Investment Banks

The banking sector, like most sectors, started small. It is a sector as old as time, with the initial purpose of providing a secure, physical place to store one’s cash. In time the bank could afford to lend out money deposited by clients based on behavioral observations (how frequently folks withdrew their money, how much they left in the bank, etc). Based on these calculations, banks could take risks with loans (utilizing other people’s money), charging interest in order to make money on their end, and the rest is history. 

Investment banks emerged later and are essentially financial services companies that work with companies. They might help to raise financial capital (via underwriting) or aid companies that findthemselves desiring or engaging in mergers and acquisitions. Many investment banks today have multiple divisions, but the classics are prime brokerage, asset management and investment research. 

In the U.S., investment banks cannot take on deposits. The U.S. has sought to maintain a separation between commercial banks and theirsister organization, but investment banks do engage in what is called the “sell side” and the “buy side.” The former refers to trading securities for cash and the latter is giving out advice to client institutions that purchase investment services. On the buy side the principal clients are hedge funds, mutual funds, life insurance companies and private equity funds. 

Ranking investment banks can be tricky. The most common variablemeasures are revenue, global service reach, employees and income after taxes. One of the oldest in the game, Goldman Sachs offers a variety of services housed within one of four divisions – investment management, investment banking, investing and lending, and institutional client services. For 2017 Goldman Sachs reported $32.07 billion in revenue with the investment banking division leading the way. JP Morgan Chase is another high flyer, counting on 260,000 plus employees around the globe. As opposed to Goldman Sachs, JP Morgan Chase also has consumer and community banking which added considerably to their $99 billion in revenue in 2017. 

Barclays is a U.K. based investment bank, which despite having to lay off thousands of employees in 2013 has bounced back to maintain its Top 10 status. Bank of America Corporation operates in roughly 40 countries worldwide and offers mortgage, trading, credit card services and investment banking. Lastly, Morgan Stanley was founded in 1935 and reported $37.9 billion in revenue in 2017. They specialize in mergers and acquisitions and employ 55,794 employees.