Investment Banking History

National and Comparative Issues (19th-21st centuries)

by Hubert Bonin (Author) Carlo Brambilla (Author)
©2014 Edited Collection 533 Pages
Series: Euroclio, Volume 78


The recent financial and banking crisis did reveal the discrepancy between internal management rules and the demands for stability within the divisions of corporate and investment banking by universal banks or within pure investment banks. Their mastership of risks did not balance the variety and breadth of operations, at the expense of transparent and well-structured balance sheets.
The book intends fuel comparisons between historical national case studies and present evolution of investment banking. It will foster arguments about the management of risks, about the portfolio of skills of investment bankers, about the role of senior bankers. Two chapters of issues and of present assessments help giving sense to history through the mobilisation of concepts crossing decades till the recent years, so as to favour deeper thinking about the very nature and good practices of investment banking.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Table of Contents
  • Acknowledgments
  • List of tables
  • CHAPTER 1 Varieties in Investment Banking Evolutions and Functions
  • 1. Varieties of investment banking: How to unify our prospects?
  • 2. Investment banking as leverage to financing firms
  • 3. Specialisation vs. despecialisation
  • 4. From specialisation to differentiation: Business models challenged
  • 5. The “originality” of investment banking?
  • 6. Delving into investment banking in the making
  • CHAPTER 2 Summaries
  • CHAPTER 3 Everard Hambro, Between Investment Banker and Investor
  • 1. Hambro structuring new issues for companies
  • 2. Disclosure and the prospectus
  • 3. The role of Hambro as a broker
  • 4. The investment banker and underwriting and new issue costs
  • 5. The overall role of Hambro as investment banker
  • 6. The role of Hambro as an investor
  • Conclusion
  • CHAPTER 4 Investors, Investment Banks, and Governments between Cooperation and Competition. A Short History of the Salonica-Constantinople Railway (1892-1914)
  • 1. Banks and railway construction in South-Eastern Europe in the late 19th century
  • 2. The Salonique-Constantinople: the financial issues
  • 3. Compagnie de chemin de fer Salonique-Constantinople: Co-operation and competition between French and German banks in the Ottoman Empire
  • 4. Finance through years of routine and gradual development (1896-1911)
  • 5. Wars and nationalism putting an end to the commitment of western finance in Balkanic international railways
  • CHAPTER 5 Moral Hazard and INVESTMENT BANKING. Qualitative and QUANTITATIVE EVIDENCE from the BARING CRISIS (1880-1890)
  • 1. The historiography of the Baring crisis and the agreement of 1885
  • 2. Government, banks and investors: Passing the buck
  • 3. Investment banks and Argentina in 1881-1884
  • 4. The 1885 agreement between Argentina and investment bankers
  • 5. The 1885 agreement’s effects on investment bankers’ action
  • Concluding remarks
  • CHAPTER 6 Investment BANKING in the 19th and 20th CENTURIES. The Dutch WAY
  • 1. The rise and decline of the Dutch securities business up to 1860
  • 2. The revival of the capital market and the establishment of new banks (1860-1914)
  • 3. Investment bankers through war, banking crises and depression (1914-1945)
  • 4. Investment banks through institutional banking changes (1945-1980)
  • 5. New trends for investment banks through the liberalisation wave (1980-2000)
  • Conclusion: The end of Dutch investment banking?
  • CHAPTER 7 The Resurgence of French Investment Banks after WWII (1948-1960). Competitive Edge and Groundbreaking Innovation
