Types of Investment Banks

The investment banking industry is often referred to as if it were homogenous. However, this is not true at all. There are many different types of investment banks around the world. These different investment banks can also be categorized in different ways.

However, these banks are most often categorized by the types of financial products that they sell, as well as the geographical location to which they belong. Also, they are routinely categorized by the size of the deals that they mediate. The function of investment banks varies greatly with the size of the deals.

In this article, we will have a look at the different types of investment banks based on their deal size. It must be noted that this is not an exhaustive list but rather an indicative one.

The different types of investment banks have been described below:

Bulge Bracket Investment Banks: Bulge bracket investment banks are some of the largest financial services brands in the world. These banks include companies such as Barclays, JP Morgan, Citibank, etc. These organizations already have large business interests in retail banking, mortgage lending, as well as other consumer and corporate banking domains. This is what gives them brand recognition. There is no accepted definition of the term bulge bracket. However, in most parts of the world, it is used to refer to famous multinational investment banks.

Bulge brackets are pretty choosy about who they do business with. They are generally only involved in deals if the deal size is over $1 billion. Another defining feature of bulge bracket investment banks is that they provide a lot of services that are associated with investment banking such as advisory and research.

It also needs to be understood that bulge bracket investment banks operate from various locations around the world. This allows them to develop a better global network and serve the needs of the clients who also happen to be other global behemoths and hence require services to be provided in different parts of the globe. Needless to say, bulge bracket investment banks are the biggest investment banks in the entire world.

Mid-Market Investment Banks: After the bulge bracket banks, the next category of investment banks is called the mid-market investment banks. As the name suggests, the target mid-market clients and deals. This means that their focus is on deals that are too big for boutique firms but too small for bulge brackets. Their deal sizes commonly hover around $500 million to $1 billion.

Mid-market investment banks are not famous household names. However, they often have significant experience in the investment banking domain and are well known amongst the financial community. The breadth of services that they offer is very similar to what the bulge bracket firms have to offer. However, they tend to have lesser geographical reach.

Mid-market investment banks are often concentrated in a particular geographical era. They might have several offices in the same country or region. However, they do not have a presence on the global stage. Fortune 500 companies and other global behemoths seldom use the services of mid-market banks. Their services are mostly used by medium scale enterprises.

Elite Boutique Investment Banks: Elite boutique investment banks tend to focus on fewer activities. They do not get engaged in every activity that bulge bracket firms have to offer. Some of these elite boutiques will be limited to one particular sector. For instance, there will be some elite boutique investment banks that will focus only on capital restructuring, whereas there will be others who will only focus on advisory services for mergers and acquisitions.

Sometimes, elite services investment banks tend to restrict their activities to a particular industry. This would mean that they only deal with clients in the oil and gas or the consumer goods sector. It needs to be understood that elite boutique investment banks are called elite for a reason. The deal sizes that they are engaged in are somewhat equivalent to the deal size of mid-market firms. In fact, sometimes, the deal sizes are as large as bulge bracket firms.

Regional Boutique Investment Banks: Regional boutique banks are the smallest type of investment banks. They often undertake deals with small local businesses. The typical deal size of the regional boutique investment bank is less the $10 million. However, it is not uncommon for them to be involved in deals of up to $50 million. Also, they tend to have limited geographical reach. Since they deal with smaller firms, they do not need to have capabilities such as management of public issues or mergers and acquisitions advisory. They generally help the companies raise debt. There aren’t many equity investors who want to invest in these small startup companies. Even if such investments happen, they happen via venture capitalists and angel investors. The services of regional boutique investment banks are generally not employed in such cases.

Information about regional boutique banks is not available in the public domain since they do not disclose much information.

Each different type of investment bank has its own pros and cons. Based on the deal size as well as the type of service which is required by the clients, the different types of investment banks can be chosen.