What is an investment bank? What does it do?

It’s difficult to pin down what an investment bank does. For some people, it’s just offering M&A advice. For others, it’s also involvement in capital markets activities. Some people include sales & trading. And most member of the public imagine rich old (white) men sitting in a room and planning the world economy. Reality, as ever, is more complicated.

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Take Goldman Sachs, for example. For many people, Goldman is the investment bank par excellence. But Goldman Sachs doesn’t just investment bank – it also asset manages, wealth manages, and operates a small retail bank named after its founder, Marcus Goldman.

Asset and wealth management, as well as retail banking, are definitely not investment banking. But pretty much every major investment bank does do them. So what exactly is an investment bank exactly? What does it do?

What does an investment bank do at its core?

Investment banking entails two fundamental things.

Firstly, banks help their clients to raise funds by issuing securities such as equities or bonds. These clients can include both companies and governments.

Secondly, they help their corporate clients buy or sell parts of their businesses, or maybe merge with other corporations. The former is known as capital markets or underwriting, while the latter is known as Mergers and Acquisitions, or M&A for short. Capital markets involve Equity Capital Markets (known as ECM) and Debt Capital Markets (DCM) and relate to issuing stocks and bonds, respectively.

Similar to most DCM issuances is loan syndication. This is a lending style that involves multiple banks, usually for a higher-risk loan product that requires a higher risk profile (such as funding private equity activity). The syndication of the loan spreads risk across multiple lenders. 

The core of all of these activities is valuation. An investment bank values bonds and stocks so they can be sold for fair values, and an investment bank values corporations to ensure that when a merger happens, a fair value is paid – or extracted.

What does sales & trading involve?

The other main activity that as an investment bank does is sales & trading. This is part of an investment bank, but it is not investment banking. Sales and trading is also known as the markets business of a bank.

When a bank helps a client raise money by issuing bonds or shares through its capital markets team, it guarantees the prices of these products by selling them to the market. This requires salespeople and it requires traders. Salespeople and traders sell and trade the financial products the bank has helped create, as well as those which have been created previously. They also sell and trade derivative products based on the underlying securities, as well as syndicated loans.

In an M&A deal, the markets team might construct derivatives that help reduce the client's exposure to changing foreign exchange (FX) rates. In debt capital markets deals, where new tradable debt is being issued, the markets team might help organize a group of investors (known as a syndicate) to assist in underwriting the debt being issued in the event that it's not all sold. This spreads the risk of the deal.

Banks also trade securities that they didn't create. This is called the secondaries market - basically, second-hand securities. Securities can be fixed income, currencies, and commodities (FICC) products or equities products, or derivatives of either. Potential revenue is huge - according to market intelligence provider Tricumen, FICC trading revenue alone was $106bn globally in 2025, and equities trading revenue was another $77bn, dwarfing investment banking fee pools, which only added up to around $68bn that same year.

Much of that trading is electronic, with banks acting as market makers. When a client (such as a hedge fund) comes to the bank to set up a position, the bank finds a buyer (in a liquid enough market) and sells it. Banks take a small percentage of the price, known as a haircut, and that is their profit. Vast amounts of capital is required to make markets, with banks leaning on their huge balance sheets to make their market making possible.  

A bank’s markets (another name for sales & trading) team is supported by an array of other functions, including research, data, analytics, as well as trade execution and operations professionals.

How are investment banks changing?

That was what investment banks used to do. But they're evolving.

On one hand, banks are ceding some of their trading market share to electronic trading firms like Jane Street, which use computer algorithms to anticipate market needs and profit from changing securities prices. This cession is occurring as trading as a whole becomes increasingly electronic, instead of involving human beings.

Electronic trading firms have a competitive edge over banks in this instance, although not all trades are susceptible to electronification - generally speaking, traders work their best in product groups such as high-yield credit, where trades are complicated and non-standard and phones still need to be picked up.

On top of electronification, conventional capital markets are being displaced by private investments. Corporations can raise capital from private equity and credit firms - most of the time, enough to not need public markets. "Today, you can get capital privately, at scale... you can also get liquidity in the private markets. So the reasons to go public, when you really reach an incredible scale, are getting pushed out," said Goldman Sachs CEO David Solomon at the Cisco AI Summit, the Financial Times reported.

Banks are getting involved in these private markets, both with their own private credit funds and by helping external private credit funds to raise money. Goldman Sachs, for example, began building up a "capital solutions group" in January last year to specifically tap into "the emergence and growth of private credit," in the words of David Solomon. More on private credit slightly further down.

Artificial intelligence is also making inroads. BCG Expand notes that different parts of the investment banking business model have different susceptibility to technology. While sales & trading teams have been hit hard by technological developments and electronic trading especially in simple (flow) equities, M&A and capital markets have been less impacted. This could change as AI takes over the jobs of some junior bankers – and banks like Standard Chartered are already making wholesale cuts to their banking operations, with AI being a named motivator of them.

How private credit fits into the banking ecosystem

Banks aren’t the only companies that lend money. Recent years (and high interest rates) have led to a breakthrough of private credit firms, which offer alternative financing options for corporates that do not have access to/interest in bank loans or funding via debt capital markets. The big private credit firms include the likes of Ares and Blue Owl. 

Banks and private credit firms are deeply intertwined. Private banks sell investments in private credit funds called Business Development Companies (BDCs) to their clients. Banks also operate forward-flow agreements, in which asset management firms continuously purchase newly originated loans from originating bank platforms.

