Investment Banking Industry Anaylsis

Category: Banking, Industries
Last Updated: 13 May 2021
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We chose to do our analysis on the Investment Industry. The companies that we have chosen to analyze are Bank of America Merrill Lynch followed by Goldman Sachs Group, Morgan Stanley, and JP Morgan Chase and Co. These companies are known as investment banks. An investment bank is a financial institution that assists individuals, corporations, and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. We chose these four companies as they are leaders in their industry. We will be discussing at length the Industry Analysis, a Financial Analysis and Porters Five Forces to give a comparison of these four companies and to help with a better understanding of the Investment Industry.

Industry Analysis

Bank of America Merrill Lynch, Goldman Sachs Group, J.P. Morgan Chase ; Co., and Morgan Stanley are some of the biggest competitors in the industry ranking 46, 80, 68 and 51 on Fortune's 500, respectively. In 2012, total revenues for these services amounted to about $260 billion. The future growth of the Investment Industry is expected to be gradual. There are however overseas markets emerging and opening up new opportunities and growth for these companies.

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Financial Analysis

We chose to compare the last five years of revenue for our four companies. This is a good indicator as to where the companies stand in the industry. Please note that all dollar amounts are in millions. Merrill Lynch had revenue of 64,217 in 2008, fell drastically in 2009 with $16,784, and has
stayed relatively even from 2010-2012 with revenues of $29,284, $27,284, and $24,294. Compared to the other three companies, Merrill Lynch has the lowest revenues.

Goldman Sachs Group had a high revenue of $87,968 in 2008, they also fell drastically in 2009 with $53,579 in revenue, and they have continued to decrease during 2010-2012 with revenues of $51,673, $45,967, and $36,793. Compared to the other three companies, Goldman Sachs Group has the second highest revenues.

Morgan Stanley also had a high revenue for 2008 of $87,879. They also dropped in revenue in 2009 to $62,262. They had another drastic fall in 2010 with $31,515 but have had an increase over 2011-2012 with $39,320 and $39,376 in revenues. Compared to the other three companies they have the third highest revenues.

Lastly is JP Morgan Chase and Co. who in 2008 reported $116,353 in revenues. They also had a reduction in revenues in 2009 but not as drastic as the other companies reporting $101,491 in revenues. Through 2010-2012 they also have remained fairly constant with revenues of $115,632, $115,475, and $110,838. Compared to the other three companies, JP Morgan is by far the top revenue earning company.

Porters Five Forces

Rivalry with competitors. The investment industry has been through many changes in recent years. Rivalry within this industry is now considered HIGH. Historically, the industry has resembled a pyramidal structure, with the “bulge bracket” firms at the top and “boutique” banks at the bottom. The existence of relatively few competitors in the bulge bracket reduced rivalry. However, times are changing, and since the repealing of the Glass-Steagall Act, which effectively prevented commercial banks from being in the investment banking business, competition has grown fiercer.

Bargaining powers of buyers. In the investment industry the bargaining power of buyers is MEDIUM. When a clients is heavily invested with one company it would be time consuming and cumbersome as well as costly to switch from one company to the other. Buyers can also use the internet and phone to get their basic investment needs met as well and the rates can be compared easily because information to these things our accessible. Also there are more competitors in the mix which gives buyers option. These last two points would show that the bargaining power of the buyer might be on the rise.

Bargaining powers of suppliers. The bargaining powers of suppliers would be MEDIUM to HIGH. Most Funding provided for these banks comes from retained earnings, shareholders' capital, deposits, and loans. Those who provide capital for banks count as suppliers as they allow the bank to function through other services and financial products. Investment banking is essentially a relationships business, and stronger the network of critical investors a bank has, the more supplier power it has. These resources allow them lend to their buyers when needed and invest on their behalf. This suppliers bargaining power is highly dependent on the market and current economic conditions.

Threat of Substitutes

The threat of substitutes is HIGH since in the investment industry not only includes commercial and investment banks, but non-bank financial companies such as insurance firms, mutual funds and market brokers. Historically, there were no clear substitutes for services such as IPOs, underwriting, distribution, M;A advisory, etc. Technology, however, has changed that with the use of the internet for basic investment needs as previously stated. Also, these non-bank financial companies do not take deposits or withdrawals but are still a threat because of additional services they may provide.

Threat of Competitors

The threat of competitors in the investment industry is MEDIUM to HIGH because of many government regulations banks have to follow and high amount of capital required opening a bank. Also, after the repealing of the
Glass-Steagall Act, commercial banks and other financial service organizations are making a determined effort to edge their way into investment banking services. This is true not only of domestic banks, but also of foreign banks. Investment banks are also facing a competitive threat from companies that solely do business online which give buyers the ease of doing all their transactions from home.

