. Also, unprofessional investment banks can increase the risk exposure of businesses and investors. 

    Long-term investments are at the core of investment banking so that stable funds become a reality. However, this category of financial commitment also locks your resources away. 

    Competition authorities pay extra attention to mergers and acquisitions. You are still liable for the deal dynamics even if you use investment banking solutions. 

    Market fluctuations might impact funding projects and deal negotiations. Therefore, what seems a fair and balanced deal today, can become a problem later. You require thorough analytical insights and excellent market research to manage this issue. 

    Also Read: Global Economic Trends for 2022 and Beyond 

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    Investment Banking Companies 

    1| Barclays 

    Barclays delivers its investment banking operations through the division named “Barclays Capital.” It also enables commercial banking facilities like JP Morgan Chase. 

    2| Goldman Sachs 

    Goldman Sachs originated in the 19th century and became today’s most recognized investment bank. It can facilitate the core investment banking services while leading the IB sectors in revenue and business standardization. 

    3| Wells Fargo 

    Wells Fargo is well-known in the United States of America, and it serves different client categories alongside its institutional investment banking services. Wealth/retirement management and consumer brokerage are some available facilities at Wells Fargo. 

    4| Credit Suisse 

    This bank, Credit Suisse, operates in more than fifty countries, though its origin lies in Zurich, Switzerland. Leaders secure debt/equity underwriting, investment research, and core investment banking assistance. 

    5| Bank of America Merrill Lynch 

    This bank goes beyond the regular investment banking facilities, imparting mortgage facilities and leading the brokerage firms. It has secured several awards and titles in banking, financial services, and insurance (BFSI)

    6| Morgan Stanley 

    It has its office in New York, but its operations extend to Tokyo, Mumbai, Hong Kong, and other major cities worldwide. Businesses know how Morgan Stanley supports them via wealth management and institutional securities. Also, it features settlement and custodian roles.  

    7| Citigroup/Citibank 

    Citigroup (or Citibank) is the oldest name in investment banking, providing excellent support in capital market origination, treasury, and securities. It operates several business divisions like Barclays to realize operational efficiencies. 

    8| JP Morgan Chase 

    It has provided its IB solutions to its institutional clients across all continents. It should be no surprise when its market share is more than 8% consistently. You will find that JP Morgan Chase also provides merchant banking and treasury services. 

    9| UBS Group 

    This financial entity is a Swiss bank streamlining its operations to guide high-worth individuals and entities via IB solutions. It allows you to optimize your asset/portfolio management and improve corporate financing programs. 

    10| Deutsche Bank 

    It would be the greatest of all the IBs in Europe if we were to use total assets for benchmarks. Deutsche bank helps organizations through investment banking, brokerage, and cross-border card services, and its branches serve more than seventy nations and provide insurance plans. 


    Corporate Banking vs. Investment Banking 

    Corporate banking and investment banking differ in how they serve their clients. 

  • Corporate banking facilitates financial services for the long term, while investment banking focuses on a specific deal or transaction. 

  • Primarily, companies and private sector players benefit from corporate banking. However, investment banks also assist public sector institutions and government projects. 

  • Corporate banking handles loans, credit, and debt for their clients. Investment bankers manage equity and capital market plans to help institutions. 

  • Risk management is more prominent in corporate banking. Mergers and acquisitions are the focal points in the investment banking industry. 

  • Corporate banks are more active on the Forex (foreign exchange) side. Meanwhile, investment banks concern themselves with sales and trading facilities. 

  • Challenges in Investment Banking 

    Every industry suffers losses when external or internal risks become an intense reality. Likewise, investment banking services must handle the following challenges to remain competitive and protect stakeholder interests. 

    |1| Over-regulation of the Investment Industry 

    Several financial and asset management legislations impact the stability of investment banks. Some rules, like the Volcker rule, restrict proprietary trading. 

    Specific laws or regulations do not provide sufficient time to implement new compliance requirements. So, central regulators can penalize investment banks without considering the reasonable delays in business model transition. 

    |2| Investment Banks Cannot Change Interest Rates 

    Investment banks do not have the freedom to manage their pricing and commissioning strategies like independent private businesses. Even the elite boutique investment banks must remain aware of regulatory oversight and compete accordingly. 

    Also, pricing/fair-trade guidelines are not uniform in all countries. What seems to be a legitimate business merger in one country could attract the competition committee’s attention in another region. 

    |3| Low-Interest Rates 

    While the investment banking service assists the stakeholders in raising funds to succeed in debt management, it cannot optimize the cash flows if the interest rates are unfavorable. 

    Low-interest rates affect stocks, bonds, and company performance. These dynamics can make buyer negotiations and balanced deal evaluation more complicated. 


    |4| Investment Banks in an Economic Slowdown 

    An economic slowdown influences every unit of the economy, and investment bankers are still human. So, the IBs suffer like any other commercial bank when the country undergoes an economic slowdown. 

    Moreover, this challenge becomes ten times more painful in a recession because recovering from it is often more demanding than in the case of a slowdown reversal. 

    |5| Public Institutional Borrowing  

    When inefficient enterprises fail to repay their capital and interests, all banks face the trouble of NPAs or non-performing assets. If NPAs cross a regulatory threshold, the bank might lose its remaining liberties, and regulators might replace or control its management. 

    All these challenges can render investment banks ineffective and limit how they conduct their business. If investment banks stop functioning correctly, you observe disputes concerning mergers and funding arise, leading to other economic woes. 


    Investment banking delivers successful deals in mergers, acquisitions, capital markets, and corporate negotiations. Some investment banks extend or complement their core operations via commercial banking integrations. 

    The transactions carry significant risk, and their complexity requires professional assistance. Otherwise, the stakeholder interests might be in danger while the unlimited potential of investment deals remains unrealized. 

    With a presence in New York, San Francisco, Austin, Seattle, Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG Analytics, a pioneer in Research and Analytics, offers tailor-made services to enterprises worldwide.   

    SG Analytics, a leader in investment banking services, helps institutional clients through effective deal advisory and extensive valuation support across all industries. Contact us today if you intend to integrate advanced analytical facilities and balanced deal sourcing to improve your portfolios with strategic trade decisions.