Talk:Investment banking
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The present articles on banking don't really show the hierarchy of Bretton Woods institutions > monetary > fiscal > securities regulation > private bank which, at least in theory, applies. The World Trade Organization kinds of muddles it though, one can argue that investment/trade policy is now above even the Bretton Woods institutions.
In part to relieve this problem, this was just added, Lester Thurow's claim comes from an '86 Esquire article
- The World Bank and some central banks are considered by most economists to be investment banks. Lester Thurow claims that the US congress has also served exactly this function, advancing specific industrial policy and agricultural policy by direct grants or subsidies, loan guarantees, and exemption from regulations, taxes or expenses that would otherwise apply.
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- Rewritten but still applies.
--- In the article above the list of banks they use the term "private banks" which is not appropriate, nor do I understand the top talker here who also uses that word. These banks are not privately owned.
Investment banking should be put in context as the private, regulated, activity of non-state actors in a global market. It's subject to securities regulation.
This is different from what the public entities in each country do, in theory, but not in practice, as the public entities also grant loans, forgive debt and taxes, etc.. In many cases legislation specifically alleviates some expenses in exchange for equity - exactly the investment banking function. So fiscal policy gets blurry here, but all you can say is, this is *not* subject to agency regulation.
Then there's the global entities like the World Bank and the pan-national entities like the European Investment Bank (sic? the entity that runs the Euro), and those national institutions of equivalent scale - in China and the United States for instance. Monetary policy in all cases collides with bank type operations, although in the US the Fed doesn't do the banking functions, the US Congress *does*.
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[edit] Private banking
The article says that investment banks do private banking and personal wealth management. No: Banks are complicated entities nowadays and there are many banks which do investment banking and personal wealth management (and retail banking etc etc) but internally a bank which does both will not do both in the same department and there will be a Chinese wall between the two departments to avoid conflicts of interest. Paul Beardsell 09:59, 1 Sep 2004 (UTC)
All of the talk about Federal Monetary Policy should not be included in the section of Investment Banking. It is the wrong topic. Move it to the Federal Reserve Section or Congress or Fiscal Policy, etc. but not in Investment Banking. It is why off topic. --Keetoowah 06:13, 24 Dec 2004 (UTC)
This issue is really one of naming convention. In the simplest sense of the word, Investment Banks simply means helping corporations raise money in debt and equity capital markets, yet historically there have been many other separate "businesses" or "activities" that are associated with it, such as proprietary trading, research, Mergers and Acquisition advisory, and yes: private client services/private banking/wealth advisory/whatever you want to call it. The fact is that historically these different activities were associated with investment banks. Now obviously commercial banks and brokerages dealt with rich people too, but many investment banks even without a normal retail brokerage would have services to very high net worth customers. Its just legacy industry terminology and customary associations of activities.
No. It is not a issue of naming convention. Investment Banking is simply the act of raising money for a corporation. All of the activities may be performed by a bank or stockbrokerage but that does not make those activities investment banking. It is a very simple concept. Investment banking is raising either debt or equity or a combination of the two for a corporation to expand operations, purchase another company, etc. That's it. Now if trading or research is thrown in for the client then those are bonus activities, but they are not investment banking activities. Millions of people can be confused on this topic but that doesn't make those activities investment banking. --Keetoowah 06:17, 24 Dec 2004 (UTC)
No one is saying that those activities are all "investment banking", rather they are the customary activities of an Investment Bank. If an investment bank also did sales and trading, it would still be called an investment bank, if it also did private banking (ie. high end wealth management) it will still be called an investment bank, if it also did insurance underwriting, it will be called a financial services conglomerate with two divisions. Do you see what I'm getting at? This is just how the industry delineates things. There are two senses of the word, the activity itself, and the word to describe a firm (which may engage in certain other activities customarily associated with investment banking firms).
I second the previous paragraph - there are investment banks that have, say, a markets division, and an investment banking division (IBD). So, an investment bank clearly does investment banking and other business, such as sales/trading, private wealth management, asset management, etc. 82.35.248.126 20:59, 12 September 2006 (UTC)
The introductory section is still very poor and does not offer a useful definition of the activity. It's important to cover what these businesses define their function as being. But it is also important to describe the role investment banks play in the economy. Here, I think it's essential to stress that these institutions are primarily engaged in wholesale financial intermediation. Thus they play a part in connecting an economy's savers with its investors, but they tend not to provide a direct service for either.--Nmcmurdo 19:53, 22 November 2006 (UTC)
It's worth pointing out that 'investment banking' isn't a clear description of a particular form of economic activity. For example, if we take a look at the current UK SIC system, the nearest things we find are listed below, by statistical hierarchy. Roughly speaking, when we talk about 'investment banking', we're thinking about 67.12, but not everything in there, and probably including some other activities. It would be interesting to see how the firms actually report / split their activity when compiling returns for GDP data etc.
SECTION J FINANCIAL INTERMEDIATION
67 ACTIVITIES AUXILIARY TO FINANCIAL INTERMEDIATION
This division includes: - provision of services involved in or closely related to financial intermediation, but not themselves involving financial intermediation
67.1 Activities auxiliary to financial intermediation, except insurance and pension funding
67.12 Security broking and fund management
67.12/1 Fund management activities This subclass includes: - portfolio management services provided by fund managers on behalf of clients, including decisions about the content of the portfolios
This subclass excludes: - security dealing on own account cf. 65.23/3
67.12/2 Security broking and related activities This subclass includes: - dealing in financial markets on behalf of others (e.g. stock broking) and related activities other than fund management
This subclass excludes: - security dealing on own account cf. 65.23/3
http://www.statistics.gov.uk/methods_quality/sic/
--Nmcmurdo 20:44, 29 November 2006 (UTC)
[edit] Confusion with brokerages.
