A DISSERTATION REPORT

on
“Investment Banking Industry”

SUBMITTED AS
Partial Fulfilment of Two-Year Full-Time
POST GRADUATE DIPLOMA in MANAGEMENT

SUBMITTED BY:
Anubhav Kumar
Roll No.: 20076
(BATCH of 2022)

Submitted To:
Dr. D.Y. Patil B-School
Sr. No. 87-88, Bengaluru-Mumbai Express Bypass, Tathawade, Pune
MAHARASHTRA - 411033
ACKNOWLEDGEMENT

I am highly thankful to Dr. D.Y. Patil B-School for allowing me to work on this report and completing
the report as partial fulfillment of my course.

Further, I am paying my gratitude towards Dr. Amol Gawande, Director, Dr. D. Y. Patil B-School for
his encouragement and endless motivation during the completion of the report.

This report would have been a dream without the support of Dr. Atul Kumar, guide. He has been a great
source of inspiration for me. My special thanks to him for his co-operation and special guidance.

I am also thankful to all faculties of Dr. D. Y. Patil B-School as well as my friends who helped me in
the completion of this report.

Last but not least I am grateful to all those visible and invisible hands that helped me throughout the
successful completion of this project.

(Anubhav Kumar)
DECLARATION
I hereby declare that the report is submitted by me to the DR. D. Y. PATIL B-SCHOOL, is a benefited
work undertaken by me for the fulfillment of the award of POST GRADUATE DIPLOMA IN
MANAGEMENT, same is not submitted to any other college or institution.

DATE: Anubhav Kumar

PLACE: Pune
TABLE OF CONTENTS
SR.
PARTICULARS PAGE NO.
NO.
1. Executive Summary 5

2. Objectives of Report 6

3. Industry Analysis 7

4. P.E.S.T. Analysis 17

5. Recent trends in the industry 21 - 26

6. Industry challenges 28

7. The future of investment banking 29

8. Conclusions 31

9. Key Learnings 32

10. References 33
EXECUTIVE SUMMARY

Investment banking is the division of a bank or financial institution that serves governments,
corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions
(M&A) advisory services. Investment banks act as intermediaries between investors (who have money
to invest) and corporations (who require capital to grow and run their businesses).

There can sometimes be confusion between an investment bank and the investment banking division
(IBD) of a bank. Full-service investment banks offer a wide range of services that include underwriting,
M&A, sales and trading, equity research, asset management, commercial banking, and retail banking.
The investment banking division of a bank provides only the underwriting and M&A advisory services.

In this report, I have tried to look at all the aspects of the investment banking industry right from the
history to all the transformation in the past to the prospective future which the industry has.
OBJECTIVES OF REPORT
Explain at least 2 objectives of the industry analysis. E.g.
1. To study the current trends in Investment Banking industry.
2. To understand key factors responsible for growth of the industry.
3. To analyse the current status of Indian investment banking industry as compared to
world/Japan/Nepal.
INDUSTRY ANALYSIS

An investment bank is a financial institution that assists individuals, corporations, and governments
in raising capital by underwriting or acting as the client's agent in the issuance of securities (or both).
An investment bank may also assist companies involved in mergers and acquisitions and provide
ancillary services such as market making, trading of derivatives and equity securities, and FICC services
(fixed income instruments, currencies, and commodities).
Unlike commercial banks and retail banks, investment banks do not take deposits. From 1933 (Glass–
Steagall Act) until 1999 (Gramm–Leach–Bliley Act), the United States maintained a separation between
investment banking and commercial banks. Other industrialized countries, including G8 countries, have
historically not maintained such a separation. As part of the Dodd–Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act of 2010), Volcker Rule asserts full institutional
separation of investment banking services from commercial banking.
There are two main lines of business in investment banking.

 The "sell side" involves trading securities for cash or for other securities (e.g. facilitating
transactions, market-making), or the promotion of securities (e.g. underwriting, research, etc.).
 The "buy side" involves the provision of advice to institutions concerned with buying investment
services. Private equity funds, mutual funds, life insurance companies, unit trusts, and hedge
funds are the most common types of buy side entities.

Therefore, it could be inferred that investment banks are those institutions that are counterparts of banks
in the capital markets in the function of intermediation in the resource allocation. Nevertheless, it would
be unfair to conclude so, as that would confine investment banking to very narrow sphere of its activities
in the modern world of high finance. Over the decades, backed by evolution and also fuelled by recent
technological developments, investment banking industry has transformed repeatedly to suit the needs
of the finance community and thus become one of the most vibrant and exciting segment of financial
services. Investment bankers have always enjoyed celebrity status, but at times, they have paid the price
for the price for excessive flamboyance as well.

To continue from the above words of John F. Marshall and M.E. Eills,

‘Investment banking is what investment banks do’.

This definition can be explained in the context of how investment banks have evolved in their
functionality and how history and regulatory intervention have shaped such an evolution. Much of
investment banking in its present form, thus owes its origins to the financial markets in USA, due to
which, American investment banks have been the leaders in the European markets as well. Therefore,
the term ‘investment banking’ can arguably be said to be of American origin.
An investment bank can also be split into private and public functions with an information barrier which
separates the two to prevent information from crossing. The private areas of the bank deal with private
insider information that may not be publicly disclosed, while the public areas such as stock analysis deal
with public information.
An advisor who provides investment banking services in the United States must be a licensed broker-
dealer and subject to Securities & Exchange Commission (SEC) and Financial Industry Regulatory
Authority (FINRA) regulation.
History of Investment banking
Given its history, merchant banking is often thought of as a European, and especially British, financial
specialty, and British institutions continue to maintain a major presence in this area. Since the 1800s
and even earlier, however, U.S. firms (such as J.P. Morgan) also have been active in merchant banking.
However, although both investment banks and commercial banks, as well as other types of businesses,
have been authorized to engage in private equity investment in the United States, financial institutions
have not been major providers of private equity.
Until the 1950s, U.S. investors in private equity were primarily wealthy individuals
and families. In the 1960s and 1970s, corporations and financial institutions joined them in this type of
investment. (In the 1960s, commercial banks were the major providers of one kind of private equity
investing, venture-capital financing.) Through the late 1970s, wealthy families, industrial corporations,
and financial institutions, for the most part investing directly in the issuing firms, constituted the bulk
of private equity investors.
In the late 1970s, changes in the Employee Retirement Income Security Act (ERISA) regulations, in
tax laws, and in securities laws brought new investors into private equity. In particular, the Department
of Labor's revised interpretation of the "prudent man rule” spurred pension fund investment in private
equity capital.
Currently, the major investors in private equity in the United States are pension funds, endowments and
foundations, corporations, and wealthy investors; financial institutions-both commercial banks and
investment banks-represent approximately 20 percent of total private equity capital, divided
approximately equally between the two.
The market also has grown dramatically in recent years, increasing from approximately $4.7 billion in
1980 to its 1999 figure. Despite this tremendous growth, the private equity market is extremely small
compared with the public equity market, which was approximately $17 trillion at year-end 1999.

