Investment Banking Industry Trends

Consolidation

To broaden access to capital, investment banks have been merging with other types of financial institutions (for example, commercial banks, brokerages, insurance companies, finance companies) and with international banks. M&As were propelled in part by the deregulation of the financial services industry. In recent years, foreign investment banks have established a firm presence in the US by acquiring US firms.

New Lines of Business

To generate steady cash flows, investment banks constantly seek new product lines compatible with their core banking business. Goldman Sachs indirectly owns 29 electrical power plants and actively trades power sales contracts, Bear Stearns operates a mortgage company, and Morgan Stanley owns the credit card company Discover Financial Services and an aircraft leasing subsidiary. These lines of business leverage the expertise normally used to support M&A.

Regulatory Oversight Varies with Business Performance

Common investment bank business practices that are unquestioned one day can receive intense scrutiny the next. For example, the allocation process for equities and fixed income security offerings was questioned when it became public that executives and directors of public companies that were clients of the bank were offered shares in IPOs and debt issues by the bank. Banks have voluntarily given up these practices.