General Overview of Investment Banks
Investment banks are frequently discussed and anlyzed in the financial press, especially during the current credit and financial crunch. This article reviews the structure and normal functions of typical investment banks.
Primary Functions
Investment banks primarily have two functions. The first function is to raise and invest capital. The second is to advise clients on strategic actions, such as mergers and acquisitions. Investment banks primarily serve as intermediaries between companies that need capital and companies wanting to investment capital.
In addition, investment banks have been increasingly employing their own balance sheets to generate profits without directly serving clients through groups such as proprietary trading and internal alternative investment funds.
Typical Investment Bank Divisions
There are multiple division within most large bulge bracket investment banks. These divisions include investment banking, sales and trading, private wealth management, equity research, and more. Thus many investment banks provide more services than simply investment banking.
The investment banking division is generally divided into two groups, corporate finance and capital markets. The corporate finance group primarily attempts to win business from clients and execute strategic transactions. The capital markets group assists clients in raising money, generally through debt or equity markets. Capital markets groups are generally divided by the capital product, such as high yield debt.
Different Investment Bank Structures
The structure outlined above is typical of the large bulge bracket investment banks. Smaller middle market or boutique banks may lack part of this traditional structure, instead specializing in a specific area or a different target client.
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