Investment Banking
The architects of capital markets—facilitating IPOs, M&A, and corporate finance
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When a company wants to go public, who orchestrates the IPO? When corporations merge, who structures the $50 billion deal? When governments need to raise capital, who underwrites the bonds? The answer: investment banks.
Unlike commercial banks that take deposits and make loans, investment banks are intermediaries in capital markets. They connect capital seekers (companies, governments) with capital providers (investors). Their core business: raising money, facilitating deals, and providing strategic advice—for hefty fees.
Investment Bank vs Commercial Bank
- •Takes deposits from customers
- •Makes loans to individuals/businesses
- •Profits from interest rate spreads
- •Examples: Chase, Bank of America (retail side)
- •Underwrites securities (stocks, bonds)
- •Advises on M&A and corporate finance
- •Profits from fees and commissions
- •Examples: Goldman Sachs, Morgan Stanley
Note: After the 2008 financial crisis, major investment banks (Goldman, Morgan Stanley) became "bank holding companies" and now operate both commercial and investment banking divisions.
The Big Players
Global powerhouses handling mega-deals ($10B+ M&A, Fortune 500 IPOs)
Focus on mid-sized companies ($500M-$5B valuations)
Advisory-only firms (no underwriting), often elite M&A specialists
Investment banking is relationship-driven. Banks compete for "league table" rankings (who handled the most/largest deals). Reputation is everything—one botched IPO can cost billions in future business.