The four main areas of investment banking activity are Capital Markets, Advisory, Trading and Brokerage, and Asset Management. However, please be aware that not every bank engages in all of these activities.
It is a matter of size, core competences, and strategy. Some banks are true global players and offer the entire spectrum of IB services, while others focus on a specific niche. Therefore, we could distinguish the following four banking strategies:
- Global investment banks
- Banks that focus on financial market services
- Wholesale banking
- And boutique advisory firms
Global investment banks have a presence in all major financial centres around the world. In addition, they have expertise in the four main areas of investment banking activity. They have the size to underwrite equity and debt offerings, the network to place these securities, and the competences to provide advisory services for mergers and acquisitions and restructurings. Examples of global banks you have probably heard of are HSBC, Citi, and Deutsche Bank.
On the other hand, some banking entities have a stronger focus on financial market services. Be it corporate lending (which we will examine in detail a bit later) or stock brokerage, these entities prefer to focus on financial market services and are not that active as advisors.
Wholesale banking is another type of banking strategy. Wholesale services are intended for large institutional entities such as governments, pension funds, large corporates, and banks. Typically, wholesale banking would include cash management, large loans, and even interbank lending. Of course, very few organizations can provide wholesale services, as capital availability is a significant barrier to entry.
Boutique advisory firms have become a popular phenomenon in the investment banking industry over the last 10 to 15 years. These organizations are usually formed by an established banker or a group of bankers who have made their bones in the industry while working for a global investment bank. Then, as it frequently happens in life, such bankers for one reason or another decide that it would be better to open their own branded shop and start a boutique advisory firm. Their existing clients would have to decide whether to stay with the investment bank or transition to the new firm. There is a significant number of boutique firms on the market for advisory services as this is a relatively easier and less capital-intensive business to set up. Boutique firms can have anywhere between a few and a few hundred employees.
They specialize in advisory services such as mergers and acquisitions, restructurings, and corporate consulting, as these are purely consulting based and do not require a large Balance sheet or a strong reputation among investors.