Difference between revisions of "Investment bank"
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| − | An '''investment bank''' is a complex financial institution whose main purpose is to raise money by issuing and selling securities in the [[w:primary market|primary market]]. This article provides an overview of such institutions. For the investment banking career path followed by many Columbia students and alumni, see the article about "investment banking". | + | {{wp-also}} |
| + | |||
| + | An '''investment bank''' is a complex financial institution whose main purpose is to raise money by issuing and selling securities in the [[w:primary market|primary market]]. This article provides an overview of such institutions. For the investment banking career path followed by many Columbia students and alumni, see the article about "[[investment banking]]". | ||
== List of investment banks == | == List of investment banks == | ||
| − | === Bulge | + | === Bulge brackets === |
| − | The very largest investment banks are called "bulge bracket" firms. This group indisputably includes Goldman Sachs | + | The very largest investment banks are called "bulge bracket" firms. This group indisputably includes: |
| + | |||
| + | * Goldman Sachs & Co. | ||
| + | * J.P. Morgan (which now incorporates the remains of Bear Stearns) | ||
| + | * Bank of America Merrill Lynch | ||
| + | * Morgan Stanley | ||
| + | |||
| + | Depending on whom you ask, the group also includes: | ||
| + | |||
| + | * Barclays Capital (which now incorporates the North American assets of [[w:Lehman Brothers|Lehman Brothers]]) | ||
| + | * Citicorp | ||
| + | * Credit Suisse | ||
| + | * Deutsche Bank | ||
| + | * UBS | ||
| + | |||
| + | The bulge bracket firms are often so large that they are also financial conglomerates. | ||
| + | |||
| + | === Other investment banks === | ||
| + | Beyond the "bulge bracket" firms are a wide range of other investment banks. Several compete directly with the bulge brackets, but are not classified as one because they only compete in particular areas. This group broadly includes: | ||
| + | |||
| + | {{col-begin}} | ||
| + | {{col-3}} | ||
| + | * Bain Capital | ||
| + | * Blackstone | ||
| + | * Calyon | ||
| + | * Dresdner Kleinwort | ||
| + | * Evercore Partners | ||
| + | {{col-3}} | ||
| + | * Gleacher Partners | ||
| + | * Greenhill | ||
| + | * Houlihan Lokey Howard Zukin | ||
| + | * ING, Jefferies | ||
| + | * Lazard | ||
| + | {{col-3}} | ||
| + | * RBC Capital Markets | ||
| + | * Rothschild | ||
| + | * TD Securities | ||
| + | * Wachovia | ||
| + | {{col-end}} | ||
| + | |||
| + | Some of these banks are called "mid-market" firms and others are called "boutiques". However, such labels are often misleading. For example, some people call Lazard and Rothschild "boutiques", even though last year Lazard and Rothschild each completed more worldwide M&A than, for example, Bank of America, which is sometimes considered a bulge bracket bank. | ||
=== Financial conglomerates === | === Financial conglomerates === | ||
| − | Firms that combine large commercial banking and investment banking operations are known as financial conglomerates. These banks include | + | Firms that combine large commercial/retail banking and investment banking operations are known as financial conglomerates. These banks include: |
| − | + | {{col-begin}} | |
| − | + | {{col-3}} | |
| + | * Bank of America | ||
| + | * BNP Paribas | ||
| + | * Barclays | ||
| + | * Citi | ||
| + | * Credit Suisse | ||
| + | {{col-3}} | ||
| + | * Deutsche Bank | ||
| + | * HSBC | ||
| + | * JPMorgan Chase | ||
| + | * Nomura Securities | ||
| + | * Royal Bank of Scotland | ||
| + | {{col-3}} | ||
| + | * Grupo Santander | ||
| + | * Société Générale | ||
| + | * UBS | ||
| + | * Wachovia | ||
| + | {{col-end}} | ||
=== Former investment banks === | === Former investment banks === | ||
| − | Many famous investment banks have been bought over the years, often by a bank on the other side of the Atlantic looking to get a foothold in a new market. (See the [[w:Big Bang (financial markets)|Big Bang]] and the [[w:Wimbledon Effect|Wimbledon Effect]].) Former investment banks you've probably heard of include Barings, DLJ, Drexel Burnham Lambert, First Boston, Kidder Peabody, S. G. Warburg, Salomon Brothers, and Wasserstein Perella. | + | Many famous investment banks have been bought over the years, often by a bank on the other side of the Atlantic looking to get a foothold in a new market. (See the [[w:Big Bang (financial markets)|Big Bang]] and the [[w:Wimbledon Effect|Wimbledon Effect]].) Former investment banks you've probably heard of include Barings (bought by ING), DLJ (bought by Credit Suisse), Drexel Burnham Lambert (became bankrupt, re-emerged as New Street Capital), First Boston (bought by Credit Suisse), Kidder Peabody (now part of UBS), S. G. Warburg (now part of UBS), Salomon Brothers (bought by Citi), and Wasserstein Perella (bought by Dresdner, now known as Dresdner Kleinwort). |
