Types of Investment Banks (2024)

Investment banks are commonly classified into three categories: boutique banks, middle-market banks, and bulge bracket banks. Boutique banks are often further divided into regional boutiques and elite boutique banks.

Investment banks serve corporations and governments by facilitating complex financial transactions, such as mergers and acquisitions (M&As). The classification of investment banks is primarily based on size. However, "size" can be a relative term; it may refer to the size of the bank in terms of the number of employees or offices, or to the average size of M&A deals handled by the bank.

Boutique Banks

Boutique investment banks can be divided into regional boutiques and elite boutiques. Elite boutique banks sometimes have more in common with bulge bracket banks than they do with regional boutiques.

Regional Boutique Banks

The smallest of the investment banks, both in terms of firm size and typical deal size, are the banks referred to as regional boutique banks. Regional boutiques usually have no more than a handful to a few dozen employees.

Because of the small size of most regional boutiques, they do not typically offer all the services provided by bulge bracket investment banks, which are the largest investment banks. Regional boutiques may simply specialize in a single area, such as handling mergers and acquisitions in a particular market sector.

As the classification implies, regional boutique banks have offices or operations that are restricted to, or at least concentrated in, a specific region of the country. The bank's offices may even be limited to a single city.

For example, a Texas-based investment bank with a single office and fewer than 20 employees, which solely handles M&A deals for oil and gas industry companies, would be a regional boutique investment bank.

Regional boutiques may have clients that include major corporations headquartered in their operation area but they more commonly serve smaller firms and organizations. These banks are unlikely to be involved in working with governments other than on a local or state basis.

Elite Boutique Banks

Elite boutique investment banks are usually altogether different from regional boutiques. Elite boutiques more closely resemble bulge bracket banks in regard to the dollar value of the deals they manage, which can be over $1 billion, although they may handle some smaller deals as well.

They are also similar to bulge bracket banks in that they commonly have a sizable nationwide and international presence, operating dozens of offices in multiple countries. However, they typically lack the kind of global presence of a major investment bank such as JPMorgan Chase & Co. (JPM)

Elite boutiques are like regional boutiques in that they usually do not provide a complete range of investment banking services and may limit their operations to handling M&A-related issues. They are more likely than regionals to offer restructuring orasset managementservices.

Most elite boutique banks begin as regional boutiques and then gradually work up to elite status through handling a succession of larger and larger deals for more prestigious clients. Some elite boutiques, such as Qatalyst Partners, achieve rapid advancement in status due to the investment banking reputation of the company's founders. Examples of well-known elite boutique investment banks are Lazard LLC, Evercore Group LLC, and Moelis & Company.

Middle-Market Banks

Occupying the middle ground between smaller regional investment banking firms and the massive bulge bracket investment banks are middle-market investment banks. Middle-market banks usually work on deals that begin at the regional level and rise near the bulge bracket level, typically ranging from about $50 million up to around $500 million or more.

Middle-markets are usually also in the middle ground as far as geographic reach, having a substantially larger presence than regional boutiques but falling short of the multinational scope of bulge bracket banks.

Unlike boutique banks, middle-market firms usually provide the same full range of investment banking services as bulge bracket banks, including equity capital market and debt capital market services,a full complement of financing and asset management services, M&A, and restructuring deals.

Some of the middle-market banks resemble regional boutiques in that they specialize in offering services to a particular industry or sector. For example, one of the more recognized middle-market investment banking firms is KBW, an investment bank that specializes in working with financial services sector companies.

Some of the more well-known middle-market firms are Piper Sandler Companies, Cowen Group, and Houlihan Lokey.

Bulge Bracket Banks

The bulge bracket banks are the major, international investment banking firms. The bulge bracket firms are the largest in terms of numbers of offices and employees, and also in terms of handling the largest deals and the largest corporate clients.

The overwhelming majority of clients are Fortune 500, if not Fortune 100, firms. Bulge bracket investment banks regularly handle multibillion-dollar M&A deals, although, depending on the overall state of the economy or the particular client, a bulge bracket bank may sometimes handle deals valued in the low hundreds of millions.

Each of the bulge bracket banks operates internationally and has a large global, as well as domestic, presence. The major investment banks provide their clients with the full range of investment banking services, including trading, all types of financing, asset management services, equity research and issuance, and the bread and butter of investment banking, M&A services.

Most bulge bracket banks also have commercial and retail banking divisions and generate additional revenue by cross-selling financial products.

Working at Investment Banks

Because different types of investment banks provide different types of services, the jobs available at each type differs, too. If you are interested in working at an investment bank, think specifically about what type of work you want to do before deciding to apply to a particular bank.

Keep in mind boutique banks do not offer all the services of middle-market and bulge bracket firms. So, for example, if you are interested primarily in working at a trading desk, only the larger firms are likely to offer that opportunity. However, if you are interested in handling M&A deals, smaller banks usually provide a quicker career path to directly managing such deals.

Investment banking compensation may not vary all that much between working for one of the largest bulge bracket banks as compared to a smaller, elite boutique bank. While the larger banks commonly handle larger deals, those deals are few and far between smaller deals.

Also, the smaller investment banking firms do not have the massive overhead expenses of the bulge bracket banks, and therefore, usually, manage larger profit margins from which to recompense employees. Looking ahead to future career opportunities, experience at one of the major bulge bracket banks generally looks best on a resume, simply due to the name recognition.

The Bottom Line

The main types of investment banks include regional and elite boutiques, middle-market banks, and bulge bracket banks. Boutique firms typically have a smaller client base, while bulge bracket banks handle huge corporate clients, and middle-market banks are between the two.

Knowing the difference between different types of investment banks will make it easier for you to choose the right bank for your career, your business, or your portfolio.