It seems that commercial banks are not valued as important as investment banks in US? Is it correct? Why?
In many countries, commercial banks are considered as one of the best options of employment. Chinese values ICBC and CCB much more than CICC and CITIC(Chinese IBs). For Japanese, MUFJ and Mizuho matters more than Nomura. USA, as a country which has the most advanced financial system, seems to be quite the opposite. Commercial banks seems to be unimportant and investment banks really have all the fame and profit. IBs' businesses are reported on WSJ everyday and investment bankers' salaries are incredibly high. A huge proportion of talents dreams to break into BBs and EBs. Very few people on this forum talk about JPM, MS, WF, BofA or Citi's commercial banking department.
Am I wrong on this. If it is true, would you please give an explanation of this phenomenon?
Underwriting revolvers and TLAs and selling plain vanilla products (cash management, hedging, etc.) in commercial banking is not transformative compared to M&A and event driven financing (IBD). Just my perspective.
Agree with this and not sure why other countries work that way
The American capitalist economy allows for and requires much more private investment activity than other economies, ie, Investment Banking plays a larger role. My $0.02
This is interesting because as most will probably estimate, investment banking is not the biggest division within these banks. I got this pretty picture from investopedia:
So JPM's biggest rainmakers are the consumer banking division. If we went by revenues alone we would say that bank tellers are the most baller bankers in Wall Street. But that clearly is misguided. Making money by selling a meth addicted guy from Ohio a credit card is easy peasy lemon squeezy. Closing a billion dollar deal is slightly harder, I'd say.
Revenue/Headcount is a more telling metric
Who said commercial banking is more prestigious in China lmao. The kids from top 3 undergrad schools in mainland would literally suck dick to get into CICC or others foreign banks in Shanghai or HK
Commercial banking is just getting bank deposits at 0.01% interest and lending it out at 4%. Take the difference as profit
Also, hardly any profit once you factor in the risk you're taking and the reserves you hold against those loans. Especially true at the corporate level where they get the prime rate (or something near it).
In fact, most of those lending commitments are loss-leading. The only way you make a profit is by tacking on treasury products (boring af) or generating IB revenue via the lending relationship.
I think you're forgetting the part about leverage, you know, since most banks are required to maintain only 5-10% equity.
Love your explanation more than my original reply further up. I think of it this way:
IB MD: Generates $XMM in fees by giving advice to a company (let's pretend financing isn't part of the package for this transaction). The other resources outside of the immediate IB team might be some internal counsel, a regulatory team, maybe some admins, etc.
CB MD: Also generates that same $XMM, but it requires handing another company $XXXMM in cash from your balance sheet (deposits are often cited as the funding source but in modern banking it's actually often other sources of short-term funding), holding $XMM in required fractional reserves, $XMM in other reserves beyond the minimum amounts. The real kicker is that you need a MASSIVE support staff to be a big lender. Think of the treasury teams that go sell treasury products, floors of operations staff that send/receive documents and payments, huge regulatory teams, portfolio management teams, and the list goes on. The more teams you need the more you end up with IT teams, project managers, HR teams, risk managers, and it keeps snowballing. And we haven't even touched on the fact that if you're lending against deposits you need an entire consumer banking division....
It's the reason that you see the large commercial banks filling up multiple office towers across the country while some powerful boutiques can fit their firm on two floors.
obv. cause the ROE is way lower.
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