Do you know how investment banks generate income on IPOs? You don’t know very well what “trading income” is? A full transcript comes after the video. Michael Douglass: Let’s convert to our second topic, which is more of a synopsis of investment banking. First off, folks, head back to your December 11th, 2017 episodes on the investment-banking institutions if you would like more discussion concerning how all this interplays with their underlying business design.

That’s where we do our deep dive on investment-banking institutions and understanding really, running right through our framework, determining how exactly all that works. But we figured we would talk a bit about investment banking itself, what those actions look like and how that works, today. Matt, take it away. Matt Frankel: After we did that show, A lot was got by me of questions to the effect of, what is trading revenue? Just what does M&A advisory mean? Things such as that. I figured we would have a short while and discuss the ins and outs of the primary ways investment banking institutions generate income.

It can especially be confusing because different banking institutions generally have different brands for his or her business segments that do the same thing. In fact, I don’t think the big banking institutions have the same names for all their business segments. For instance, Goldman telephone calls its trading table Institutional Securities. Various other banks call it Trading just.

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Generally, you can breakdown investment banking activities into four key areas that all investment banks generally take part in — advisory revenues, underwriting income, trading income, and wealth management. To undergo those one at a time, let’s start with advisory. Advisory generally identifies when companies want to obtain another company, when two companies want to merge. There’s a whole lot that occurs behind the scenes. Douglass: To unpack a little bit further, suppose you’re a business owner and you are looking to buy another business that is working in an identical area from what you do.

You’re going to want to understand, how much are you paying people? What costs do you have that I have to understand? So how exactly does the business work exactly? All that due diligence work. A few of that is where the investment banks come in, plus some of it’s done by legal experts and things such as that.

Frankel: Right. So, that’s M&A advisory. It’s a huge offer for investment-banking institutions. I mentioned, Goldman experienced the No. 1 M&A market talk about. Morgan Stanley there is certainly up. JPMorgan is a big player in this market, too. That is an extremely key revenue stream for investment banks. Underwriting is a different one. Advisory and underwriting are usually what’s typically called investment banking, even though investment banking institutions can engage in other businesses, which we’re going to discuss.