What Are The Different Types Of Investment Banking?

Ever wonder how giant corporations raise billions for expansion, or how complex mergers and acquisitions get behind closed doors? Welcome to the world of investment banking, the powerhouse that keeps the wheels of global financial growth churning. Be it for building a skyscraper, merging with competitors, or just building wealth, investment banks are invisible weapons that companies use. Now, let’s enter this interesting territory and know what investment banking is and how various kinds of investment banks shape economies across the world.

What is Investment Banking?

What is investment banking? Businesses, governments, and institutions use it to raise capital, manage investments, and conduct complicated transactions. From underwriting initial public offerings to billion-dollar mergers and acquisitions, investment banks act as an intermediary between companies and financial markets. They provide professional advice and services that drive financial success. 

Types of Investment Banking 

Investment banking is a broad industry that may be divided into various types based on the services provided and the size of the institutions involved. Here are the major ones by service:

Underwriting Services: Investment banks assist corporations with raising funds by underwriting public offerings, such as IPOs, or through the issuance of debt securities. They evaluate market conditions, structure deals, and at times invest their own capital to support their clients. 

Transaction Advisory: This is one of the core services whereby banks advise clients on mergers, acquisitions, and restructuring exercises. The bank determines the feasibility of the deal; assists in negotiations and advises on how to achieve optimum value for either party.

Sales & Trading: Investment banking involves the placements of shares, trading, and brokerage for both corporates and high-net-worth individuals. They offer their clients an avenue to invest in equities, debt, commodities, or derivatives and earn a commission based on their expertise. 

Research & Analysis: Most investment banks have research divisions charged with analysing markets, industries, and financial products; this aids the core activities of the bank and provides significant insight to clients.

Asset Management: With most investment banks, the aim will be to manage the assets and portfolios of individuals, corporations, or institutional investors to attain long-term growth and profitability.

Types of Investment Banking by Size

Investment banks can also be categorized into size, reach, and the type of client base. The following are the types of investment banks by size:

Bulge Bracket Banks

These are the largest and most internationally known investment banks that handle the largest and most complicated financial transactions. Bulge bracket banks deal with Fortune 500 companies, governments, and large institutions around the globe. They have immense resources, a workforce of thousands, and a presence in every corner of the globe.

Services: Bulge bracket banks provide the full gamut of services, including underwriting, M&A, sales and trading, asset management, and research.

Deal Size: These banks undertake multibillion-dollar transactions, making them the go-to choice for large-scale financial activities.

Middle-Market Banks

Middle-market banks are those that deal with mid-sized companies. They handle deals that are much smaller in comparison to what a bulge bracket bank would do, but larger compared to boutique banks. They engage at both national and international levels, offering full service but with more of a regional concentration.

Services: The middle-market banks provide similar services to the bulge bracket but focus on capital raising, M&A advisory, and restructuring. They may be specialized in a specific industry or sector, too, but they offer a wider range of services compared to boutique banks.

Deal Size: A typical range these banks handle is from $50 million up to $500 million.

Boutique Banks

These would be smaller-scale banks, mainly focusing on specialized services or industries. This would be the place where smaller businesses or niche markets could exist where personal, high-touch services can be accorded. A boutique bank can also fall further into two subcategories: 

Regional Boutique Banks: These banks restrict their areas of operation to a particular region and more often than not deal in smaller-sized transactions, perhaps between local businesses or governments.

• Services: They usually focus on either M&A advisory, financings, or an industry such as healthcare or technology.
• Deal Size: These are usually less than $50 million.

Elite Boutique Banks: These are names of boutique banks that work internationally on named deals many times the same size as bulge bracket banks.

• Services: they provide mergers and acquisitions, restructuring, and asset management but do not provide all services like bulge bracket banks, instead excel within their niche. 
• Deal Size: They deal with more than $1 billion. 

Careers in Investment Banking 

Investment banking encompasses a variety of functions that require an enormous set of skills ranging from financial analysis to advisory services for clients. Listed below are some of the major investment banking jobs:

Analyst

Description: The entry-level involves financial modelling, presentation preparation, and market research.

Skills: Strong analytical ability, skill in financial modelling, and expertise in Excel and PowerPoint.

Associate

Description: Works closely with analysts and senior bankers to execute the deal, and maintain client relationships, and internal coordination between teams.

Skills required: Project management, good communication skills, deal execution knowledge.

Trader

Description: Engages in the purchase and sale of financial instruments such as stocks, bonds, commodities, or even derivatives.

Skills: Capable of making speedy decisions, risk management, and profound knowledge about financial markets.

Research Analyst

Description: The job involves comprehensive research about any industry or sector and providing the findings to the clients, which in turn also helps the firm decide upon the investment issue.

Skills: research, analytical power, writing reports, and deep knowledge of financial markets.

Director/Managing Director (MD)

Description: Top originator of deals, client relationship management, and manager in charge of completing multi-million dollar transactions.

Responsibilities: Client Origination, deep market knowledge, and strong industry network/contacts.

List of Top Investment Banks In India

India has several renowned investment banks that play a significant role in capital markets, mergers and acquisitions, and financial advisory services. Here’s a list of the top investment banks in the country:

• JM Financial
• Kotak Mahindra Capital
• Axis Capital
• ICICI Securities
• SBI Capital Markets
• HDFC Bank Investment Banking
• Edelweiss Financial Services
• Avendus Capital
• YES Securities

Investment Banking Functions

Investment banks undertake a limited number of critical roles for corporations, governments, and institutions, in terms of providing financing as well as advisory services on various deals. The different types of such functions can be listed under several heads, whose details are enumerated as follows:

Capital Raising (Underwriting)

Role: Helping corporations raise funds by issues of stock, bonds, or other securities.

