Talk:Investment banking

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Organisational structure[edit]

I've put back Strategy in Front Office. Don't know who moved that to Middle Office, or why, but these guys are definitely salespeople in sheep's clothing.

In fact, this whole organisational structure thing is probably the least well written or appropriate part of the article. Investment banks come in many forms and shapes. This is an encyclopedia, and it should generalize principles as much as possible. Giving the current flavor of the day of how an investment bank is organized is probably not the most general approach to defining and describing what an investment bank is. This is wikipedia, not career vault.

Generally speaking, the distinguishing feature of an investment bank is its implication in advising corporate clients in raising and structuring their capital base. As a support function to that, it also has to create a market in the securities issued to raise capital. The capital raising and structuring process is facilitated by the investment bank that works as a conduit for both liquidity and information on those markets. It is a reputational business in which the value of a capital security is contingent to the fact that the investment bank will keep making a market and providing information about this security. The sales, secondary trading, research & strategy functions of an investment bank are all secondary activities whose purpose is to facilitate liquidity and information diffusion.

Investment banks are by definition registered as securities dealers. Investment management and securities custody are not necessarily part of an investment bank's activities. Even though this is common, it's a general trend in the industry that could eventually disappear. —Preceding unsigned comment added by 70.55.145.181 (talk) 15:52, 4 July 2009 (UTC)

I wholeheartedly agree. The entire section needs to be tightened, generalized or (my personal preference) scrapped entirely. It's way to insider-y, gets lost in the weeds multiple times, and worst of all is almost entirely unsourced.

Looking back at the history, the front, back, and middle office paradigm around which this section is organized seems to be a remnant of some very early edits from back before a consensus had matured as to appropriate tone, structure, and level of discourse on Wikipedia. What began as a misguided idea has since gotten bloated beyond belief by thousands of edits over the course of a decade, when a wholesale structural revamping was more called for. I'm not even so certain that it represents the industry accurately, though not being an expert I can't say definitively. Accurate or not, it shouldn't be the main framing device for the bulk of a general article.

I'm hesitant to delete the section wholesale, because it does present some helpful, relevant concepts. However, unless someone with real expertise in finance is willing to come in and perform some aggressive pruning, the best thing might be to abandon the Organizational structure section altogether. Grifter84 (talk) 08:58, 6 February 2016 (UTC)

Forum link[edit]

Unfortunately this link is not sufficient notable to warrant inclusion in this article. Furthermore it is part of a commercial entity related to employment in the industry.

If people would like to learn more about Investment banks they can read other relevant articles on Wikipedia, or use Google. Cheers --PhilipO 21:51, 31 October 2005 (UTC)

Actually google is not a reliable information source for so professional field. Just like people confuse bikes with banks. —Preceding unsigned comment added by Furypaladin (talkcontribs) 21:26, 22 October 2010 (UTC)

This article suffers from numerous problems; here are clarifications and suggestions[edit]

As pointed out above, this article suffers from numerous problems.

Clarifications

1. An investment bank:

(a) does not take deposits (although in the U.S., after the repeal of the Glass-Steagall Act, an investment bank can have a deposit taking affiliate, a bank, as part of a larger financial conglomerate);

(b) underwrites the offering of securities (in a broad distribution of securities to raise capital for the issuer, or to allow a significant shareholder to liquidate its position, the investment bank generally agrees to be responsible to purchase the securities regardless of demand);

(c) Usually also acts as a dealer in securities (transacts for its own account, thus taking direct exposure to fluctuations in value of that security);

(d) May also, but not necessarily, act as broker of securities (transacts for the account of customers for which it is paid a fee)(e.g. Morgan Stanley never really had a brokerage function until it bought Dean Witter, a brokerage, whereas Merrill Lynch always had an extensive brokerage business that supported its underwriting business).

These terms have been reflected in regulations of the Securities and Exchange Commission since the 1930s and describe broadly how an entity may be classified as an investment bank in the United States. Specific lingo comes and goes, e.g. using the term "proprietary trading" to describe some dealer functions and, with deregulation, investment banks have been increasingly combined with other financial services business. However, narrowly speaking, if an entity does not have the foregoing characteristics it is not an investment bank.

Therefore, the list of investment banks should more accurately read "Investment Banks and Financial Services Firms That Have Investment Banking Businesses." In some cases, you include the name of an investment bank that is part of a larger financial services firm, e.g. Bank of America Securities, Wachovia Securities, etc. In most cases, though, you just list the overall firm. Sometimes you might want say that an investment bank listed is part of a larger financial services firm that has a different name. For example, Dresdner Kleinwort Wasserstein is an investment bank owned by a commercial bank, Dresdner Bank that is in turn owned by an insurance company, Allianz. Furthermore, Cazenove has always been a broker and never took underwriting risk. Therefore, it is not an investment bank. Finally, it is fairly hard to call Houlihan Lokey and Rothschild "investment banks" in the strict sense...they are M&A advisory firms, as is Lazard now that it has spun off Lazard Capital Markets.

2. Investment banks are non-governmental, profit making entities. Therefore, government owned/affiliated development banks like the World Bank, the European Bank for Reconstruction and Development, etc, are not investment banks.

Suggestions

1. Move most of the information in the article under a heading called Employment at an Investment Bank. This article reads like it was written by someone who just got a junior position at an investment bank, or wants to get one. The information about salaries belongs under a minor subheading called "Employment at an Investment Bank." Delete the comments about the relative prestige of front office, middle office and back office. It is debatable whether an investment bank could function without each of these. The fact that investment bankers are higher caliber than traders - who are not front office because they don't interact with customers - is also highly debatable, especially as many investment banks make most of their profits these days from trading rather than pitching and doing deals.