How it all began

While the term ‘investment bank’ gained popularity in the late 19th – early 20th century, and largely in
relation to the US, but investment banking services existed long before Wall Street. Most of the oldest
investment banks started out as merchants trading in commodities such as spices, silk, metals and so on.
In the UK, whose capital still remains one of biggest financial centers in the world, the term ‘merchant
bank’ is used to describe an investment bank. The nineteenth century saw the rise of several prominent
banking partnerships such as those created by the Rothschilds, The Barings and The Browns.
At this point, investment banking had started to evolve into its modern form, with banks underwriting
and selling government bonds.
Going to America
It wasn’t long before investment banks emerged on the other side of the Atlantic where the industry
received a boost during the Civil War when banking houses were syndicated to meet the federal
government’s need for money to fund its war efforts. The 1800s also saw the birth of some of the most
famous investment banks, some of which operate until this day, such as JP Morgan and Goldman Sachs.
The 19th and the beginning of the 20th century marked a dramatic expansion for the investment banking
industry which benefitted from the prosperous years following the First World War, with the period
sometimes referred to as a golden age for investment banking.

The Great Depression

This dramatic rise, however, was not without consequences. Excessive market speculation, and
unsustainable surges in stock prices, among other things, triggered the market crash of 1929, which in
turn sparked the Great Depression.
The Great Depression was a difficult time for investment banks, some of which were forced to merge
to survive. The crash also triggered more stringent regulation for the industry, including the famous
Glass-Steagall Act of 1933 which required the separation of commercial banking from investment
banking. JP Morgan for instance was forced to spin off its securities underwriting division to form
Morgan Stanley & Co as an independent investment bank.

Second “Golden Age”

The second half of the 20th century marked another golden age for investment banks, which benefitted
from a surge in dealmaking. Banks profited from being advisers on mergers and acquisitions as well as
public offerings of securities.
This trend started changing in the 1980s when the focus shifted from dealmaking to trading. This process
was underpinned by advances in computer technologies which enabled banks to use algorithms to
develop and execute trading strategies, profiting from small changes in stock prices. The spirit of the
times is perfectly captured in Oliver Stone’s 1987 movie ‘Wall Street’.
The second golden age of investment banks continued in the 1990s, characterized by the dot-com boom
and bubble. The end of the decade, however, brought the repeal of the Glass-Steagall Act, which
effectively removed the separation between Wall Street investment banks and commercial banks,
exacerbating the financial crisis of 2007.

The Financial Crisis

The biggest hit to investment banks since the Great Depression (1929-1939) was brought by the
speculative bubble in housing prices, as well as overreliance on sub-prime mortgage lending which
damaged financial institutions globally. Among the investment banking victims of the global financial
crisis were Bear Stearns and Lehman Brothers. On the other side of the Atlantic, the UK government
was forced to bail out Royal Bank of Scotland and Lloyds, while Barclays turned to the Middle East
to raise capital privately. The financial crisis triggered consolidation in the industry, with JPMorgan &
Chase acquiring Bear Sterns, while Bank of America snapped up Merrill Lynch.
On Stranger Tides
While the financial crisis now remains in history, its repercussions can still be felt today. One of the
most notable consequences is the weakened dominance of Wall Street which, however, has partly
facilitated the rise of new financial centers around the world, such as Singapore and Hong Kong which
are taking advantage of the economic boom in China and Southeast Asia. Also, much like in the wake
of the Great Depression, banks are facing more stringent regulations such as stress tests, while the UK
for instance is looking to implement ring-fencing rules which, similarly to the Glass-Steagall Act, aim
to separate lenders’ retail operations from riskier investment banking.
Still, despite the heavy hit from the financial crisis, trust in the investment banking industry has started
to creep back. Investment banks are also seeing their profits rise, benefitting from the M&A frenzy seen
in the past few years, which is now soaring to pre-crisis levels. And while even the best of experts would
have a hard time predicting where the industry is currently headed, if the seemingly cyclical history of
investment banking is anything to go by, then another golden age might as well be on the cards.

Services rendered by Investment Banks:

i. Mergers and acquisitions (M&A), and demergers involving private companies.
ii. Mergers, demergers and takeovers of public companies, including public-to-private deals.
iii. Management buy-outs, buy-ins or similar of companies, divisions or subsidiaries—typically
backed by private equity.
iv. Equity issuance by companies, including the listing of companies on a recognised stock
exchange by way of an initial public offering (IPO) and the use of online investment and share-
trading platforms; the purpose may be to raise capital for development or to restructure
ownership.
v. Financing and structuring joint ventures or project finance.
vi. Raising infrastructure finance and advising on public-private partnerships and privatisations.
vii. Raising capital via the issuance of other forms of equity, debt, hybrids of the two, and related
securities for the refinancing and restructuring of businesses.
viii. Raising seed, start-up, development or expansion capital.
ix. Raising capital for specialist corporate investment funds, such as private equity, venture capital,
debt, real estate and infrastructure funds.
x. Secondary equity issuance, whether by means of private placing or further issues on a stock
market, especially where linked to one of the transactions listed above.
xi. Raising and restructuring private corporate debt, or debt funds.
Core Investment Banking Activities:
1. Underwriting Services
Underwriting is the process of raising capital through selling stocks or bonds to investors (e.g., an initial
public offering IPO) on behalf of corporations or other entities. Businesses need money to operate and
grow their businesses, and the bankers help them get that money by marketing the company to investors.
There are generally three types of underwriting:
Firm Commitment – The underwriter agrees to buy the entire issue and assume full financial
responsibility for any unsold shares.
Best Efforts – Underwriter commits to selling as much of the issue as possible at the agreed-
upon offering price but can return any unsold shares to the issuer without financial responsibility.
All-or-None – If the entire issue cannot be sold at the offering price, the deal is called off and
the issuing company receives nothing.
Once the bank has started marketing the offering, the following book-building steps are taken to price
and complete the deal.