Types: Equity offerings-IPOs, follow-on offerings; debt offerings-bonds, notes.

Service: Underwriting securities by guaranteeing the sale of new securities to the public or institutional investors.

Activities: Pricing the securities, managing the issue process, and selling securities to investors

• Process:

• The analysis of the financial status of an organization.
• An analysis of the amount of capital to be raised, type, form, and structure of the dealings
• Interaction with regulators and Stock exchanges
• Marketing the security to the target investors
• Executing the sales

Mergers and Acquisition (M &A)

Role: It involves advising on the buying, merging, or acquiring of other companies.

Types: Buy-side advisory, sell-side advisory, mergers, and leveraged buyouts.

Service: Advisory services provide strategic solutions to the client, negotiate the terms, and execute the deal.

Activities: Due diligence, valuation analysis, structuring of the deal, and negotiations.

Process:

• Understand the needs of the client and conduct a preliminary analysis of target acquisitions or possible buyers.
• Do an extensive financial analysis and conduct valuations.
• Negotiate on the terms of the deal.
• Assistance with legal and financial due diligence, regulatory, and financial matters.
• Closing a deal

Sales and Trading

Role: Intermediaries who provide the means for clients to buy and sell securities, currencies, commodities, and derivatives.

Type: Equities, fixed income, foreign exchange, commodities

Service: Traditional trading on behalf of customers; serves mostly institutional investors and high-net-worth individuals

Activities: Market makers, providing liquidity, market expertise

Process:

• Discussing client investment requirements
• Executing the trade in markets
• Offsetting or otherwise managing risk
• Reporting the results of the customer’s account

Research

Role: Detailed company, industry, and market analysis to assist clients in making informed decisions on investment.

Types: Equity research, fixed income research, sector-related research.

Service: Financial reports, forecasts, and recommendations to clients.

Activities: Financial statement analysis, company management meetings, forecasting earnings.

Process:

• Collection and analysis of financial data.
• Writing reports and recommendations – first buy, then hold, or sell.
• Reports are circulated to institutional clients.
• Regular updates with market comments.

Asset Management

Role: Management of the investment made by the clients in all classes of assets to derive maximum benefit with the least associated risks.

Type: Equity, fixed income, alternative investments

Service: Portfolio construction; risk management; asset allocation

Activity: Observing investments made by clients, making buy/sell decisions, and providing performance reports to the same

Process:

• Ascertainment of risk tolerance of the client and his financial goals
• Diversification of the client’s assets into a portfolio
• Constant review and rebalancing of the investments
• Generation of detailed performance and risk reports

Restructuring

Role: It helps the company restructure its financial obligations when a firm falls in distress or bankruptcy.

Type: Debt restructuring, equity restructuring, and operational restructuring

Service: Advisory on the reorganization of the financial and operational structure to return to profitability

Activities: Negotiation with creditors, refinancing of debt, and sale of non-core assets

Process:

• Evaluating the financial position of the firm
• Preparation of a comprehensive restructuring plan
• Negotiations with creditors and stakeholders
• Execution of plans and monitoring results

Investment Banking Salary & Career Path 

Investment banking salary in India: 

Source 

Future of Investment Banking

The future of investment banking is evolving with technological advancements, regulatory changes, and new market dynamics. Below are key trends shaping the future:

Automation and Digitization: Implementation of AI, machine learning, and blockchain for smoother trading, underwriting, and M&A processes. This would cut down on human intervention, thus enabling greater speed and accuracy.

Sustainability and ESG Focus: There is a heightened focus by investment banks on ESG factors as these have become key priorities among investors and companies alike for their investment decisions.

Emergence of Boutique Firms: There will be a rise in boutique firms specializing in niche markets or services such as M&A/restructuring as business entities begin to look for tailored solutions rather than broad service offerings.

Globalization/Emerging Markets: The growth in emerging markets-for example, India, Southeast Asia, and Africa, offers a fertile environment where investment banks can expand their operations.

Regulatory Changes: The regulatory framework will keep evolving to centre around risk management, transparency, and market stability. Investment banks are going to have to respond to these changes to maintain compliance.

Increased Demand for Advisory Services: As businesses increasingly find themselves navigating more complex financial landscapes, demand for expert advisory services in M&A, restructuring, and capital raising will grow.

Conclusion 

Investment banking stands as one of the cornerstones in international finance while providing manifold services responsible for further stimulating economic progress, creating capital, and realizing strategic transactions. The wide array of activities at the forefront of investment banking-from underwriting to mergers, and on to research and trading-harmonizes firms from the smallest to the largest in every industry. By completing an investment banking certification you can enter into this dynamic field and build your career in the right direction.

FAQs on Different Types Of Investment Banking:

What are the 4 main areas of Investment Banking?

The four major areas in investment banking include Mergers & Acquisitions, Underwriting, Sales & Trading, and Equity Research. These activities together assist the client in raising funds, market strategy, and investment decisions.

What are the main types of investment banking?

Investment banks usually fall under three categories: Bulge brackets, Middle-market banks, and Boutique banks. Each has a different scale of services, from global corporations to regional firms, based on its size, client base, and scope. They are also divided based on the kind of services they offer to their clients.

Which field is best in investment banking?

M&A and Sales & Trading have often been painted as the most respected and high-earning areas in investment banking because of the high schemes of compensation and their critical exposure to large-scale financial deals.

What is the highest-paid job in investment banking?

Managing Directors are usually the best-paid jobs in investment banking, and their remuneration exceeds several million through base salary and bonus, as they usually bear responsibility for sourcing and managing multi-billion-dollar deals.

Anant Bengani, brings expertise as a Chartered Accountant and a leading figure in finance and accounting education. He’s dedicated to empowering learners with the finest financial knowledge and skills.