What are investment banks?
Investment banks are major financial institutions that provide specialist services such as raising funds by issuing shares, and facilitating . Every transaction that an investment bank handles is done on a large scale. For example, if drinks company Diageo wanted to sell £8 billion worth of bonds to expand its business into Russia, it would approach an investment bank to assist with finding buyers.
How do investment banks work?
Investment banks offer financial intermediary services to governments, pension funds, hedge funds and large corporations. These banks work differently from investment banking divisions of consumer (retail) banks, because they offer services such as underwriting, M&A, sales and trading, and asset management.
Learn more about the differences between retail and investment banks
Investment banks are often involved in several activities when assisting companies with their needs. For example, in the case of an initial public offering (IPO), the bank will examine a business’s financials, assist with drafting a prospectus, offer advice post-IPO, and more.
How to buy and trade investment bank shares
- Do your research – we’ve outlined useful information in this guide
- Create an account or log in
- Choose whether to invest by share dealing or trade using spread bets and CFDs
- Pick an investment bank and take steps to manage your risk
- Open and monitor your position
Share dealing enables you to own the shares outright. As buying physical shares makes you a shareholder, you’d profit if you sell them at a price that's higher than the original buy price. You could also receive dividends if the investment bank grants them. If you choose to sell your shares at a price that’s lower than what you paid, you’d incur a loss, which would never exceed your initial outlay (excluding any additional fees).
With us, you’ll use spread bets and CFDs, which lets you trade with leverage, if you want to speculate on future price movements of investment banks. You’d buy if you think the share price will go up, or sell if you think it’ll go down. Leverage enables you to only put up a small deposit (called margin) to get full exposure to the trade. But, it also increases both potential profits and possible losses to the full value of the trade, making it important for you to manage your risk properly.
Discover more about the impacts of leverage on your trading
Top 10 investment banks
- JPMorgan Chase
- Bank of America
- Wells Fargo
- Citigroup
- Morgan Stanley
- Goldman Sachs
- HSBC Holdings
- Barclays
- Credit Suisse
- Deutsche Bank
Note that these banks aren’t listed in any particular order, they’re simply among the most famous investment banks in the world. This list was last updated on 4 October 2022.
JPMorgan Chase
The history of JPMorgan Chase can be traced back to 1799, but the bank is completely different today from what it was more than 200 years ago. The company was founded in December 2000, after a merger between JPMorgan & Co and Chase Manhattan Corporation.
It has a presence in more than 100 markets and is said to manage more than $3.5 trillion in assets. In the year ending September 2022, the firm hit a record revenue high of $138.06 billion. As at October 2022, JPMorgan Chase has a market capitalisation of $359.83 billion.
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Bank of America
Bank of American is a financial services provider with a very prominent investment-banking arm, which came about through the acquisition of Merrill Lynch in 2008. The company rebranded the Merrill Lynch arm as BofA Securities.
Some of the bank’s other offerings include M&A, risk management, wealth management, lending and trading. The corporation manages around $2.5 trillion in assets making it the second-largest investment bank in the US. Its 30 June 2022 revenue amounted to just over $96.98 billion, while its net income was around $26.57 billion.
The Bank of America’s market cap was pinned at $260.18 billion as of 5 October 2022.
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Wells Fargo
Wells Fargo is a US investment bank that covers a range of services, from wholesale banking and loans to wealth and investment management. This firm, which was founded in 1852, also runs a consumer bank.
Wells Fargo manages around $1.8 trillion in consolidated assets. Revenue was at $78.4 billion for the year ending June 2022 and its net income was pinned at $16.49 billion. As at October 2022, Wells Fargo’s market capitalisation was $164.27 billion.
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Citigroup
American corporation Citigroup is more than 200 years old, it employs over 210,000 people, has more than 200 million customer accounts and has a presence in 160 countries. Citigroup has a strong focus on investment banking, managing around $1.7 trillion in assets,1 but it also operates a retail bank, called Citibank, with around 2,500 branches.
From its 2022 revenues of $19.6 billion to date, the company has a net income of $4.5 billion. As at October 2022, Citigroup has a market cap of $84.9 billion.
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Morgan Stanley
Morgan Stanley has over $1.95 trillion assets under management, as of the first quarter of 2022. This, coupled with more than 40 years in business, makes it one of the major players in global investment banking. In addition to investment management, the company also provides wealth management and corporate restructuring services.
The 2008 financial crisis had a severe effect on Morgan Stanley – it was one of the financial institutions that received the most aid from the US government. As of July 2022, the firm’s revenue was at $13.1 billion, with a net income of $13.11 billion.
Morgan Stanley’s market capitalisation was pegged at $138 billion on 4 October 2022.
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Goldman Sachs
Founded in 1869, Goldman Sachs provides investing and lending, private equity, investment management, as well as institutional client services.
The bank is infamous for its role in the 2008 financial crisis but remains a powerhouse in the investment bank industry. Goldman Sachs operates a standalone online consumer bank and also engages in several social responsibility initiatives.
The company’s revenue for the 12 months ending 30 June 2022 was $51.04 billion of which $2.93 billion was its net earnings. Its market cap, as of October 2022, was $105.04 billion.
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HSBC Holdings
UK-based HSBC Holdings was founded in 1865 and has more than 40 million clients based in 64 countries. It manages around $3 trillion in assets. Services of the firm include M&A, investment banking and private banking.
