Types of Investment Banks

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Types of Investment Banks

Investment banking include offering advisory and management services for big, sophisticated financial transactions, as well as capital generation services for firms, organizations, or governments. Underwriting debt financing and the issue of equity securities, such as in an initial public offering (IPO), are two of the core operations of investment banks, as are advising and executing mergers and acquisitions (M&As) for firms, including leveraged buyouts.

Furthermore, investment banks assist with securities sales and stock placement, as well as investing and brokering deals for corporate customers, sovereign entities, and high-net-worth individuals (HNWIs).Investment banks are also the principal consultants, planners, and managers for business reorganization or restructuring, such as managing divestitures.

Industry coverage groups and financial product groups are common divisions within investment banks. Industry coverage groups are formed to have distinct groups inside the bank, each with extensive knowledge of certain industries or market sectors, such as technology or healthcare. These units cultivate client connections with firms in many sectors in order to attract finance, stock issuances, or mergers and acquisitions business to the bank.

The product groups of an investment bank are focused on specialized investment banking financial products such as IPOs, M&As, corporate restructurings, and other forms of financing. Separate product groupings may exist for asset finance, leasing, leveraged financing, and public financing. The product groupings may be further classified based on their primary activities or goods. As an example, an investment bank may have product groups such as equity capital markets, debt capital, mergers and acquisitions, sales and trading, asset management, and equity research.

Investment banking businesses are typically divided into three categories: bulge bracket banks, middle-market banks, and boutique banks. Regional boutique banks and elite boutique banks are two types of boutique banks. Elite boutique banks have more in common with bulge bracket banks than with regional boutique banks. The categorization of investment banks is generally based on size; however, “size” may be a relative word in this context and may refer to the bank’s size in terms of the number of workers or offices, or to the average amount of M&A transactions handled by the bank.

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Regional Boutique Banks

Regional boutique banks are the investment banks that are the smallest in terms of company size and normal transaction size. Regional boutiques often employ just a few dozen to a few hundred people. Due to their modest size, most regional boutiques do not often provide all of the services provided larger bulge bracket investment banks, and may instead specialize in a single area, such as conducting M&As in a certain market sector.

These banks, as the name indicates, have offices or activities that are limited to, or at least centered on, a single area of the country. The bank’s operations may be confined to a particular city. A Texas-based investment bank with a single office and less than 20 staff that only handles M&A transactions for oil and gas businesses is an example. Regional boutiques may service big enterprises located in local communities, although they mostly serve smaller firms and organizations. They are unlikely to cooperate with governments other than on a local or state level. They also often manage smaller M&A transactions for $50 million to $100 million or less.

Elite Boutique Banks

Elite boutique investment banks are often distinct from regional boutiques. Elite boutiques are more similar to bulge bracket banks in terms of the financial amount of the transactions they manage, which is usually exceeding $1 billion, however they may also handle lesser deals. Elite boutiques resemble bulge bracket banks in that they often have a substantial national and worldwide presence, with dozens of offices in several countries. However, they seldom have the worldwide footprint of a big investment bank like JPMorgan Chase & Co. (JPM)

Elite boutiques, like regional boutiques, often do not offer a full range of investment banking services and may confine their activities to M&A-related matters. They are more likely to provide restructuring or asset management services than regionals.

Most elite boutique banks start as regional boutiques and work their way up to elite status by managing successions of bigger and larger transactions for increasingly distinguished customers. Some elite boutiques, such as Qatalyst Partners, enjoy quick development in prestige owing to the founders’ investment banking reputation. Lazard LLC, Evercore Group LLC, and Moelis & Company are examples of well-known top boutique investment banks.

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Middle-Market Banks

Middle-market investment banks are just what the name indicates. They sit between between smaller regional investment banks and the big bulge bracket investment banks. Middle-market banks primarily focus on projects that start at the regional level and progress to the bulge bracket level, typically ranging from $50 million to $500 million or more. Center markets are often in the middle of the geographic spectrum, with a much greater footprint than regional boutiques but falling short of the international breadth of bulge bracket banks.

Middle-market organizations, unlike boutique banks, often provide the same complete range of investment banking services as bulge bracket banks, including equity capital market and debt capital market services, a full complement of financing and asset management services, M&A, and restructuring transactions. Some middle-market banks are similar to regional boutiques in that they specialize in providing services to a certain industry or sector. KBW, an investment bank that focuses in dealing with businesses in the financial services industry, is one of the most well-known middle-market investment banking organizations. Piper Sandler Companies, Cowen Group, and Houlihan Lokey are among of the most well-known middle-market businesses.

Bulge Bracket Banks

Bulge bracket banks are large worldwide investment banks with well-known names like Goldman Sachs, Deutsche Bank, Credit Suisse Group AG, Morgan Stanley, and Bank of America. The bulge bracket companies are the biggest in terms of the number of offices and personnel, as well as the handling of the largest transactions and corporate customers. The vast majority of customers are Fortune 500, if not Fortune 100, corporations. Bulge bracket investment banks often manage multibillion-dollar M&A transactions, yet depending on the general situation of the economy or the specific client, a bulge bracket bank may sometimes handle acquisitions worth just a few hundred million dollars.

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Each of the bulge bracket banks works globally and has a significant global as well as local presence. The biggest investment banks provide their customers a broad variety of investment banking services, including trading, all sorts of financing, asset management services, stock research and issuance, and, of course, M&A services. Most bulge bracket banks have commercial and retail banking sections that earn money by cross-selling financial products.

One major post-financial-crisis development in the investment banking sector is the increased proportion of high-net-worth and Fortune 500 customers choosing elite boutique investment banking companies over bulge bracket organizations.

Working in Investment Banking

Before applying to a specific investment bank, those interested in working in investment banking should consider what sort of job they want to accomplish. Keep in mind that boutique banks do not provide all of the services provided by middle market and bulge bracket institutions. For example, if you want to work mainly on a trading desk, only bigger organizations are likely to provide that option. Smaller banks, on the other hand, generally give a faster career path to actively managing such agreements if you are interested in handling M&A negotiations.

Investment banking pay may not differ much between working for one of the major bulge bracket banks and a smaller, exclusive boutique bank. While bigger institutions often handle larger agreements, smaller ones are rare and far between. Furthermore, since smaller investment banking businesses do not have the vast overhead expenditures of the bulge bracket banks, they often manage higher profit margins with which to compensate personnel. In terms of future job chances, employment with one of the large bulge bracket banks appears better on a résumé merely because of the name recognition.

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