  • 1. Investment bankers as a profession and a corporate culture
  • 2. How to identify investment banking as opposed to mere corporate banking?
  • 3. Investment banks’ competitive edge over deposit banks regarding corporate banking
  • 4. Investment banks as ground-breakers: Pioneering new products
  • 5. Investment bankers on the international stage
  • Conclusion
  • CHAPTER 8 Fading Investment Banking? Italian Banks before the Second World War
  • 1. The origins: Tilling the field
  • 2. A new phase: Growth and strengthening
  • 3. Roaring Twenties? The evolution in investment banking patterns after the war
  • Conclusion
  • CHAPTER 9 Maturity Mismatch and Allocative Efficiency. Long-Term Financing and Investment Banking in Italy, 1936-1975
  • 1. The genealogy and principles of a regulatory model, 1905-1945
  • 2. The dynamics of the model: Dualisms in balance, 1946-1962
  • 3. The erosion of the model, 1963-1975
  • 4. A trade-off between stability and efficiency?
  • CHAPTER 10 The Spanish Investment Banks. From Financial Intermediaries to Company Shareholders
  • 1. The birth of mixed-type banking in Spain
  • 2. The formation of the ‘big six’ Spanish banks
  • 3. The ‘Big Six’ up to the Civil War
  • 4. Some magnitudes in the interwar period
  • 5. Banking policy in the early period of Franco’s dictatorship
  • 6. The 1962 Bank Regulation Act and specialisation
  • 7. The big banks and the promotion of companies during the Franco period
  • 8. Financial resources and investment
  • 9. The economic crisis of 1973 and the banking crisis
  • Conclusion
  • CHAPTER 11 Investment Banking in Russia, 1890-1917. From Pioneering Finance to Universal Banking
  • 1. The factor of investment banking origin
  • 2. The boom of investment banking in the 1890s
  • 3. Investment banking difficulties in crisis, 1899-1903
  • 4. Towards the universalisation of banking
  • Conclusion
  • CHAPTER 12 French Investment Banking and Bulgaria from the 1880s until 1930s. Portfolio of Skills and Strategies
  • 1. Means of banking development: Portfolio of skills and strategies
  • 2. French banks and the financing of the Bulgarian take-off at the turn of the 20th century
  • 3. The role of French groups in the investment of Bulgarian loans, 1896-1928
  • 4. The commitment of the French groups in financing the Bulgarian money market, 1912-l 1930
  • Conclusion: An assessment of the expansion of French banks in Bulgaria
  • CHAPTER 13 Reconfiguring Multinational Banking. Deutsche Bank’s Acquisition of Bankers Trust as Seen after a Turbulent Decade 413
  • 1. The urge to merge
  • 2. Bankers Trust as a target
  • 3. The announcement of the merger
  • 4. The press’ reaction
  • 5. Regulatory hurdles and integration
  • Conclusion
  • CHAPTER 14 Overall Survey of Authors’ Contributions to the History of Investment Banking
  • 1. What differences between the business models?
  • 2. The key role played by senior bankers
  • 3. Investment banks and market confidence
  • 4. Investment bankers as corporate godfathers?
  • 5. The role of financial markets as a lever for the growth of investment banks
  • 6. Internationalisation vs economic patriotism
  • CHAPTER 15 From History to Present Times. Investment Banking at Stake?
  • 1. Protesting regulations and differentiation in the years 1980-1990
  • 2. Just before the crash: the end of investment banks in sight?
  • 3. US investment banking as the hegemonic model?
  • 4. Investment banking through the recent crisis
  • 5. Strategic and structural issues within investment banking
  • 6. Still pending: What is investment banking today?
  • Final Considerations: Are Investment Bankers the Issue?
  • Index of People
  • Presentation of the Two Editors of the Book