| + | |||
| + | === Other competitors === | ||
| + | In some areas, investment banks compete with management consultants like McKinsey, Bain, and Boston Consulting Group. And they may also compete at times with accountancy firms like Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. | ||
== Structure == | == Structure == | ||
| − | Investment banks are typically split into several divisions, | + | Investment banks are typically split into several divisions, which are either "front office" or "middle/back office". The bulge bracket firms and financial conglomerates each have all of the divisions listed below, even if they sometimes use different names. The other investment banks may only have particular front office divisions, such as only an investment banking division (as well as certain middle and back office divisions). Front office divisions are essentially the most exciting in which to work, and come with the best compensation and prospects. Middle/back office divisions are sometimes seen as low-risk and boring, but some people try to start off there hoping to eventually switch into a front office division. For example, [[wp:Jérôme Kerviel|Jérôme Kerviel]] started off in risk management at Société Générale before becoming a trader! |
| − | |||
| − | |||
| − | ==== | + | == Front office divisions == |
| − | |||
| − | === | + | === Investment banking === |
| − | + | Investment banking is the traditional business of investment banks. Many salespeople, traders, asset managers, private bankers, and other employees of investment banks call themselves investment bankers. However, investment banking is strictly a particular type of business, undertaken by a particular division, Investment Banking. This division is variously known as the Investment Banking Division (IBD), Corporate Finance ("corpfin"), or Mergers & Acquisitions (M&A). Investment bankers advise companies, governments, and other institutions, on any deal they want to perform. Deals are mostly mergers or acquisitions, but can also be privatizations, nationalizations, etc. In a deal, each party will use the services of one or more investment banks. For example, in an acquisition, the acquiring company will use one or more investment banks, and the target company will recruit one or more investment banks. The bankers to the acquiring party will pitch acquisition ideas, calculate how much to pay for the target, prepare documents for the deal, raise the necessary funds, and conduct due diligence. The bankers to the target company will calculate how much money the target should hold out for, coordinate bids, and prepare documents on its side of the deal. Roles differ slightly in mergers, privatizations, nationalizations, etc. | |
| − | === | + | === Capital markets === |
| − | The | + | The capital markets division makes money by trading on the financial markets, which also conveniently creates the markets themselves ("[[w:market making|market making]]"). It is also sometimes called sales & trading or financial markets. Capital markets includes groups known as Equity Capital Markets (ECM), which raises equity, and Debt Capital Markets (DCM), which raises debt. Four types of people work in capital markets: |
# Salespeople call institutional and private investors to suggest trading ideas, take orders, and communicate these orders to the traders. | # Salespeople call institutional and private investors to suggest trading ideas, take orders, and communicate these orders to the traders. | ||
# Traders structure, price, and execute these orders; they are the people who actually buy and sell the financial products. | # Traders structure, price, and execute these orders; they are the people who actually buy and sell the financial products. | ||
# Structuring specialists will help if the trades are particularly complex, often because they involve derivatives. | # Structuring specialists will help if the trades are particularly complex, often because they involve derivatives. | ||
| − | # Researchers review companies, write reports about them, and usually attach | + | # Researchers review companies, write "broker reports" about them, and usually attach an essentially meaningless "buy", "hold" or "sell" rating to their report. |
| + | |||
| + | === Asset management === | ||
| + | Asset management is the professional management of securities and other assets (real estate, etc.) on behalf of investors. Investors may be institutions (insurance companies, pension funds, corporations, etc.), or private investors (individuals or groups of individuals, such as mutual funds). The Asset Management division is sometimes called Investment Management. | ||
