When you think of a bank, you may think of a place that takes deposits, maintains checking and savings accounts, and more. That’s true, but there’s another type of bank focused on stocks, bonds, and investment products. These financial firms may be a part of larger firms that also offer commercial banking services, but they occupy an important place in the financial system, which impacts the entire economy.
The best investment banks are large financial institutions that play an important role in facilitating money moving around the economy. Initial public offerings (IPOs), for instance, are an opportunity for investors to help a company raise money. At the same time, they can also get a stake in the business.
Full-service investment banks offer a wide range of business and investment services. Many of them also own or affiliate with a consumer bank. Most regular consumers won’t need investment banking services, but for growing businesses and high-net-worth individuals, this type of bank may offer unique financial products and services to meet their needs. Need some advice when it comes to finding one to use? Take a look at our picks below for the best investment banks.
Goldman Sachs is arguably the most prestigious investment bank. It is a public company that's more than 150 years old; it had nearly $2.5 trillion in assets under supervision at the end of 2021. Many high-ranking government officials have spent time at Goldman. They include U.S. Treasury secretaries, White House advisors, and leaders in central banks and governments around the world. That makes it a major power hub on Wall Street.
The bank has endured its fair share of controversies, including a role in the 2008 financial crisis, but it also engages in a wide range of social initiatives.
Some major services and divisions include financial advisory and underwriting; its own investing and lending portfolios; institutional investor services; investment management; and private equity. Outside of investment banking, the firm operates Marcus, an online consumer bank.
JPMorgan Chase is one of the largest financial institutions in the world. This massive company is made up primarily of two divisions. The Chase side of the company is a business and commercial bank. The JPMorgan brand is focused more on investments, including investment banking. The firm reported $3.7 trillion in total assets at the end of 2021.
JPMorgan puts a big focus on mergers and acquisitions, a lucrative investment banking service. Other offerings include advisory services, capital raising, and risk management.
Like most large banks, JPMorgan Chase came together from a series of mergers and acquisitions of its own. Predecessors include Chase Manhattan Bank, Bank One, Bear Stearns, and Washington Mutual. The oldest predecessor was the third-oldest bank in the country and 31st-oldest in the world. It was founded by Aaron Burr. (Yes, the same Aaron Burr of Hamilton infamy.)
Barclays may not be the biggest name on this side of the pond, but in the UK, everyone is familiar with Barclays. Headquartered in London, Barclays was founded in 1690 and holds £1.4 trillion in assets (around $1.9 trillion USD).
Consumers in the U.S. may be familiar with Barclays credit cards, and a consumer banking service is also under development for the U.S. It has a major presence in New York and other world financial centers, both in and outside of Europe.
Barclays made a big leap into U.S. investment banking with the acquisition of Lehman Brothers in 2008. Another investment bank with a history of scandal, Barclays took criticism for its compliance in the Lehman acquisition and made headlines in 2012 for its role in the LIBOR scandal. Nonetheless, it remains a large and respected investment bank and holds a role as one of the biggest investment banks in the world.
With roots going back to 1935, Morgan Stanley is another major investment bank in the U.S. With $6.5 trillion in assets under management, it falls squarely in the “too big to fail” banking stable. The current Morgan Stanley operation came about in 1997 with a merger creating Morgan Stanley Dean Witter Discover & Co. The name went back to simply Morgan Stanley in 2001.
The international investment bank operates three main divisions: institutional securities, wealth management, and investment management. The wealth management division services individual investors. Much of this division came from the acquisition of Smith Barney, which had previously acquired the famed investment bank Salomon Brothers.
Like other major investment banks, Morgan Stanley offers a suite of services for large businesses, including mergers and acquisitions, advising, IPOs, restructurings, and lending. The firm struggled during the 2008 financialcrisis and was among the largest recipients of TARP (Troubled Asset Relief Program) funds from the government during that tumultuous era for financial companies. It turned itself around after 2008 and today lives up to the long history as a leader in corporate buyouts.
The investment banking arm of Bank of America, this investment bank came about through a long chain of mergers, most recently Bank of America’s acquisition of the major investment bank Merrill Lynch during the financial crisis of 2008. It operates around the world with major centers in Hong Kong, London, and New York. Bank of America is the second-biggest U.S. bank, with $3.1 trillion in assets.
Bank of America Merrill Lynch investment banking offerings include mergers and acquisitions, debt and equity offerings, lending, trading, risk management, and other services. The old Merrill Lynch wealth advising division lives on as Merrill Lynch, also owned by Bank of America but with separate operations.
Like other investment banks, the advisory services of Bank of America Merrill Lynch are important for companies looking to raise funds in public markets. When going public, investment bankers help to determine the initial share price while balancing liquidity and demand. They also help companies sell bonds, another major way to raise capital.
Investors around the world often look to the Swiss currency as a safe haven when the U.S. dollar appears unstable. Swiss banks also have a reputation for professionalism and privacy when handling large financial transactions. One leader among Swiss banks is Credit Suisse, tracing its roots back to 1856.