I have weakened the claim that investment banks and brokerages are often confused. Furthermore, if any confusion exists it is not with the type of brokers described. The brokers described are private client stockbrokers. Confusion sometimes arises between investment banks and corporate brokers. I intend to fix this as soon as I have decided on a form of words. (Of course, some people confuse banks with bicycles but I don't think we should note that in the article either.) Paul Beardsell 10:43, 1 Sep 2004 (UTC)
That is false there is a massive amount of articles you can find from business magazines which call investment bankers "stockbrokers" and vice versa, or describe Goldman Sachs as a "brokerage" firm.
Brokerage is more-often than not a part of any investment bank's business. Even M&A boutiques are essentially selling securities when they nogotiate transactions. It may not be congruent with the conventional image of a stock-broker's role but it technically speaking is a form of brokerage. The clientele is merely diferent.
[edit] The US Government.
The bit about G-S being repealed because the congress acts like an investment bank is a bit crackpotish. Anyone care to show me a cite? Hipocrite 17:08, 8 Nov 2004 (UTC)
All of the talk about Federal Monetary Policy should not be included in the section of Investment Banking. It is the wrong topic. Move it to the Federal Reserve Section or Congress or Fiscal Policy, etc. but not in Investment Banking. It is why off topic. --Keetoowah 06:13, 24 Dec 2004 (UTC)
I'm putting it on cleanup as there are lots of factual errors, and confusion between the brokerage divisions, private banking divisions and what some of the departments actually do. JuntungWu 14:46, 16 Apr 2005 (UTC)
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- Why not try to fix it? --Goodoldpolonius2 18:57, 16 Apr 2005 (UTC)
I have to chip in that this article reads like it was written by people who've never done investment banking at a bulge bracket firm. These people need to realize that this world is very exclusive and they probably know very little about the actual terminology used by bankers and how this business operates. Unless you have a good amount of exposure to this business, don't meddle with what bankers decided is important and what is not, and what things should be called. For instance, Corporate Finance is not, and has never been, a synonym for Investment Banking. To add to the confusion, Citigroup has a Corporate Finance division that is totally different from its I-banking division (Corporate finance does corporate lending). I'm writing this with a personal interest in mind, my changeset just got reversed. Iav 06:15, 30 September 2005 (UTC)
- the changes by Iav were reverted with the comment that they were POV. If anyone makes these remarks, please explain why you think so on these pages. I happen to agree with Iav - though if someone can convince me that he is wrong (using sources from market participants, rather than from academics who are usually a decade behind), then I'm more than happy to support them. Until then, I think we should stick with Iav's version. - DocendoDiscimus 21:41, 1 October 2005 (UTC)
Corporate finance is in fact synonymous with investment banking. How long is your info doc?
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- not its not!
[edit] Forum link
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)
[edit] This article suffers from numerous problems; here are clarifications and suggestions
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
Investment bank → Investment banking … Rationale: 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)
[edit] Basic definition
The most basic definition of an investment bank is that it underwrites indirect capital transfers. They act as a sort of "middleman" for the issuance of securities (stocks, bonds).
Someone who needs a very quick definition really would get confused by this article.Thegsrguy 16:32, 4 August 2006 (UTC)
[edit] Compensation
Is it just me or does this section take up way too much of the article? Surely we should be focused on the activities of Investment Banking and relevant issues in the industry, not an (un-sourced for the most part) e-penis contest between the relative earning prospects of different professions/positions/banks.... Suicup 15:11, 25 August 2006 (UTC)
This section is just a set of informal anecdotes without any referencing. It reads like the notes of a graduate preparing his or her CV, rather than an encylopedia section. I suggest removal of this section - encylopedia entries on industrial sectors would not be expected to cover a stylised characterisation of company payroll structures (which will be inevitably time-sensitive).--Nmcmurdo 23:50, 9 October 2006 (UTC)
- I agree. Suicup 07:02, 10 October 2006 (UTC)
I won't cut it yet, but will yet, but will do if a few others agree. I notice the recent revisions to that section are just more vapid twaddle!--Nmcmurdo 21:02, 10 October 2006 (UTC)
Have cut it. This change might not last, but with a bit of luck it will generate a more serious entry on this subject.--Nmcmurdo 12:43, 14 October 2006 (UTC)
I see some laughable stuff emerged on the 'investment banking lifestyle', going right down into the detail of likely expense accounts! I support whoever deleted this - certainly not encyclopaedic. --Nmcmurdo 19:47, 29 November 2006 (UTC)
[edit] List of Banks
I have moved the list to here, as it was simply getting too large. Perhaps a simple sentence stating the largest bank in each region might be a good idea? Suicup 14:57, 4 September 2006 (UTC)
[edit] for computer gurus: diagram - hide function?
Hi - if someone knows how to add a 'hide' function on the diagram in the top of this article, please add it in. --ToyotaPanasonic 12:59, 24 February 2007 (UTC)
