What is an Investment Bank?

An investment bank is a financial institution that helps companies, governments, and other large organisations raise capital and navigate complex financial transactions. It is very different from the retail bank where you keep your current account and savings.

What do investment banks actually do?

Their core activities fall into a few areas. They help companies raise money by issuing shares, managing IPOs and other stock offerings or by issuing bonds. They advise on mergers and acquisitions, helping companies buy, sell, or merge with other businesses. They trade financial instruments on behalf of clients and sometimes with their own money. They also provide research on companies and markets to institutional investors.

Who are the major investment banks?

The largest and most well known include Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, Barclays, and Deutsche Bank. Some large universal banks combine retail and investment banking under one roof, though regulations in many countries require these activities to be separated.

How do investment banks make money?

They charge fees for the services they provide a percentage of the deal value when they manage an IPO or advise on a merger, for example. They also earn revenue from trading and from the interest on loans they extend to clients.

Why does this matter for an individual investor?

Investment banks shape the landscape in which you invest. They bring new companies to market. They facilitate the major corporate transactions that affect the companies in your portfolio. And their research, while primarily aimed at institutional clients, influences how markets price individual stocks. You may never deal with an investment bank directly, but their work is present in almost every corner of the market.