2. Corporate finance :

a) Mergers & acquisitions, demergers or takeovers involving private companies

Mergers and acquisitions (M&A) advisory is the process of helping corporations and institutions find,
evaluate, and complete acquisitions of businesses. This is a key function in i-banking. Banks use their
extensive networks and relationships to find opportunities and help negotiate on their client’s behalf.
Bankers advise on both sides of M&A transactions, representing either the “buy-side” or the “sell-side”
of the deal.
b) Management Buyouts

A Management Buyout (MBO) is a form of acquisition in which a company's existing managers

acquire a large part, or all, of the company, whether from a parent company or non-artificial person(s).
Management-, and/or leveraged buyout became noted phenomena of 1980s business economics. These
so-called MBOs originated in the US, spreading first to the UK and then throughout the rest of Europe.
The venture capital industry has played a crucial role in the development of buyouts in Europe,
especially in smaller deals in the UK, the Netherlands, and France.
Management buyouts are similar in all major legal aspects to any other acquisition of a company. The
particular nature of the MBO lies in the position of the buyers as managers of the company and the
practical consequences that follow from that. In particular, the due diligence process is likely to be
limited as the buyers already have full knowledge of the company available to them.

3. Sales and trading

On behalf of the bank and its clients, a large investment bank's primary function is buying and selling
products.
Sales is the term for the investment bank's sales force, whose primary job is to call on institutional and
high-net-worth investors to suggest trading ideas (on a caveat emptor basis) and take orders. Sales desks
then communicate their clients' orders to the appropriate trading rooms, which can price and execute
trades, or structure new products that fit a specific need. Sales make deals tailored to their corporate
customers' needs, that is, their terms are often specific. Focusing on their customer relationship, they
may deal on the whole range of asset types. (In distinction, trades negotiated by market-makers usually
bear standard terms; in market making, traders will buy and sell financial products with the goal of
making money on each trade.
4. Research

The securities research division reviews companies and writes reports about their prospects, often with
"buy", "hold", or "sell" ratings. Investment banks typically have sell-side analysts which cover various
industries. Their sponsored funds or proprietary trading offices will also have buy-side research.
Research also covers credit risk, fixed income, macroeconomics, and quantitative analysis, all of which
are used internally and externally to advise clients; alongside "Equity", these may be separate "groups".
The research group(s) typically provide a key service in terms of advisory and strategy.
While the research division may or may not generate revenue (based on policies at different banks), its
resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and
investment bankers by covering their clients. Research also serves outside clients with investment advice
(such as institutional investors and high-net-worth individuals) in the hopes that these clients will
execute suggested trade ideas through the sales and trading division of the bank, and thereby generate
revenue for the firm.

5. Risk management

Risk management involves analyzing the market and credit risk that an investment bank or its clients
take onto their balance sheet during transactions or trades.
Middle office "Credit Risk" focuses around capital markets activities, such as syndicated loans, bond
issuance, restructuring, and leveraged finance. These are not considered "front office" as they tend not
to be client-facing and rather 'control' banking functions from taking too much risk. "Market Risk" is
the control function for the Markets' business and conducts review of sales and trading activities utilizing
the VaR model. Other Middle office "Risk Groups" include country risk, operational risk, and
counterparty risks which may or may not exist on a bank to bank basis.
Front office risk teams, on the other hand, engage in revenue-generating activities involving debt
structuring, restructuring, syndicated loans, and securitization for clients such as corporates,
governments, and hedge funds. Here "Credit Risk Solutions", are a key part of capital market
transactions, involving debt structuring, exit financing, loan amendment, project finance, leveraged buy-
outs, and sometimes portfolio hedging. The "Market Risk Team" provides services to investors via
derivative solutions, portfolio management, portfolio consulting, and risk advisory.

Investment Banking Clients

Investment bankers advise a wide range of clients on their capital raising and M&A needs. These clients
can be located around the world.
Investment banks’ clients include:
Governments – Investment banks work with governments to raise money, trade securities, and buy or
sell crown corporations.
Corporations – Bankers work with both private and public companies to help them go public (IPO),
raise additional capital, grow their businesses, make acquisitions, sell business units, and provide
research for them and general corporate finance advice.
Institutions – Banks work with institutional investors who manage other people’s money to help them
trade securities and provide research. They also work with private equity firms to help them acquire
portfolio companies and exit those positions by either selling to a strategic buyer or via an IPO.
History of Investment Banking in India
The history of investment banking in India traces back to when European merchant banks first
established trading houses in the region in the 19th century. Since then, foreign banks (non-Indian) have
dominated investment and merchant banking activities in the country.
In the 1970s, the State bank of India entered the business by creating the Bureau of Merchant Banking
and ICICI Securities became the first Indian financial institution to offer merchant banking services.
By 1980, the number of merchant banks had risen to more than 30. This growth in the financial services
industry included the rapid expansion of commercial banks and other financial institutions.

Association of Investment Bankers of India

According to the Association of Investment Bankers of India (AIBI), the merchant banking industry
started to take off in the 1990s with over 1,500 merchant bankers registering with the Securities and
Exchange Board of India (SEBI). To regulate and govern the new wave of banks that opened up, the
Association of Investment Bankers of India (AIBI) was created to ensure members were in
compliance with banking regulations and that their activities were kept in check.
AIBI’s purpose is to ensure members institutions follow its ethical and legal practices, as well as to
promote the industry of investment banking in India and the business interests of its members.

Breakup of the Industry:

As an industry, it is broken up into the Bulge Bracket (upper tier), Middle Market (mid-level
businesses), and Boutique Market (specialized businesses). There are various trade associations
throughout the world which represent the industry in lobbying, facilitate industry standards, and publish
statistics. The International Council of Securities Associations (ICSA) is a global group of trade
associations.
In the United States, the Securities Industry and Financial Markets Association (SIFMA) is likely
the most significant; however, several of the large investment banks are members of the American
Bankers Association Securities Association (ABASA), while small investment banks are members of
the National Investment Banking Association (NIBA).
In Europe, the European Forum of Securities Associations was formed in 2007 by various European
trade associations. Several European trade associations (principally the London Investment Banking
Association and the European SIFMA affiliate) combined in November 2009 to form the Association
for Financial Markets in Europe (AFME).
In the securities industry in China, the Securities Association of China is a self-regulatory organization
whose members are largely investment banks.
Some of the world’s best Investment Banks:
#1. JPMorgan Chase & Co.
As of June 2022 JPMorgan Chase has a market cap of $381.02 Billion. This makes JPMorgan
Chase the world's 16th most valuable company by market cap according to our data. The market
capitalization, commonly called market cap, is the total market value of a publicly traded
company's outstanding shares and is commonly used to mesure how much a company is worth.

