Investment Banking and Capital Markets

Investment banks sell three things: advice (on mergers, acquisitions, defence and restructuring), access to capital (underwriting stocks, bonds and loans) and the ability to trade (making markets for institutional investors, lending them securities and cash, and financing their positions). The first is a people business with almost no capital; the second is a distribution business that briefly puts the bank's balance sheet at risk; the third is a capital-hungry, technology-heavy market-making business. All three are cyclical, and they turn together. Global investment-banking fees were reported at a little over $100 billion in 2025 by Dealogic, the second-best year after 2021, on about $4.8 trillion of announced M&A, and 2026 was on course to beat both, helped by the largest IPO in history (SpaceX, June 2026; reported). The big five US banks reported about $134 billion of combined trading revenue in 2025 (reported). This section explains how each business earns, why compensation is the biggest cost and the key ratio, how league tables and fee pools work, how the industry changed after 2008 (the end of the independent broker-dealers, Volcker, Basel), the bulge brackets versus boutiques, prime brokerage and the Archegos lesson, private credit as a competitor, and the US municipal bond market. A worked example computes deal fees, a firm's P&L through a downturn and returns on capital by business; a checklist sets out how to analyze an investment bank.