What banks don't exactly do is to make their own private credit investments, although this is where things become complicated. Banks are highly regulated and many private credit loans don't fit their risk profiles. 

But most banks are not just banks. They also operate asset management firms. And those asset management firms, which do not use a bank’s balance sheet to make investments, do make private credit (and private equity, for that matter) investments.

Goldman Sachs Asset Management, for example, has a substantial private credit arm, which it uses to raise capital and make direct lending, mezzanine, and other investments. Citi has arrangements with private capital firms Apollo and BlackRock under which it originates (finds) private credit loans for the two firms to make. 

Banks also lend money to pension funds that back private credit funds, or to private credit firms (such as Ares) that operate private credit funds. These are called limited partners and general partners, respectively. There are also esoteric ways that banks can use loans (including private credit lending) as collateral in other loans, which essentially treat private credit lending as any other securitized or collateralized loan – and allow private credit firms to borrow against them.

The relationship between banks and private credit firms has hit some snags recently. HSBC, for example, recorded a huge $400m loss related to the collapse of British lender Market Financial Solutions. This came after HSBC lent money to an Apollo-backed unit called Atlas SP. 

There are some risks with the bank-private credit relationship. But private credit is a comparatively small part of the financial ecosystem – AIMA reported at the end of 2025 that global private credit AUM was around $3.5tn, comparable to a single (large) universal bank. HSBC itself had $3.2tn in AUM at the end of 2025, for example.

What is a boutique investment bank?

Boutique investment banks also exist. In theory, these banks just offer M&A services. Some of the bigger ones, such as Evercore, also provide asset management and equity underwriting services.

Boutique banks like Centerview are some of the prestigious institutions in the financial services ecosystem. Many boutiques are as influential and revenue-generating as major (or bulge-bracket) investment banks within their niche, and are often noted for magnifying the culture of investment banking as a whole – they pay better, but they also work you a lot closer to the bone.

What does a universal bank do?

The biggest banks of all banks are the universal banks. You’ve likely heard of, and probably even bank with, some of them – they include JPMorgan, Bank of America, and Citi in the United States, and Barclays, Deutsche Bank, and UBS in Europe.

Universal banks provide both retail banking and investment banking services. They can offer customer accounts, private banking (for high net-worth individuals), asset management services, commercial banking services for corporations, payments services, and markets services such as hedging.

How all of that comes together is rather complicated.

What does JPMorgan do?

Let’s look at JPMorgan, a universal bank and the biggest bank in the world, by most metrics.

At the bank’s investor day back in 2023, JPMorgan shared the helpful chart below, explaining how its investment bank fits with the rest of its operations.

The ideal situation is one in which that an investment bank can “feed” other parts of the bank, and not just the Commercial and Investment Bank (CIB) – the asset and wealth management operations also get a share of the pie, as well as its salespeople and traders and the hosts of service providers, such as its payments team, which works on moving all the relevant moneys from one account to another.

In JPMorgan's example, a client looking for private capital funding might come to JPMorgan's investment bank for an Equity Private Placement (EPP). An EPP is a sale of stock away from the public markets (stock exchanges) and involves the commercial banking part of JPMorgan's money lending facility, as well as JPMorgan's private bank (to source potentially eligible buyers).

Similarly, if a corporate client (a company) wants to expand, it might come to JPMorgan's investment bankers to discuss M&A. The client might then work with JPMorgan's corporate bankers, who might provide a loan to fund an acquisition. The commercial bank can also identify potential targets and buyers through its own network of clients.

If an Initial Public Offering (IPO) happens and a client company sells a portion of its stock (also known as its equity) in the public markets for the first time, the IPO deal will come through JPMorgan's equity capital markets (ECM) bankers. They will liaise with JPMorgan's markets (sales & trading) professionals to help sell the equity, and with JPMorgan's private bankers to provide potential other sources of finance (via high-net-worth individuals), and to manage the founder's wealth (when the IPO is driven by a wealthy company founder).

JPMorgan's commercial bank doesn't just connect clients with investment bankers domestically: it also does so internationally. For global corporations, this scale can make a significant difference.

JPMorgan also runs a private bank. This provides unique investment opportunities and services such as estate planning to Ultra-High Net Worth Individuals (UHNWI), typically defined as those with more than $30m in assets.

In the above example with JPMorgan, the private bank also manages client shares in an EPP, as well as offering investment opportunities both to and for its clients during the IPO process. Additionally, once an IPO is complete, the private bank can continue its relationship with a company founder, and benefit from a “regular” private banking relationship with an UHNWI.

What does Goldman Sachs do?

JPMorgan isn’t the only big investment bank interested in selling a range of services.

Goldman Sachs restructured back in 2022 into three main business areas: global banking & markets (which covers investment banking and sales & trading services), asset & wealth management, and platform solutions (similar to JPMorgan's payments group). Since then, it's pulled back from retail banking and also formed a new "Capital Solutions Group" to finance private equity and private credit deals.

A high proportion of Goldman Sachs' revenues come from sales and trading and standard investment banking activities. Whereas JPMorgan's consumer & investment bank derived 12% and 46% of its revenues from investment banking and sales and trading respectively in 2025, Goldman derived 16% and 53% from these areas respectively.

JPMorgan has a huge consumer bank, but since pulling back from consumer (retail) banking Goldman is growing elsewhere. The firm is now focused on this capital solutions group, but is also trying to grow in wealth management and private credit.

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