| − | === | + | === Non-investment banking divisions === |
| − | + | The following types of banking divisions are sometimes ''wrongly'' thought to be investment banking divisions: | |
| + | * Private wealth management (a combination of private banking, estate planning, asset management, etc., for high net worth individuals) | ||
| + | * Private banking, including offshore banking (retail banking for high earners) | ||
| + | * Retail banking (checking, savings, loans, mortgages, credit cards, etc.) | ||
| + | * Commercial banking (bank accounts and loans for businesses rather than individuals) | ||
| − | + | == Middle and back office divisions == | |
| − | + | === Risk management === | |
Risk management involves limiting the investment bank's risk, mainly from the activities of the Sales & Trading division. For example, people in the risk management division: | Risk management involves limiting the investment bank's risk, mainly from the activities of the Sales & Trading division. For example, people in the risk management division: | ||
* Analyze the risk taken on by traders, and limit the amount of capital they can play with, in order to limit the potential damage from bad trades. | * Analyze the risk taken on by traders, and limit the amount of capital they can play with, in order to limit the potential damage from bad trades. | ||
| Line 45: | Line 111: | ||
* Attempt to limit "operational risk", the risk of errors. | * Attempt to limit "operational risk", the risk of errors. | ||
| − | === | + | === Human resources === |
| − | + | === Operations === | |
Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. | Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. | ||
| − | + | === Technology === | |
Technology or IT involves creating and maintaining in-house software, as well as implementing commercial software and hardware solutions. Technology divisions are rising in importance with the continuing development of electronic trading platforms. | Technology or IT involves creating and maintaining in-house software, as well as implementing commercial software and hardware solutions. Technology divisions are rising in importance with the continuing development of electronic trading platforms. | ||
| − | == | + | == See also == |
| − | + | * [[Investment banking]] - article about investment banking as a career | |
| − | |||
| − | * Investment banking | ||
| − | |||
| − | |||
[[Category:Jobs]] | [[Category:Jobs]] | ||
Latest revision as of 23:46, 18 January 2011
An investment bank is a complex financial institution whose main purpose is to raise money by issuing and selling securities in the primary market. This article provides an overview of such institutions. For the investment banking career path followed by many Columbia students and alumni, see the article about "investment banking".
Contents
List of investment banks
Bulge brackets
The very largest investment banks are called "bulge bracket" firms. This group indisputably includes:
- Goldman Sachs & Co.
- J.P. Morgan (which now incorporates the remains of Bear Stearns)
- Bank of America Merrill Lynch
- Morgan Stanley
Depending on whom you ask, the group also includes:
- Barclays Capital (which now incorporates the North American assets of Lehman Brothers)
- Citicorp
- Credit Suisse
- Deutsche Bank
- UBS
The bulge bracket firms are often so large that they are also financial conglomerates.
Other investment banks
Beyond the "bulge bracket" firms are a wide range of other investment banks. Several compete directly with the bulge brackets, but are not classified as one because they only compete in particular areas. This group broadly includes:
|
|
|
Some of these banks are called "mid-market" firms and others are called "boutiques". However, such labels are often misleading. For example, some people call Lazard and Rothschild "boutiques", even though last year Lazard and Rothschild each completed more worldwide M&A than, for example, Bank of America, which is sometimes considered a bulge bracket bank.
Financial conglomerates
Firms that combine large commercial/retail banking and investment banking operations are known as financial conglomerates. These banks include:
|
|
|
Former investment banks
Many famous investment banks have been bought over the years, often by a bank on the other side of the Atlantic looking to get a foothold in a new market. (See the Big Bang and the Wimbledon Effect.) Former investment banks you've probably heard of include Barings (bought by ING), DLJ (bought by Credit Suisse), Drexel Burnham Lambert (became bankrupt, re-emerged as New Street Capital), First Boston (bought by Credit Suisse), Kidder Peabody (now part of UBS), S. G. Warburg (now part of UBS), Salomon Brothers (bought by Citi), and Wasserstein Perella (bought by Dresdner, now known as Dresdner Kleinwort).