This massive company is made up primarily of two divisions. The Chase side of the company
is a business and commercial bank. The JPMorgan brand is focused more on investments,
including investment banking. The firm reported $3.7 trillion in total assets at the end of 2021.

#2. Goldman Sachs

Goldman Sachs is also one of the most prestigious investment bank. It is a public company that's
more than 150 years old; it had nearly $2.5 trillion in assets under supervision at the end of
2021.12 Many high-ranking government officials have spent time at Goldman. They include
U.S. Treasury secretaries, White House advisors, and leaders in central banks and governments
around the world. That makes it a major power hub on Wall Street.

#3. Morgan Stanley

With roots going back to 1935, Morgan Stanley is another major investment bank in the U.S.
With $6.5 trillion in assets under management, it falls squarely in the “too big to fail” banking
stable.10 The current Morgan Stanley operation came about in 1997 with a merger creating
Morgan Stanley Dean Witter Discover & Co. The name went back to simply Morgan Stanley in
2001.

#4. Bank of America Merril Lynch

The investment banking arm of Bank of America, this investment bank came about through a
long chain of mergers, most recently Bank of America’s acquisition of the major investment
bank Merrill Lynch during the financial crisis of 2008.12 It operates around the world with major
centers in Hong Kong, London, and New York. Bank of America is the second-biggest U.S.
bank, with $3.1 trillion in assets.

Bank of America Merrill Lynch investment banking offerings include mergers and acquisitions,
debt and equity offerings, lending, trading, risk management, and other services. The old Merrill
Lynch wealth advising division lives on as Merrill Lynch, also owned by Bank of America but
with separate operations.

#5. Citigroup
Citigroup is the third largest banking institution in the United States; alongside JPMorgan Chase,
Bank of America, and Wells Fargo. It is one of the Big Four banking institutions of the United
States. It is considered a systemically important bank by the Financial Stability Board and is
commonly cited as being too big to fail. It is one of the nine global investment banks in the Bulge
Bracket.
Citigroup is ranked 33rd on the Fortune 500 as of 2021. Citigroup has approximately 200 million
customer accounts and does business in more than 160 countries. It has 204,000 employees,
although it had 357,000 employees before the financial crisis of 2007–2008, when it was bailed
out by a massive stimulus package from the U.S. government.
#6. Barclays

Barclays may not be the biggest name on this side of the pond, but in the UK, everyone is familiar
with Barclays. Headquartered in London, Barclays was founded in 1690 and holds £1.4 trillion
in assets (around $1.9 trillion USD).56

Consumers in the U.S. may be familiar with Barclays credit cards, and a consumer banking
service is also under development for the U.S. It has a major presence in New York and other
world financial centers, both in and outside of Europe.

Barclays made a big leap into U.S. investment banking with the acquisition of Lehman Brothers
in 2008. Another investment bank with a history of scandal, Barclays took criticism for its
compliance in the Lehman acquisition and made headlines in 2012 for its role in the LIBOR
scandal.

#7. Credit Suisse

Investors around the world often look to the Swiss currency as a safe haven when the U.S. dollar
appears unstable. Swiss banks also have a reputation for professionalism and privacy when
handling large financial transactions. One leader among Swiss banks is Credit Suisse, tracing its
roots back to 1856.
Credit Suisse came under fire from U.S. regulators for allowing its well-known client
confidentiality to help others avoid paying taxes. Credit Suisse has CHF 1.62 trillion in assets,
equivalent to about $1.75 trillion USD.
The company has a major U.S. presence and operates in major financial centers around the
world.
P.E.S.T Analysis
If there is one thing that 2020 has taught us, it’s that no (wo)man (or business) is an island. All companies
work within a very delicate and connected ecosystem that’s influenced by both their macro and micro
environment. In order to stay competitive and agile, executives must be aware of the prominent themes
gaining traction – something that this P.E.S.T analysis sets out to find.

Political
The media intelligence analysis revealed key political events and policy initiatives held particular
relevance for investment banks on a global scale in H1 of 2020. Issues such as China – US trade, Brexit,
and economic rescue packages post COVID-19 were highlighted in particular, whilst broader state
ventures across the globe continued to hold investment opportunities for the corporate banking arena.
State trade deals between China and the US have been linked with rising and falling tensions, and it’s
clear that this has generated a competitive and uncertain corporate and investment terrain. On a lighter
note, various state initiatives by both the US and China have generated opportunities for investment
banks. For example, we’ve seen continued efforts by China to encourage foreign investors with the likes
of Citigroup, Morgan Stanley, JP Morgan and Goldman Sachs already enjoying majority stakes in China
units.

Environmental
Environmental concerns featured prominently, with two key trends emerging in particular:

 The expansion of investment initiatives towards green initiatives

 The continued large-scale investment in high climate risk industries such as the oil industry

We saw coverage peak leading up to the World Economic Forum Annual Meeting Davos 2020 and
investment banks including UBS Bank, JP Morgan Chase, Citigroup, Bank of America, Barclays and
Morgan Stanley were each mentioned in relation to this topic.
If further note was the contrasting mentions of some big-name investment banks
as both furthering the fight against climate change, as well as hindering it.

Social
Social Consciousness (or Social Responsibility) has become an issue of importance for corporations and
financial institutions. In particular, calls for gender and racial diversity have echoed in the realm of
corporate finance and investment, with big-name investment group, Goldman Sachs, releasing a
requisite of at least one diverse board member for companies to be taken public by the investment group.
“Goldman Sachs CEO, David Solomon, went on to state that IPOs which have included
female board members have outperformed those without female board members over
the last 4 years in the US.”

Sentiments regarding gender diversity and equality in investment were also apparent in Europe, with
emphasis placed on inequalities in Britain with anti-female biases and self-limitation highlighted as
causes for the lack of female representation in the financial market. Morgan Stanley attracted negative
coverage in this regard, with former Head of Diversity, Marilyn Booker, suing the investment bank for
refusing to adopt her plans to address racial bias within the firm and firing her instead.
Technological

In H1 2020, tech played a crucial role within financial markets and financial investments, not only as
new streams of investment opportunities, but also in the development of the industry. This period
witnessed a variety of industry related development in Fintech, cryptocurrency, technological
infrastructure and tech investment opportunities.