Merrill Lynch

The mission statement of Merrill Lynch is: Merrill Lynch places our client relationships first and is proud to conduct our business based on five unwavering principles: Client focus, Respect for the individual, Team work, Responsible citizenship, and Integrity.

Merrill Lynch is the one of the world’s premier provider of wealth management, securities trading and sales, corporate financing and investment banking services. It was founded in 1907 by Charles Merrill and Edmund Lynch. In 1971 they were on the NYSE and that eventually led to them being the largest underwriter in stocks and bonds. Their success would finally diminish when they began to add billions in mortgages by adding companies such as First Franklin Financial Corp. This would later devastate them at the collapse of the mortgage market. Due to the subprime mortgage crisis, Merrill Lynch combined with Bank of America in 2008 where Bank of America acquired Merrill Lynch for 50 billion dollars. With this acquisition by Bank of America, they have become the largest brokerage in the world, with more than 15,000 Financial Advisors and approximately $2.2 trillion in client assets. . Merrill Lynch and Bank of America took a big risk merging together during the subprime mortgage crisis, but the payoff is coming and these two are becoming the captain of the banking and investing markets.

Goldman Sachs Group

Goldman Sachs Group use Business Principles rather than a Mission Statement: Our clients' interests always come first. Our experience shows that if we serve our clients well, our own success will follow. Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.

Goldman Sachs was founded in 1869 by Marcus Goldman and is headquartered in the Lower Manhattan area of New York City. In 1882, Samuel Sachs joined Goldman to form a private partnership and throughout the 20th century pioneered and advanced the industry through its financial products and services. Nearing the 21st century, Goldman Sachs went public and adopted the name The Goldman Sachs Group Inc. under the former CEO Henry Paulson Jr.The firm provides mergers and acquisitions advice, underwriting services, asset management, and prime brokerage to its clients, which include corporations, governments and individuals. The firm also engages in market making and private equity deals, and is a primary dealer in the United States Treasury security market. It is recognized as one of the premier investment banks in the world, but has sparked a great deal of controversy over alleged improper practices, especially since the 2007–2008 global financial crisis. Right now to help recover from the financial crisis, Goldman Sachs has turned its sight on a globalization strategy. It has offices located all over the world and has outsourced many of its non-core competencies to places like Brazil, Russia, India and China.

Morgan Stanley

Morgan Stanley’s mission is to deliver the finest financial thinking, products and execution in the world. We strive to lead with integrity, put clients first, win in the market place, think like an owner and keep our balance.  Morgan Stanley is an American multinational financial services corporation that, through its subsidiaries and affiliates, provides securities products and services to customers, including corporations, governments, financial institutions and individuals. The company operates in three business segments: Institutional Securities, Global Wealth Management Group, and Asset Management. The corporation, formed by J.P. Morgan & Co. partners Henry S. Morgan, who was the grandson of J.P. Morgan, Harold Stanley and others, opened on September 16, 1935, in response to the Glass-Steagall Act that required the splitting of commercial and investment banking businesses. . During its first year of operation, the company captured 24% of the market share in its industry. In 1984, Morgan Stanley would launch a system called TAPS, the first automated trade processing system, which would go on to pave the way and become the standard means of trade. In 2009, the company purchased Smith Barney from Citigroup, effectively making them the largest wealth management business in the world.

JP Morgan Chase and Co

At JPMorgan Chase, we want to be the best financial services company in the world. Because of our great heritage and excellent platform, we believe this is within our reach. JP Morgan Chase & Co. is an American multinational banking corporation of securities, investments and retail. It is the largest bank in the United States with assets of $2 trillion and according to Forbes magazine is the world's second largest public company based on a composite ranking. The hedge fund unit of JP Morgan Chase is one of the largest hedge funds in the United States. It was formed in 2000, when Chase Manhattan Corporation merged with J.P. Morgan ; Co. JP Morgan Chase, in its current structure, is the result of the combination of several large U.S. banking companies over the last decade including Chase Manhattan Bank, J.P. Morgan ; Co., Bank One, Bear Stearns and Washington Mutual. Going back further, its predecessors include major banking firms among which are Chemical Bank, Manufacturers Hanover, First Chicago Bank, National Bank of Detroit, Texas Commerce Bank, Providian Financial and Great Western Bank


Every major company uses investment firms to finance their own operations, this industry is effectively shaping the world’s economy The investment industry may very well be the most important industry in today’s economy and
Merrill Lynch, Goldman Sachs, Morgan Stanley and JP Morgan Chase and Co. are all exceptional companies. Going into the new millennium, they have embraced the idea of globalization and have realized that this is the way forward. They are expanding into new countries and territories all across the world. Following the financial crisis of 2008, Goldman Sachs, Merrill Lynch, and Morgan Stanley were able to stay afloat and continue to generate substantial revenue.

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Investment Banking Industry Anaylsis. (2018, May 21). Retrieved from

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