Who's Emerging Stronger From The Financial Crisis?
Our assessment of business-model and headcount changes since the beginning of the crisis.
Investment Banking is a Human Capital Business
The investment banking business is predominately driven by relationships and brains. The more traditional investment banking lines of underwriting, financial advisory, and private wealth management (the area into which many investment banks have recently expanded) are based on relationships. High-margin underwriting and financial advisory deals flow into investment banks through the connections built up by rainmakers while on Wall Street and over their tenure in the industry. Relationships with accredited investors also enable investment banks to distribute underwritten securities. Similarly, the wealth management division's financial advisors gather and retain assets from their networking and relationship management skills.
The other common legs of investment banks, asset management and sales & trading, are more a result of brains. Healthy assets under management growth comes from benchmark-beating performance and the resulting net asset inflows. The ability to generate a track record of outperformance comes from having a team with differential and superior insight. It is also firms' research analysts' insight that forms the backbone of many trading operations. Finally, it is in the minds investment banks' employees that the genesis of financial innovations that satisfy the investing and risk-management needs of clients are created.
Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.