FinTech 2.0 claimed an industry technological development which specifically sought to cater to older
generations, addressing the failure of FinTech to generate breakthroughs in line with the high levels of
investment it received. Highlighting concerns of longevity and financial stability, the advent of
FinTech 2.0 argued for progressive business, governments and financial institutions structured towards
future needs with the projection of longer investment horizons.

Alongside FinTech, the development of 5G also poses interesting development opportunities for
financial institutions. For example, improved technical processes and communication could impact
investment banking and allow banks to connect effortlessly and deploy solutions to clients with the
addition of AI algorithms, real-time translation, IoT-based asset management and improved security.

The assurance of effective cyber security benefits the investment banking industry through the
protection of sensitive and proprietary data by evolving forms of authentication, encryption as well as
identifying system weaknesses in advance. Investment banking in particular benefits from the promise
of security alongside efficiency provided by frontline tech development, such as was seen in the case of
Deutsche Bank and CIMB Singapore who utilise tech to provide key services.

Industry Forecast (Expected Market Growth)

The global investment banking & trading services market size was valued at $267,864.0 million in 2019,
and is projected to reach $520,026.0 million by 2027, growing at a CAGR of 5.8% from 2020 to 2027.
Rise in huge financial challenge among business, investors, & other external forces that affects a
business to arrange finances for their business expansions has become the foremost growth factor for
the market. In addition, surge in demand for fundamental advisory from corporate companies and
increase in need for capital requirements & business expansion among firms are the major factors that
propel the investment banking & trading services market growth.
There is rapid growth in cyber-attacks & data thefts and stringent government regulations affecting the
investment banking & trading services industry as several countries have specific regulations for
financial operations in the market. These factors are expected to limit the investment banking & trading
services market growth. Furthermore, developing economies offer significant opportunities for
investment banking solution providers to expand & develop their offerings, especially among emerging
economies such as Australia, China, India, Singapore, and South Korea. In addition, rise in mergers &
acquisitions (M&A) and continuous improvement in business environment are expected to provide
lucrative opportunities during to the investment banking & trading services forecast period.
On the basis of industry vertical, the BFSI segment acquired the major share of the investment banking
& trading services market in 2019, and is projected to maintain its dominance during the forecast period.
Moreover, investment banking primarily provides trading & related services such as underwriting and
securities sales to manage risk & raise funds. In addition, demand for these services among financial
operators such as banks, insurance companies, brokerages, and financial advisors are continuing to rise
in the market.
The report focuses on growth prospects, restraints, and trends of the investment banking & trading
services market analysis. The study provides Porter’s five forces analysis to understand the impact of
various factors such as bargaining power of suppliers, competitive intensity of competitors, threat of
new entrants, threat of substitutes, and bargaining power of buyers on the investment banking & trading
services market.

Segment review
The investment banking & trading services market is segmented on the basis of service type, industry
vertical, and region. On the basis of service type, the market is segmented into equity underwriting &
debt underwriting services, trading & related services, financial advisory, and others. Based on industry
vertical, the market is segmented into BFSI, healthcare, manufacturing, energy & utilities, IT & telecom,
retail & consumer goods, media & entertainment, and others. Region-wise, the market is analyzed across
North America, Europe, Asia-Pacific, and LAMEA.
COVID-19 impact analysis
In the wake of COVID-19 pandemic, investment banking & trading services providers has experienced
significant revenue growth in the year 2020. However, key players have faced several challenges such
as market democratization, increased client sophistication, evolving financial regulations, a shift to
remote working arrangements, and rapid technology advances. Moreover, banks & financial institutions
providing investment banking solutions are continuing to retool existing business models and
operational platforms for sustaining in the market during the pandemic situation.

Top impacting factors

 Increase in need for capital requirements & business expansion among firms

Several enterprises or firms operating at a large-scale & medium scale generally require capital
& expansion of existing business in terms of size and operations. In addition, investment banking
& trading services helps these firms raise funds and plays a vital role in the launch of initial
public offerings (IPOs) to meet their needs of capital requirement & business expansion.
Moreover, in firms having limited access to funds, investment banking helps in preparing a bond
offering, negotiates a merger, or arranges a private placement of bonds for running their business
operations. Therefore, capital requirement by both large-scale & medium scale firms is
becoming a major driving factor for the investment banking & trading services market.

 Untapped potential of emerging economies

Developing economies offer significant opportunities for investment banking & trading services
providers to expand their offerings as financial activities are continuing to rise in the emerging
economies. High investments for digital transformation, adoption of new technologies, such as
artificial intelligence, Big Data, machine learning, & chatbots, and rapid expansion of domestic
enterprises especially among countries such as Australia, China, India, Singapore, and South
Korea are expected to create potential for the investment banking & trading services market in
the coming years. Moreover, in these developing countries, the economy is rising at a faster rate
and business activities are expanding. These factors are creating a huge demand for investment
banking & trading services to keep up with the growing environment.
Trends to keep an eye on in the investment banking industry in 2022
Firms frequently change their business models in order to respond to internal and external challenges.
This study aims to explore how investments banks adjust their business models in response to internal
and external challenges. Based on a qualitative data from ten major investment banks operating in the
largest financial market in the Middle East, we show that investment banks can achieve resilience by
adjusting their business models through continuous activity changes in response to internal and external
challenges. Specifically, investment banks adjust their business models through deploying alternative
combinations of activities from a broad repertoire of activities. Within the same bank, divisions that
respond to external challenges tend to sustain their performance, whereas resilient divisions that respond
to both internal and external challenges tend to bounce back or achieve substantial increase in
performance levels. This study contributes to the literature by proposing resilience as an alternative
approach to business model innovation and by providing insight into how firms adjust their business
models by altering specific activities in response to both internal and external challenges.

