Investment Banking Industry Profile

The US investment banking industry includes about 3,000 companies with combined annual revenue of about $125 billion. Major companies include Bank of America's Merrill Lynch, Morgan Stanley, Goldman Sachs, Lazard, and Jefferies. Investment banking is highly concentrated: the largest 50 firms generate more than 90 percent of industry revenue.

Major investment banks based outside the US include Barclays Capital (UK), CITIC Securities (China), Nomura (Japan), and UBS Investment Bank (Switzerland). London is Europe's dominant financial hub, while Hong Kong is China's primary financial center. Investment banks are increasingly engaging in deals in emerging markets: nine of 2009's 10 biggest IPOs came from emerging markets, including six from China.

COMPETITIVE LANDSCAPE

Demand is driven by economic activity that results in company mergers, acquisitions, or public financing. The profitability of an investment bank depends on its ability to accurately assess both the value of a business transaction and the readiness of the market to buy the attendant debt or equity. Big firms have an advantage because large customer transactions require firms with substantial financial resources. Small investment banks can compete by participating in syndications and operating in regional markets or specialized industries. Although labor-intensive, the industry produces very high value: average annual revenue per employee at large firms is over $1 million.

The global financial crisis of 2008-2009 dramatically altered the landscape of the investment banking industry. The demise of firms such as Lehman Brothers ...