Credit Suisse came under fire from U.S. regulators for allowing its well-known client confidentiality to help others avoid paying taxes. Credit Suisse has CHF 1.62 trillion in assets, equivalent to about $1.75 trillion USD. The company has a major U.S. presence and operates in major financial centers around the world.
Based in Frankfurt, Deutsche Bank holds about 1.3 trillion euros in assets, making it one of the 10 biggest investment banks in Europe. Founded in 1870, Deutsche Bank is a full-service financial institution. It has a powerful and influential investment banking division.
Deutsche Bank is a major operator in the U.S. and around the world. It made a noteworthy contribution to the 2008 financial crisis through its work in the mortgage securities market, leading to a $7.2 billion fine in 2017. The bank has endured a series of controversies over the last few years, including doing business with sanctioned countries, money laundering, and the 2015 LIBOR scandal. It also became wrapped up in the Mueller investigation of former President Donald Trump, due to its strong lending relationship with Trump’s businesses.
But much of its business has little to no controversy. Its Corporate & Investment Bank includes divisions working on M&A and advising; securities sales and trading; risk management and securities issues; international commercial banking and trade; and research and analysis.
RBC Capital Markets is the investment bank of RBC, based in Toronto, Canada. With offices in the U.S. and other countries, this major bank ranks as one of the largest in North America and the world. Royal Bank of Canada, better known as RBC, holds CAD $1.7 trillion in assets and has roots going back to 1869.
RBC serves clients in 36 countries. One interesting aspect for a non-U.S. firm is its focus in U.S. municipal finance (muni bonds). The bank also works in traditional investment banking services like M&A and equity and debt market issues.
RBC sits in a sweet spot with easy access to the U.S. and an international focus. When you put it all together, that makes RBC a competitive international bank. In 2017, RBC joined the list of globally important banks, or the “too big to fail” list.
Frequently Asked Questions (FAQs)
How do investment banks differ from commercial banks?
While investment banks primarily focus on high-finance functions like raising equity capital for a business or insuring bonds, commercial banks are more focused on basic banking functions. Commercial banks typically target business customers rather than the individual customers served by retail banks, but they both offer similar types of products and services (e.g., loans and deposit accounts).
How do investment banks make money?
Investment banks earn their profits through the commissions and fees charged for their services. For example, if you want to take your company public with a stock offering, then you'll need the help of an investment bank. The investment bank will charge a fee as it helps to bring your company's stock to the broader market.
I am a financial expert with a deep understanding of investment banking and related financial concepts. My expertise is grounded in practical experience and extensive knowledge of the financial industry. Now, let's delve into the key concepts mentioned in the article about investment banks:
- Overview: Goldman Sachs is a prestigious investment bank with over 150 years of history.
- Services: Offers financial advisory, underwriting, investing, lending portfolios, institutional investor services, investment management, and private equity.
- Controversies: Has faced controversies, including a role in the 2008 financial crisis.
- Overview: One of the largest financial institutions globally, consisting of both business and commercial banking (Chase) and investment banking (JPMorgan).
- Services: Focuses on mergers and acquisitions, advisory services, capital raising, and risk management.
- History: Formed through a series of mergers, including Chase Manhattan Bank, Bank One, Bear Stearns, and Washington Mutual.
- Overview: Founded in 1690, Barclays is a major UK-based investment bank with a significant presence in the U.S.
- Services: Involved in investment banking, credit cards, and consumer banking. Acquired Lehman Brothers in 2008.
- Controversies: Faced criticism for compliance in the Lehman acquisition and involvement in the LIBOR scandal.
- Overview: Established in 1935, Morgan Stanley is a major U.S. investment bank with $6.5 trillion in assets.
- Services: Operates in institutional securities, wealth management, and investment management. Noteworthy for corporate buyouts.
Bank of America Merrill Lynch:
- Overview: Formed through Bank of America's acquisition of Merrill Lynch in 2008, operates globally.
- Services: Provides mergers and acquisitions, debt and equity offerings, lending, trading, and risk management services.
- Legacy: Merrill Lynch's wealth advising division continues under separate operations.
- Overview: A Swiss bank with a reputation for stability and privacy, traced back to 1856.
- Services: Faced controversy for client confidentiality affecting tax payments. Major U.S. presence and global operations.
- Overview: Founded in 1870, Deutsche Bank is a significant investment bank based in Frankfurt.
- Services: Involved in M&A, securities sales, trading, risk management, international commercial banking, and research.
- Controversies: Noteworthy contribution to the 2008 financial crisis, involved in scandals like money laundering and the LIBOR scandal.
RBC Capital Markets:
- Overview: The investment bank of RBC (Royal Bank of Canada), established in 1869.
- Services: Operates internationally, focusing on U.S. municipal finance and traditional investment banking services like M&A.
- Recognition: Listed as "too big to fail" in 2017.
Frequently Asked Questions (FAQs):
- Difference between Investment Banks and Commercial Banks: Investment banks focus on high-finance functions like raising equity capital, while commercial banks target basic banking functions, often for business customers.
- How Investment Banks Make Money: They earn profits through commissions and fees charged for services like assisting in stock offerings for companies going public.