#1. Sustainable finance achieving new height

Sustainable Finance is not a new concept, but it has been gaining popularity lately and hitting new
milestones. Investors and stakeholders have been showing more interest in it following the COVID-19
pandemic’s impact and events like the COP26 climate conference, where major global economies
announced plans to work towards achieving net-zero carbon emissions. These events have also propelled
the growth of ESG investments in the market. Corporate stakeholders and investors are increasingly
focusing on implementing mandatory ESG policies and regulations in their firms now. Of all the
avenues, sustainability-linked bonds (SLB) have been booming thanks to climate change commitments.
The first SLB was issued in 2019, with total global issuances reaching USD8.2bn at the time, as per
Refinitiv. Since then, it has grown over 11x to USD92.9bn in 2021. The growth trajectory is expected
to continue as the focus is shifting more and more towards sustainability.
#2. SPACs, Direct Listings, Dutch Auctions, Crowdfunding, Private Stock Trading Platforms

Special Purpose Acquisition Companies (SPACs) have become hugely popular after 2020 as funding
vehicles to take companies public instead of the traditional IPO. But it’s important to consider SPACs
in the larger context of change in the way companies go public, beginning 20 years ago when Bill
Hambrecht pioneered the idea of the “Open IPO”. Change that has accelerated in the last few years and
in time, which will transform the crucial business of investment banking.
Investment banks (like Goldman Sachs and Morgan Stanley) perform a lot of services but the four major
ones are – raising funds for private companies, helping companies go public, M&A, and shopping
around private securities. There are innovations and developments taking place in each of these areas,
and together they reflect a transformation of investment banking. Technological innovation and a new
crop of FinTechs are enabling new business models and novel approaches that in time, will transform
this critical capital markets function.

#3. Innovation in Public Listing: Augmenting banker-driven models with market-driven

mechanisms

While going public, private companies have long used investment bankers to underwrite their offering,
following a traditional IPO process and model. Bankers carefully build a book of institutional orders,
determine a listing price for the new issue, and stabilize the offering once it lists. Bankers price the new
issue conservatively, so there is a ‘pop’ or gain in the IPO price on the first day of trading, which has
been 16-19% over 2018-2020 according to Deal Logic. This is a reward for institutional investors who
take the risk of investing in the new issue before it goes public, but on the other hand it is money left on
the table by the issuer.

An alternative to the traditional banker-driven IPO model is a true market-driven process of pricing and
placing a new issue, with limited involvement of investment bankers.

Direct Listing and Dutch Auctions are two market-driven models where the price of a new issue is
determined by the free interaction of demand and supply on opening day instead of bankers carefully
constructing an initial order book from institutional investors. Prominent deals executed via a Direct
Listing (DL) include Spotify and Slack.
#4. Open IPO

This is a particular type of Dutch Auction popularized by Bill Hambrecht (Founder, CEO of WR
Hambrecht & Co) who brought 21 companies public using this model, including Google, Interactive
Brokers, and Morningstar. The average gain in the IPO price on issuing day for the Open IPOs conducted
by WR Hambrecht & Co was 3.1%, compared to 16-19% for traditional IPOs as mentioned above. This
is a major argument in favor of Dutch auctions over the traditional banker-driven process as it gives
most of the capital raised to the issuing firm instead of institutional shareholders.

#5. Special Purpose Acquisition Company (SPAC),

SPAC a.k.a. blank check company, is an alternate financial structure to raise capital and go public. It
involves raising capital to create a shell company which then finds under-appreciated businesses to
acquire and take public via the SPAC. There are several advantages of this model, the biggest being the
ability to avoid the expensive and lengthy traditional IPO process.

#6. Innovation in M&A: Incumbent banks roll-out deal platforms, plus some FinTechs
M&A advisory is the most lucrative banking activity and until recently, has remained very manual and
high touch. While market data vendors (Bloomberg, Refinitiv) and specialist providers (Factiva,
Dealbook) have long offered data to support M&A deals, the core process of lead generation, due
diligence, and deal negotiation have remained human-intensive. But just like other areas of investment
banking, technology and innovation are encroaching into this space, albeit at a slower pace.
Goldman Sachs just developed an M&A platform called Gemini used by its bankers and offered to
clients so they can identify sale and spin-off opportunities, or takeover targets. The service helps a firm
benchmark the performance of individual businesses with its peers, so a big corporate like P&G can
decide strategic options for each business, whether to help it grow through an acquisition or to divest it.
Goldman Sachs just developed an M&A platform called Gemini used by its bankers and offered to
clients so they can identify sale and spin-off opportunities, or takeover targets. The service helps a firm
benchmark the performance of individual businesses with its peers, so a big corporate like P&G can
decide strategic options for each business, whether to help it grow through an acquisition or to divest it.
Similar offerings have been rolled out by JP Morgan and Credit Suisse, though they are not branded
and are less advanced than Gemini. In an effort to streamline the funding process, JPM and some banks
are also testing digital ledger technology for payments settlement and other M&A functions.
Then there are innovative FinTechs that are tackling M&A matchmaking using
technology. Axial (referred to as the tinder for M&A) is a platform for middle-market companies that
uses algorithms to match target companies with potential acquirers. It has processed over 6,000 deals in
the $5-$250M range, charging 0.25% for the average deal compared to 3-5% charged by a traditional
banker.
 #7. Innovation in the trading of Private Securities: Enabling liquidity in privates
With more firms staying private and for longer periods of time before going public, the illiquidity of
private securities has become a crucial issue for investors in the firm and employees with equity. Another
structural problem is that most retail investors and a lot of institutional investors are unable to invest in
private securities, so they are deprived of a crucial source of wealth creation and diversification. Both
these problems are being addressed by deploying innovative technology and by enterprising FinTechs
that are delivering price transparency and liquidity to private securities. SharesPost was the first FinTech
to create a marketplace in 2009 for private securities to be listed and traded, but in the last five years
there has been a flood of new players including EquityZen, GTS-sponsored ClearList, Nasdaq Private
Markets, Forge (merged with SharesPost in May 2020) and Zanbato. Addepar and Carta have also
announced plans to launch the trading of private securities later in 2020.
These FinTechs are focused on improving the private market by sequentially addressing three distinct
challenges about private securities: transparency, price discovery, and liquidity. Addressing these issues
for private securities would make them more appealing to investors.
i. Transparency: make financial data, operating metrics and governance of private companies more
available and standardized so that investors can evaluate them better.
ii. Price discovery: create an environment for market-driven pricing that reduces spreads and
increases execution rates, all at an affordable price.
iii. Liquidity: attract a growing number of issuers and shareholders to list securities on these
exchange-like platforms to drive liquidity.

