When most people think of banks, they picture savings accounts, debit cards, and local branches. But investment banks operate in a completely different world; one without ATMs or personal checking accounts. So, how do investment banks make money if they don’t take your savings?
1. Helping Companies Raise Capital (AKA Underwriting)
One of the core services investment banks offer is helping companies raise money by selling shares or issuing bonds. This is called underwriting.
When a company wants to go public or raise funds, investment banks step in to manage the process. They often buy the shares in bulk at a discount and then resell them to investors at a higher price, earning a profit in the process. They also help companies issue bonds (essentially loans investors give to companies) with the investment bank acting as the middleman.
Real-life example:
In 2021, MTN Nigeria launched a public offer to sell shares to Nigerian investors. Investment banks like Chapel Hill Denham played a key role as issuing houses and financial advisers, guiding the deal and earning fees for underwriting and structuring the offer.
2. Advising on Mergers & Acquisitions (M&A)
When companies want to merge, buy, or sell, investment banks step in as trusted advisers. They help:
Value the companies
Negotiate terms
Manage the legal and regulatory process
They charge hefty advisory fees for facilitating these high-stakes deals.
Real-life example:
When Access Bank merged with Diamond Bank, investment banks were instrumental in handling the transaction.
3. Investing in Companies (Private Equity & Venture Capital)
Some investment banks invest directly in private companies or startups through private equity or venture capital arms. These investments are high risk but can offer very high returns if the businesses succeed.
By funding innovation and fast-growing companies, investment banks position themselves for large future profits when those businesses go public or are acquired.
4. Selling Market Research and Insights
Investment banks have teams of analysts who produce in-depth reports on companies, industries, and markets. These insights are sold to institutional investors or included as part of trading services.
Their research helps clients make informed decisions and generates recurring revenue for the bank.
5. Facilitating Trades and Managing Wealth
Beyond research, investment banks help big investors make trades by offering access to markets, technical expertise, and execution tools. They may also manage portfolios for ultra-high-net-worth clients, charging fees for wealth management services.
Investment banks don’t make money from your savings account; they make money by being deeply connected to the financial world. Their revenue comes from:
Underwriting deals
Advising on major transactions
Investing in businesses
Selling financial research
Facilitating trades
Managing wealthy clients’ assets
They’re behind the scenes of some of the biggest financial moves on the planet.
Very insightful, thanks for sharing