What is Investment Banking? Types of Investment Banks and What They Do

What is investment banking? This is the most frequently asked question by students as well as professionals. How is it different from regular banking?

Even those who know what it is want to know about its different types and the various types of investment banks. 

It is a niche term in trend these days. Students from commerce backgrounds are interested in exploring the industry, as its job prospects are more rewarding. It is also personally rewarding as you get to know where to invest, when and how much as well. So, while managing your clients’ million-dollar portfolios, you can build your own multi-million-dollar portfolio.

Let us explore more about what is investment banking, the types of investment banking, what services they offer, and the different types of investment banks that fall under this category.

What is Investment Banking?

Let us start by elaborating on the answer to the most frequently asked question, ‘What is investment banking?’

Basically, it is a specialised segment of banking that helps individuals, corporations, and governments raise capital and execute major financial transactions. Investment banks focus on large-scale activities such as issuing stocks and bonds. These banks facilitate mergers and acquisitions (M&A) and provide financial advisory services.

Still wondering, what exactly is investment banking?

At its core, investment banking is about connecting businesses with investors and helping companies raise capital or grow through strategic financial moves.

Let us break it down with an example: when a company wants to go public and list on the stock exchange, an investment bank steps in to structure the deal, determine the share price, and manage the entire IPO process. Likewise, if two companies plan to merge or one wants to acquire another, investment banks handle the valuation, negotiate the terms, and oversee smooth execution of the deal.

These banks offer expert advice on high-level decisions to large corporations, governments, and institutional investors. While the work is complex, investment banking is also known for being one of the most rewarding and competitive fields in finance.

What are the Different Types of Investment Banking?

After gaining clarity on what is investment banking, you must have realised that it is a general term encompassing several functions and services. So, the different types of investment banking are divided into several categories. Each, depending on the nature of the client and the service required. 

The primary divisions within investment banking are:

• Front Office 

The front office is like the end facing clients. Its services include mergers and acquisitions (M&A), underwriting, sales & trading, and wealth management.

• Middle Office

The middle office services include risk management, corporate strategy, and compliance. It ensures that deals are executed efficiently and within the regulations.

• Back Office

The back office is like the engine room of the bank. Back-end staff handles operations, data management, and IT infrastructure.

Aside from these internal functions, investment banking can also be categorised by the type of service it handles. 

Different types of Investment Banks based on the services are,

• Capital Raising 

It means that investment banks help companies raise money through IPOs, debt issuance, or private placements.

• M&A Advisory

Investment banks guide companies through mergers, acquisitions, divestitures, or restructuring.

• Underwriting

Underwriting means guaranteeing the sale of securities by purchasing them directly from the issuer and reselling them to the public.

• Trading & Brokerage Services

Investment banks provide trading and brokerage services, including buying and selling securities for clients or the bank’s own account.

• Asset Management & Private Wealth

Investment banks also deal in managing money for individuals, institutions, or governments.

Each of these areas may be handled by different departments or even by different types of investment banks, depending on the size and specialisation of the firm.

Types of Investment Banks: From Bulge Bracket to Boutique Firms

Now that you understand what investment banking is and its various types. Let us now discuss the different types of investment banks. All the banks operate on different scales, and each of them varies in size, services, and the clients they serve. 

So, there are three main types of investment banks: Bulge Bracket, Middle Market, and Boutique Investment Banks. So, read further to know more about them in detail.

1. Bulge Bracket Investment Banks

Bulge bracket investment banks are the world’s largest and most prestigious investment banks. They operate globally with the largest number of offices and the largest size of the deals and corporate clients they handle.

They offer a full range of financial services, which include M&A advisory, capital markets, asset management, sales & trading, and more. Their clients include, 

• Goldman Sachs
• JPMorgan Chase
• Morgan Stanley
• Citigroup
• Bank of America Merrill Lynch
• Fortune 500 companies

2. Middle Market Investment Banks

Middle-market investment banks are at the middle ground. They are smaller than bulge bracket firms, focusing on regional markets or specific industries and rising to near the bulge bracket level. Middle-market investment banks handle moderate deal sizes (typically $10 million to $500 million). They especially work for mid-sized companies like,

• William Blair
• Raymond James
• Piper Sandler

3. Boutique Investment Banks

Boutique firms are highly specialised banks, mainly of two types. One is regional and the other is elite.

• Regional Boutique Banks are the smallest investment banks in terms of firm size and deal volume. They specialise in one service area, such as M&A in a particular market sector. 
• Elite Boutique Banks are like the bulge bracket banks in terms of deal size, which can be more than $1 billion. But they may handle some smaller deals and lack the global presence. They limit their operations to handling restructuring or asset management services.

So, now you know investment banks vary widely in size, services, clientele, and global presence. They fall into three main categories, each serving a distinct role in the financial ecosystem. Understanding these types of investment banks helps you identify the right type of investment bank to work with, based on scale, service, and strategy.

Now that we have elaborated what is investment banking, it types and investment banks, let us head on to its services. what do they actually do?

Investment Banking Services: What Do They Actually Do?

You will only understand the investment banking services and what they actually do, once you know what investment banking is. They offer a wide range of services to companies, governments, and institutions. Read further to learn about the services in detail.

1. Capital Raising (Equity & Debt Financing)

Investment banks help businesses raise money by issuing securities through:

• Initial Public Offerings (IPOs)
• Follow-on Public Offerings (FPOs)
• Debt Issuance

2. Mergers & Acquisitions (M&A) Advisory

Investment banks act as advisors to companies involved in mergers, acquisitions, divestitures, or restructuring. They provide

• Strategic advice
• Valuation support
• Negotiation assistance
• Deal structuring
• Due diligence oversight

Their goal is to help clients get the best financial and strategic outcomes from complex transactions.

3. Underwriting

In underwriting, investment banks buy securities from the issuing company and resell them to the public or institutional investors. This guarantees that the issuer gets capital, even if the bank takes a risk. Underwriting can apply to Equity (stock) issuance and Debt issuance (bonds).

4. Sales and Trading

Investment banks facilitate the buying and selling of financial securities for institutional clients and sometimes for their own accounts. They offer:

• Market-making (providing liquidity)
• Proprietary trading
• Client-focused trading in stocks, bonds, derivatives, and currencies

The sales and trading division is often a major revenue generator for large banks.

5. Research and Analysis

Many investment banks offer in-depth equity and debt research on companies, sectors, and markets. They buy/hold/sell for:

• Institutional investors
• Fund managers
• Traders and analysts

6. Asset and Wealth Management

Some investment banks also manage money for large institutions, high-net-worth individuals, or pension funds, like

• Portfolio management
• Retirement planning
• Estate management
• Investment strategy

These services make investment banks critical players in the global financial system. They help in bridging the gap between those who need capital and those who want to invest.

Conclusion

We hope you not only got an idea of what is investment banking but also know about its types and investment banks. It is a niche profession which requires skilled professionals. Learning it from a reputed institute like edZeb will help you get placed. You will be able to manage multi million portfolio and will build your own as well. 

As industries evolve and economies grow more interconnected, the demand for expert financial advisory, structured funding, and strategic deal-making will only increase, keeping investment banks at the heart of modern finance.

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