Other competitors
In some areas, investment banks compete with management consultants like McKinsey, Bain, and Boston Consulting Group. And they may also compete at times with accountancy firms like Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers.
Structure
Investment banks are typically split into several divisions, which are either "front office" or "middle/back office". The bulge bracket firms and financial conglomerates each have all of the divisions listed below, even if they sometimes use different names. The other investment banks may only have particular front office divisions, such as only an investment banking division (as well as certain middle and back office divisions). Front office divisions are essentially the most exciting in which to work, and come with the best compensation and prospects. Middle/back office divisions are sometimes seen as low-risk and boring, but some people try to start off there hoping to eventually switch into a front office division. For example, Jérôme Kerviel started off in risk management at Société Générale before becoming a trader!
Front office divisions
Investment banking
Investment banking is the traditional business of investment banks. Many salespeople, traders, asset managers, private bankers, and other employees of investment banks call themselves investment bankers. However, investment banking is strictly a particular type of business, undertaken by a particular division, Investment Banking. This division is variously known as the Investment Banking Division (IBD), Corporate Finance ("corpfin"), or Mergers & Acquisitions (M&A). Investment bankers advise companies, governments, and other institutions, on any deal they want to perform. Deals are mostly mergers or acquisitions, but can also be privatizations, nationalizations, etc. In a deal, each party will use the services of one or more investment banks. For example, in an acquisition, the acquiring company will use one or more investment banks, and the target company will recruit one or more investment banks. The bankers to the acquiring party will pitch acquisition ideas, calculate how much to pay for the target, prepare documents for the deal, raise the necessary funds, and conduct due diligence. The bankers to the target company will calculate how much money the target should hold out for, coordinate bids, and prepare documents on its side of the deal. Roles differ slightly in mergers, privatizations, nationalizations, etc.
Capital markets
The capital markets division makes money by trading on the financial markets, which also conveniently creates the markets themselves ("market making"). It is also sometimes called sales & trading or financial markets. Capital markets includes groups known as Equity Capital Markets (ECM), which raises equity, and Debt Capital Markets (DCM), which raises debt. Four types of people work in capital markets:
- Salespeople call institutional and private investors to suggest trading ideas, take orders, and communicate these orders to the traders.
- Traders structure, price, and execute these orders; they are the people who actually buy and sell the financial products.
- Structuring specialists will help if the trades are particularly complex, often because they involve derivatives.
- Researchers review companies, write "broker reports" about them, and usually attach an essentially meaningless "buy", "hold" or "sell" rating to their report.
Asset management
Asset management is the professional management of securities and other assets (real estate, etc.) on behalf of investors. Investors may be institutions (insurance companies, pension funds, corporations, etc.), or private investors (individuals or groups of individuals, such as mutual funds). The Asset Management division is sometimes called Investment Management.
Non-investment banking divisions
The following types of banking divisions are sometimes wrongly thought to be investment banking divisions:
- Private wealth management (a combination of private banking, estate planning, asset management, etc., for high net worth individuals)
- Private banking, including offshore banking (retail banking for high earners)
- Retail banking (checking, savings, loans, mortgages, credit cards, etc.)
- Commercial banking (bank accounts and loans for businesses rather than individuals)
Middle and back office divisions
Risk management
Risk management involves limiting the investment bank's risk, mainly from the activities of the Sales & Trading division. For example, people in the risk management division:
- Analyze the risk taken on by traders, and limit the amount of capital they can play with, in order to limit the potential damage from bad trades.
- Attempt to limit "economic risks".
- Attempt to limit "operational risk", the risk of errors.
Human resources
Operations
Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers.
Technology
Technology or IT involves creating and maintaining in-house software, as well as implementing commercial software and hardware solutions. Technology divisions are rising in importance with the continuing development of electronic trading platforms.
See also
- Investment banking - article about investment banking as a career