Due to a series of global events, the company’s year-on-year revenue decreased from $82.7 billion in 2019 to $60.84 billion in 2022. The company’s net income, however, was a healthy $14.88 $billion to 30 June 2022, while its market capitalisation was $107.23 billion as of October 2022.
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Barclays
British giant Barclays is the second-largest British investment bank by total assets (managing £1.1 trillion). Barclays listed on the London Stock Exchange (LSE) in 1953 and it’s also a constituent of the FTSE 100. Its offering ranges from corporate banking to wealth and investment management.
Barclays reported revenue of $24.42 billion for the 12 months ending 30 June 2022, with a net income of about $7.45 billion. The firm’s market cap, as of 6 October 2022, is $28.3 billion.
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Credit Suisse
Credit Suisse is a leading Swedish investment bank that dates back to 1856. It operates in major financial centres across the world, managing around $1.8 trillion in assets.3 The firm has operations in 50 countries around the world, with a major presence in the United States and is known for its strict confidentiality and banking secrecy.
The firm has operations in 50 countries, with a major presence in the United States, and is known for its strict confidentiality and banking secrecy. For the 12 months that ended 30 June 2022, Credit Suisse reported $22.63 billion in revenue, of which $3.64 billion was its net income. Credit Suisse’s market cap at the beginning of October 2022 was around $11.93 billion.
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Deutsche Bank
Deutsche Bank was founded in 1870. As with Credit Suisse, it has a big bearing on investment banking in the US. It holds around $350 billion in assets under management.4 The company's services include M&A, advisory services and risk management.
Deutsche Bank reported around $1.47 billion in profit and revenue of $26 billion to $27 billion for the second quarter of 2022 As of October 2022, its market cap was $16.18 billion.
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How do investment banks make money?
Investment banks make money through the services that they offer – by charging a fixed rate or percentage per transaction, collecting interest on monies raised, and charging commission based on the value of a trade. Here are just a few of the activities for which they charge a fee:
- Helping companies to launch an IPO
- Engaging in proprietary trading
- Issuing bonds to raise a company’s debt capital
- Insuring bonds
Investment banks vs commercial banks: what’s the difference?
There are quite significant differences between investment banks and commercial (retail) banks, with each of the two banking types offering services distinct from each other. Investment banks cater mainly to corporate clients and institutional investors, while commercial banks usually service both individual and corporate clients.
Further, investment banks offer services such as underwriting and asset management, while commercial banks provide more standard services related to their clients’ everyday financial needs. Their services tend to include lending, accepting deposits, making payments and facilitating debit orders, for example.
Commercial banks, on the other hand, make money from the fees they charge banking clients (as indicated above), as well as from loan interest.
Investment banks summed up
- Investment banks are financial institutions that provide specialist services such as underwriting, asset management, advisory services, and M&A
- Investment banks make money from the services they offer in several ways, including charging interest and commission
- You can trade multi-billion-dollar investment banks with us using spread bets and CFDs
- You can become a shareholder of an investment bank by using our share dealing platform
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Footnotes
1 Bankrate, 2021
2 Morgan Stanley, 2021
3 Forbes, 2021
4 Deutsche Bank Wealth Management, 2021
As a seasoned financial expert with a deep understanding of investment banking, I'd like to shed light on the concepts mentioned in the article about investment banks. My extensive experience in the financial sector allows me to provide valuable insights into how investment banks operate and the key players in the industry.
Investment Banks Overview: Investment banks play a crucial role in the financial landscape, offering specialized services such as raising funds through issuing shares, facilitating large-scale transactions, underwriting, M&A, sales and trading, and asset management.
Key Functions of Investment Banks:
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Raising Funds: Investment banks assist companies in raising funds by issuing shares or bonds on a large scale. For instance, if a company like Diageo wants to sell £8 billion worth of bonds to expand into Russia, it would approach an investment bank.
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Financial Intermediary Services: Investment banks provide financial intermediary services to governments, pension funds, hedge funds, and large corporations. They differentiate from retail banks by offering a range of services beyond traditional banking.
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Activities in IPOs: In the case of an initial public offering (IPO), investment banks are involved in examining a business’s financials, assisting with drafting a prospectus, offering advice post-IPO, and more.
Trading Investment Bank Shares: The article suggests ways to buy and trade investment bank shares, emphasizing the importance of research and risk management. It discusses options like share dealing (owning shares outright) and using spread bets and CFDs for trading with leverage.
Top 10 Investment Banks: The list of top investment banks includes well-known institutions such as JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Morgan Stanley, Goldman Sachs, HSBC Holdings, Barclays, Credit Suisse, and Deutsche Bank.
Detailed Profiles of Selected Banks: The article provides detailed profiles of some major investment banks, including their history, financials, and market capitalization. For example, JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Morgan Stanley, Goldman Sachs, HSBC Holdings, Barclays, Credit Suisse, and Deutsche Bank.
How Investment Banks Make Money: Investment banks generate revenue through various services, including charging fixed rates or percentages per transaction, collecting interest on funds raised, and charging commissions based on the value of trades. The article outlines specific activities for which they charge fees.
Differences Between Investment Banks and Commercial Banks: Highlighting the distinctions, the article explains that investment banks mainly cater to corporate clients and institutional investors, offering services like underwriting and asset management. Commercial banks, in contrast, serve both individual and corporate clients, focusing on more standard financial services.
In summary, investment banks are vital financial institutions providing specialized services to various clients. Their revenue streams come from diverse financial activities, and individuals can engage with them through different trading platforms. Understanding the differences between investment and commercial banks is crucial for navigating the financial landscape effectively.