2. Add some history and socio-economic context. Another reason I say this article is written from the perspective of a junior employee of an investment bank is its lack of perspective. It describes the organization of a large, multinational financial institution in the early 2000s.

Some historical things to mention could be:

  • 1930: the origin of the term "bulge bracket" (customary hierarchy in the U.S. for ranking members of underwriting syndicate members on the cover of a prospectus, with top firms getting biggest font size).
  • the back-office crisis of 1970 that put a lot of brokerages and some underwriters out of business.
  • 1970s: shaking up the bulge bracket. For example, enter Merrill Lynch, exit Dillon Read and Kuhn Loeb.
  • 1970s: rise of the eurobond market in London, as Arab countries looked for places to invest their billions of U.S. dollars gained from the sale of oil which they were fearful of investing in the U.S.
  • 1980s: the demise of the traditional underwriting syndicate of as many as 100 firms and why this happened.
  • 1990s: Compared to insurance companies and banks, investment banks have small balance sheets. They do not have the asset base to make huge loans or to carry huge liabilities on their books. Repeal of the Glass Steagall Act and the subsequent merger of insurance companies and banks and investment banks has given them access to large balance sheets and completely changed the nature of the business and their appetite for risk.

Addition to the narrow history of investment banking in the U.S., you could include a history of merchant banking in the City of London, particularly deregulation in 1986 after which nearly all U.K. merchant banks (e.g. Morgan Grenfell, Kleinwort Benson, Warburgs, Schroeders, Barings) were bought by better capitalized foreign entities.

Finally, you could discuss the role of investment banks in the economy and society generally. Two books that do this very well are Ron Chernow's "The House of Morgan" and Niall Ferguson's "The House of Rothschild." Only the U.S. and U.K. have a history of capital raising through public offerings of equity and of debt securities. In continental Europe, for example, industry was financed by state controlled banks that took deposits and lent to industry (although sometimes firms would raise money by issuing debt securities in the London capital markets). There is still a strong suspicion regarding "Anglo Saxon" capitalism and its methods of financing businesses.

3. Move the sell side/buy side discussion to the Capital Markets article. These terms describe broad orientation of players on Wall Street, in the City and in the capital markets generally.

Cbmccarthy 17:48, 14 April 2006 (UTC)cbmccarthy

Move request[edit]

Investment bankInvestment bankingRationale: Scope of the article is limited to actions of investment banks and analysts and the article does not touch structure and legal context of investment banks. In other words, the article is on the action not on the institution ("verb" vs "noun"). … Please share your opinion at Talk:Investment bank. — VodkaJazz / talk  11:59, 23 July 2006 (UTC)

Done. —Centrxtalk • 04:50, 29 July 2006 (UTC)

Advertising link[edit]

I have removed the last sentence in the investment banking section where it states the Wall Street Journal collaborating with Dealogic to create bank scorecards. It does not contribute any relevant information to benefit readers and it is off topic from investment banking. This is a quick and dirty marketing ploy from one of the aforementioned companies to gain more exposure. Furthermore, the link to the reference does not exist, thus taking away the credibility of their claim and strengthening the assumption that it is an advertising scheme. — Preceding unsigned comment added by 199.198.223.107 (talk) 13:34, 11 August 2014 (UTC)

Structuring[edit]

"Structuring has been a relatively recent division as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities."

The article states that structures products offer "typically much greater margins and returns". I would rather say that with structures products an investor can fix a certain risk level (e.g. variation) and try to maximizes his return on the given risk level (or vice versa: fix a return and minimize risk).

In other words I would mention in the article the risk/return correlation in some way.

Possible conflicts of interest(Additions)[edit]

Both the NYSE and NASD came out with'research anaylsts conflict of interest rules' in may2002 which was subsequently approved by SEC.This was a good development in light of addressing conflicts of interest.while an investment bank may be advising a client on a buy out,its private equity arm may be in fray for its purchase.An example of this was the sale of the power storage business of invensys in 2001 wherein morgan stanley was the advisor in the $505 Mn sale to EnerSys,a a company owned by Morgan Stanley capital Partners. The rules Addresses the issue so its worth putting in the article. Source:FINRA Rules and Regulations -- Jain puneet (talk) 15:32, 2 June 2008 (UTC)

Dodd-Frank / Volcker Rule[edit]

"As part of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act of 2010), Volcker Rule asserts full institutional separation of investment banking services from commercial banking."

This claim in the lead is incorrect and I think should be eliminated.

First, investment banking is not fully institutionally separated from commercial banking. JP Morgan, Citigroup, Bank of America and other companies currently contain both functions in a single institution.

Second, the Volcker Rule limits proprietary trading (which is not an integral function to investment banking). It does not separate investment banking from commercial banking.

Unless someone defends/revises this statement, I plan to delete it.

Dodd Frank and Volcker Rule had a huge impact on ib especially for depository banks like JPM and BAML which happen to be the top investment banks aside from GS MS Perella etc so definitely should be relevant. — Preceding unsigned comment added by Fghkkjypoifty (talkcontribs) 18:31, 30 October 2015 (UTC)

External links modified[edit]

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Most banks mentioned in here are no Investment Banks (anymore)[edit]

Officially in 2008, the largest IBs put away their IB status. Deutsche Bank has never been an IB by the way. — Preceding unsigned comment added by 185.41.235.19 (talk) 15:02, 21 November 2016 (UTC)