#8. Innovation in Early-Stage Fund Raising: Traditional crowdfunding and tokenized

securities.
The funding of early-stage private companies has also undergone massive change in the last 10 years
driven by new blockchain-based funding mechanisms called tokenized offerings (initial coin offerings
– ICOs, and security token offerings - STOs), and a massive growth of crowdfunding platforms
like Kickstarter, Indiegogo, AngelList and GoFundMe, that were boosted by the JOBS Act of 2012.
(The JOBS Act is a law to encourage funding of small businesses in the US by easing securities
regulations and enabling firms to use crowdfunding to raise equity capital).
Meanwhile, crowdfunding platforms have grown fast and furiously over 2010-2020 and filled a big void
in the market to fund early-stage startups and projects. There are different market segments: reward-
based, charitable, donation, and equity crowdfunding which is most relevant to this report. Examples
are AngelList, Indiegogo, CircleUp, SeedInvest, and Fundable. Meanwhile, the most active platforms
are in the real estate and property markets. CrowdRise, DiversyFund, and Fundrise are the most
popular real estate platforms, while PropertyTechs like Figure, HomeTap, RoofStock, and Unison are
building two-sided platforms to open up real estate investing to a larger group of retail and institutional
participants.
 #9. Blockchain
Blockchain is at the forefront of emerging technologies that financial institutions believe could profoundly impact
the way they do business. Many financial institutions are using blockchain to build a variety of platforms—such
as payments and trade finance—and are beginning to engage with established cryptocurrencies.

 35 percent of respondents said they were “very” or “extremely” knowledgeable about blockchain.

 40 percent indicated that implementing blockchain at their institutions will be extremely important or
critical in five years.

 13 percent stated that blockchain implementation will be extremely important or critical in the next 12
months.

 23 percent of respondents familiar with blockchain said their institutions have launched or are developing
pilot programs using blockchain applications.

#10. Rising momentum in infrastructure spending globally

Major economies across the globe are realigning their strategies towards infrastructure spending,
especially after COVID-19. Several new initiatives were taken during this time. They include the Build
Back Better World initiative (a G7 global infrastructure initiative worth more than USD40tn), a new
infrastructure bill worth USD2.3tn passed in the US senate to revamp aged infrastructure in the US, the
recent COP26 conference, the implementation of the EUR1.0tn European Green Deal and China turning
to infrastructure-led stimulus (much as it did after the Great Recession in 2008). Infrastructure spending
would be one of the key pillars to help revive pandemic-ravaged economies even in 2022.

#11. Deal acceleration powered by artificial intelligence and predictive analytics

Investment banks aim to exploit the power of artificial intelligence (AI) and machine leaning to revamp
the deal process. These advancements may not be able to replace a human, but they can accelerate the
pace of the deal closure process by making information available significantly faster. If quickly and
widely adopted, investment banks can greatly benefit in terms of cracking deals in this tough competitive
market. These tools also aid in minimising human error in complex documentation, alongside other
efficiency benefits. AI and bots offer a plethora of opportunities for investment banks. Many banks have
worked to compile and leverage decades worth of data on their CRM platforms, which is used to study
predictive bid ranges and spreads to help deal teams make informed decisions, with an eye towards
maximising the success rate while also reducing the time taken to close deals. Banks can also get instant
updates on the behaviour of clients and sponsors using tools such as Einstein Prediction Builder, Einstein
Discovery and Tableau CRM.
#12. Capital market activity slowly paving its way back to pre-pandemic levels
Equities are continuing to provide moderate returns in 2021 unlike in 2020, but they continue to offer
an attractive risk premium over bonds.
After a bumper 1Q21 and 2Q21, the global IPO market witnessed a slowdown, bringing activity levels
in line with pre-pandemic levels. Global IPO issuance in the 3Q21 totalled USD112.3bn, down 8% from
the same period last year. Markets, including the UK and Europe, were more active during 3Q21
compared with other markets across globe.
A similar trend was also observed in the debt capital market (DCM), which achieved a breakthrough in
2020 but was flat in 2Q21. Global corporate bonds were either flat or lower in November, while
government bonds rallied on concerns about the Omicron variant of the coronavirus. Moreover, it is
expected to remain flat as most central banks are considering interest rate hikes to counter the likely
inflation.

Closing Comments
Of all capital markets functions, investment banking (including private funding, public listings, and
M&A) has remained human-intensive and relatively unchanged over time. But the combination of
innovative technology (AI/ML, digital ledgers), ambitious FinTechs, new funding mechanisms
(tokenized securities), and modern structures to take companies public (Direct Listings, Dutch Auctions)
are transforming banking. These changes may commoditize traditional banking functions and put
pressure on the high margins that banks have enjoyed from this business. Leading bankers like Goldman
Sachs and JPM are trying to stay ahead of this trend, rolling out M&A platforms for in-house and client
use, or experimenting with blockchain technology for funding and settlement. Over the next five years,
lower level banking functions and activities will get fully automated and offered as a service by
innovative FinTechs, forcing traditional investment banks to push up the value chain to remain relevant
and maintain this highly lucrative revenue stream.

How FinTech can transform the Investment Banking Landscape?

There are two ways to incorporate fintech, one is a centralized approach and the other is a decentralized
model. In the centralized model, a dedicated innovation team is established which is separate from the
firm’s business units. Under the decentralized method, individual business units run projects and work
independently with the external fintech provider.
It is more suitable to adopt a hybrid model which allows benefits of both models. You want a structure
and clear leadership, but you want flexibility as well. Only this way, the sector will be able to reap the
benefits of the fintech revolution.
The Way Forward
As the next generation is going to be more dependent on technology and tech-based solutions, banks
have to keep up. In fact, big names are already moving towards change, integrating new-age
technologies into their processes behind the scenes.
As investment banking embraces fintech, there will be an increased influence of artificial intelligence
in the sector as well. In order to prevent cheating and fraud, there are several technologies which are
using AI. For example, digital banking, cryptocurrency, enterprise tools, software, and the insurance
industry.
Moreover, with more people using online financial accounts, there is improved access to paychecks. For
instance, startups worldwide are transferring salaries to employees who do not have bank accounts
through fintech apps and individual payment options.
Investment banks will have to improve agility and reduce costs. The future of investment banking is
likely to witness in-class trading platforms that are supported by highly automated, and potentially
largely externalized, blockchain-enabled, back offices. Alongside, the front office will be supported by
AI and analytics to best serve clients.

Disruptive digital technologies in the financial services industry

Emerging technologies, similar risks
From customer service chatbots to software robot bankers, disruptive digital technologies like artificial
intelligence (AI), robotics, and blockchain are changing the financial services industry. To get a clearer
picture of the adoption and acceptance trends of these technologies, see the results of a Deloitte-
sponsored survey.
Artificial intelligence (AI), robotics, and blockchain are expected to take the financial services industry
to the next level. But to what extent are these disruptive digital technologies gaining acceptance and
adoption throughout the industry? To find out, Deloitte sponsored a survey of executives in the banking,
capital markets, wealth management, and insurance sectors of the financial services industry. The result:
Respondents indicated that they’re enthusiastic about AI, robotics, and blockchain, but many expressed
some wariness over risks inherent in disruptive digital technologies.
In short, companies are caught between a steep learning curve and the imperative to keep up with
innovative competitors, even as many respondents admitted a need for additional understanding of new
technologies.

