Types of Investment Banking

An investment bank is a division of a bank that acts as an intermediary in large and complex financial transactions for clients. It essentially offers corporations and governments advice on how to generate money, merge or acquire businesses, and restructure their operations to be more successful and efficient. It also helps raise money through equity and debt, such as buying shares or putting funds in the right asset.

Types of investment banks

Based on their focus areas and scope, investment banks are categorised into the following types:
 

1. Boutique banks

Boutique banks are specialised investment banks that focus on a certain sector or type of client. They are often more responsive to the needs of their clients and tend to offer customised services. They do not require the same power and resources as larger bulge bracket banks. Boutique banks are further divided into regional boutique banks and elite boutique banks.

• Regional boutique banks
  These banks are considered the smallest in terms of firm size and typical deal size. They do not offer all the services provided by bulge bracket investment banks. Instead, they specialise in a single area, such as handling mergers and acquisitions in a particular market sector.
  As the name implies, regional boutique banks have offices or operations that are either restricted to or concentrated in a specific region of the country, or may even be limited to a single city.  
• Elite boutique banks
  Elite boutique banks are similar to bulge bracket investment banks in terms of deal size. However, they have a much smaller employee strength. They have operations in multiple regions but a prominent presence only in some. These banks often provide a full range of services but are strong only in one or few services. They may also specialise in a particular sector. Most elite boutique banks begin as regional boutiques and progressively handle more extensive deals for prestigious clients.

2. Middle-market banks

Middle-market banks work on deals that begin at the regional level and rise close to bulge bracket level. They are often in the middle ground in terms of geographic reach, having a substantially stronger presence than regional boutiques but falling short of the international scope of bulge bracket banks.

These banks usually provide a full range of investment banking services similar to bulge bracket banks, including debt capital market and equity capital market services, a full complement of asset management and financing services, M&A, and restructuring deals.

3. Bulge Bracket Banks

Bulge bracket banks are the top investment firms around the world. They have the highest brand values among other banks. They are the largest in terms of employees and number of offices, as well as in terms of handling the largest deals and corporate clients.

These firms have a large global and domestic reach. They offer their clients a full range of investment banking services, including all types of financing, trading, equity research and issuance, asset management services, and M&A services. Moreover, most bulge bracket banks have retail and commercial banking divisions and earn additional revenue by cross-selling financial products.

Working at investment banks

Different types of investment banks offer different services. As such, the jobs available at each type differ. If you are looking to work at an investment bank, you may want to consider what type of work you want to do before applying to a particular bank.

It is important to note that boutique banks do not offer all the services of bulge bracket and middle-market firms. For instance, if you want to manage M&A deals, smaller banks may offer a quicker career path to directly handle such deals. However, if you are interested in working at a trading desk, only larger firms are likely to offer that opportunity.

Investment banking compensation may not vary much between bulge bracket banks and elite boutique banks. While larger banks essentially handle bigger deals, those deals are often fewer in number.

Moreover, smaller investment banking firms do not bear massive overhead expenses as bulge bracket banks and, thus, usually achieve larger profit margins from which they recompense employees. Looking at future career opportunities, having experience at one major bulge bracket bank may be the best way forward due to the name recognition.

The divisions of investment banks include industry coverage groups and financial product groups.

Industry coverage groups have wide expertise in specific market sectors or industries. They establish client relationships with companies in different industries to bring equity issuances, financing, or M&A businesses to the bank.

Financial product groups focus on certain investment banking products, such as M&As, IPOs, corporate restructurings, and various types of financing. Separate product groups may specialise in asset financing, leasing, public financing, and leveraged financing.

Also read: How banks calculate interest on savings account

Conclusion

Investment banking is a way of guiding investors in their best interests while advisors manage massive, intricate financial transactions. It is a tool that is utilised in every line of business to save costs and find the best solutions for complex financial situations. Knowing thedifferent types of investment banks and their key differences will make it easier for you to choose the right bank for your career, portfolio, or business.

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