Some executives worry that there’s a chasm between perceptions about the capabilities of new
technologies and the reality of what they can accomplish.
Current and prospective industry challenges
The challenge for the investment banking industry revolves around higher capital charges, market
electronification & digialisation, stuck cost base, inflexible and layered technology with increased
complexity of regulation and reporting.

i. Regulation drives business behavior

Banks are already fully engaged in meeting the IFRS 9 requirements and the resulting changes
to their business model with specific focus on provisioning. Pressure to build appropriate models
and data requirements only leads to greater complexity. Basel III has increased focus on
maintaining core liquidity and leverage ratios with pressure on reducing shortterm funding,
holding more liquid assets, raising long-term wholesale funding, while reducing leverage both
on and off balance sheet.

ii. Capital is scarce

The effect of Basel III has resulted in fundamental shifts in product profitability. Structured
derivatives and long dated transactions pre-crisis & Basel 3 in many cases are now a drag on
ROE. This has resulted in the shift towards the creation of non-core divisions to dispose of
unprofitable transactions & portfolios. Commoditised exchanged traded OTC products has
resulted in a fundamental change in margins and capital management.

iii. Pressure on costs as suboptimal ROE bites

Investment banks face significant pressure to reduce their cost base as regulation has bitten.
Industry experts predict only 5 to 6 investment banks will be successful as “transformational”
cost initiatives fail to deliver results on the back of complex infrastructure and governance
hurdles.

iv. Banks are required to utilise their customer knowledge to not only retain but grow their
customer returns through more effective cross sell
The ability to measure and cross sell products has become increasingly important to a company’s
ability to remain competitive, while best servicing all bank customers with an eye on capital
returns.

v. The emergence of Fintech companies creates a disruptive marketplace

The African financial services market is expected to be one of the most receptive FinTech
markets globally, opening the door to disruption across the end to end investment banking value
chain. Blockchain is rapidly seen as changing the face of cross-border lending activity.

vi. Outdated, inflexible physical infrastructure restricts movement and growth in the current
digital age.
The traditional infrastructure of banks (both physical and technical) has proven to be inflexible
to change and this renders their ability to survive “as is” in a disruptive marketplace potentially
unlikely.

vii. Cyber Security

Number of cases of digital theft from Banks through bypassing risk controls within Swift. Swift
processes $6tn transfers daily with 11 000 members. EBA to stress test financial institutions to
assess vulnerability to hackers & Swift to implement “two factor” authentication.
Bank of 2030: The future of investment banking

The unprecedented public health, economic, and societal impacts of the global COVID-19 (novel
coronavirus) pandemic have intensified the forces that are creating challenges and accelerating
disruption in the investment banking industry: falling equity prices, liquidity stress, evolving financial
regulations, market democratization, pricing pressure, increased client sophistication, shifts to remote
working arrangements, and rapid technology advances.

Against this tough backdrop, it is anticipated that investment banking will transition from a full-scale
service model to a bifurcation of two broker archetypes, “client capturers” that specialize in front-
office functions and “flow players” that focus primarily on middle-office functions. These archetypes
will likely operate within an interconnected, increasingly global—and, potentially, virtual—ecosystem
that includes partners collaborations that provide various back-office functions.

Connected flow model

The future will likely require that investment banks shed non-core assets and redesign their service
delivery around a connected flow model—moving capacity and processes among various geographies
and ecosystem partners—and optimize the use of financial technology, data, and analytics to generate
differentiated insight and added value. The investment bank becomes a data-centric organization
focusing on the client journey, moving middle- and back-office functionality into market utilities or to
financial technology (FinTech). A rich data set will allow the bank to model client behavior and use
artificial intelligence, machine learning, and natural language processing to predict their client trading
activities and risk appetite.

Archetype considerations
When deciding whether it would be more advantageous to become a client capturer or a flow player,
investment banks should consider how their existing structure, technology architecture, capital
availability, product portfolio, and talent pool map to each archetype’s projected core competencies and,
if necessary, how to bridge any capability gaps:
What’s ahead?
As long as considerable barriers to market entry remain in place (capital requirements, regulatory
scrutiny, conduct risk, and long-standing client relationships), investment banks are unlikely to have
their market share challenged by digital disruptors or other non-industry competitors. However,
investment banks looking to the future amidst shifting market dynamics should consider relinquishing
expensive internal infrastructures and move toward a connected flow model where outside providers
offer services for both critical and non-critical functions. In this new environment, the investment bank’s
ability to create and harness differential insights from data becomes its new competitive advantage.
CONCLUSION
Investment banking has changed dramatically during the 20-year period preceding the global financial
crisis, as market forces pushed banks from their traditional low-risk role of advising and
intermediating to a position of taking considerable risk for their own account and on behalf of clients.
These activities exposed the industry to significant shocks during the financial crisis. As a result, the
investment banking landscape looks very different today than it did prior to 2007. A few notable
developments include Goldman Sachs and Morgan Stanley’s conversion to bank holding companies,
JPMorgan Chase’s acquisition of Bear Stearns, Lehman Brothers’ bankruptcy filing, and Merrill
Lynch's sale to Bank of America. This report had examined the post financial crisis investment
banking industry, focusing on the key businesses and roles of investment banking firms.
KEY LEARNINGS
Investment banks face significant challenges driven by COVID-19 impacts, evolving financial
regulations, market democratization, increased client sophistication, a shift to remote working
arrangements, and rapid technology advances. There are opportunities for banks to drive toward
higher levels of return; however, to achieve this, they likely will need to retool certain business models
and operational platforms.

The investment banking industry will likely undergo a bifurcation of broker archetypes: “flow
players” that focus on middle- and back-office functions and “client capturers” that specialize in front-
office functions. This bifurcation will result in an interconnected ecosystem of various players.
Banks likely will need to determine which role they want and, depending on internal and external
factors, are able to play within the ecosystem. They also will likely need to redesign their service
delivery around a connected flow model—moving capacity and processes to the ecosystem of market
providers—and optimize the use of financial technology, data, and analytics to generate differentiated
insight and added value.
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