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List of Tables

Chapter 1

Table 1. Towards a process of “disaggregation” of investment banks’ portfolio of skills: A first assessment of specialisation

Chapter 3. J. Rutterford

Table 1. Portfolio of Sir Everard Hambro in probate documents

Table 2. Valueless holdings in Everard Hambro’s probate documents

Chapter 7. H. Bonin

Table 1. The top managers at Paribas in 1945-1960

Table 2: Rough draft of the organisation of Paribas in 1945-1960

Table 3. The team of managers at Paribas in 1957-1959

Table 4. The executive team of BUP in January 1954

Table 5. Corporate bankers as competitors of investment bankers in the 1950s

Table 6. Risks of BUP at Compagnie française des pétroles in January-September 1950

Table 7. Bonds issue by Compagnie française des pétroles in February 1960

Table 8. Breakdown of balance sheets between commercial and investment banks in December 1948

Table 9. Breakdown of balance sheets between commercial and investment banks in December 1956

Table 10. Banking pools at Esso Standard in 1944-1945

Table 11. A few case studies of businesses co-engineered and financed by Paribas abroad

Table 12. Part respectively played by investment banks and deposit banks at FINAREP

Chapter 8. C. Brambilla

Table 1. Special credit institutions

Chapter 9. G. Piluso

Table 1. Loans: IMI, Crediop, Icipu, CSVI and IRI’s Sezione finanziamenti, in millions of lire at current values, 1915-1940

← 15 | 16 →

Table 2. Number of special credit institutions, benchmark years, 1936-1975

Table 3. Loans: special credit institutions, industrial credit institutions, Mediobanca, Crediop-Icipu, in billions of current lire, 1947-1975

Table 4. IMI’s long-term financing operations, in billions of current lire and in percentage, 1946-1960*

Table 5. IMI’s long-term financing operations per sectors and geographical areas as a percentage, 1950-1980

Table 6. Mediobanca: financing operations per sectors according to the Pavitt classification, 1949-1975

Table 7. Underwriting syndicates led by Mediobanca, in millions of current lire, 1957-1967

Table 8. Special credit institutions (SCIs) as a percentage of the banking system as a whole and as GDP of geographical areas, 1951-1978

Table 9. Volatility of real and banking system’s main variables (standard deviation), 1890-1973

Chapter 10. L. J. Coronas-Vida

Table 1. Posts occupied in other Limited Companies by members of the boards of seven banks, in 1921

Table 2. Financial resources of the ‘big six’ during the interwar period

Table 3. Structure of investment in the interwar period

Table 4. Industrial securities as a percentage of the investment portfolio (securities owned plus trade bills)

Table 5. Principal industrial banks created on the basis of the Ley de Ordenación Bancaria of 1962

Table 6. Principal Spanish banking groups (balances as of 30 September 1967)

Table 7. Equity capital of the large banks and the main industrial banks

Table 8. Percentage represented by short-term bonds over total deposits of the industrial banks

Table 9. Equity capital plus deposits of the large banks and the principal industrial banks

Table 10. Total investment of the large banks and the industrial banks

Table 11. Growth of investment in the securities portfolio and in industrial securities in the large banks, in real terms

Table 12. The large mixed banks in accordance with the Ley de Ordenación Bancaria of 1962

Table 13. The industrial banks in accordance with the Ley de Ordenación Bancaria of 1962 (Industrial securities/equity capital)

← 16 | 17 →

Chapter 11. S. Salomatina

Table 1. Russian securities in 1893 and 1900

Chapter 12. G. Taneva

Table 1. Structure of banking activities and portfolio linked with Bulgaria

Table 2. Bulgarian State bonds issued on the Paris Bourse or Stock exchanges of allied countries and their circulation in 1913: Amount of loans in circulation in 1913 (fRF million)

Chapter 15. H. Bonin

Table 1. Pending subprimes loans being insured trough cDSs by AIG Financial Products in London

Table 2. Classification of banks involved in European M&A in the first half of 2006, just before the turn-around of the business cycle

Table 3. Classification of banks by global M&A operations in the first nine months of 2012 (billions of dollars)

Table 4. Classification of banks by M&A operations in France in the first nine months of 2012 (billions of dollars)

Table 5. “Good” investment banking activities at French big banks? Issues of the present times

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Varieties in Investment Banking Evolutions and Functions


Our book is the concrete expression of issues raised during a session on investment banking history held in Utrecht in August 2009 at the congress of the World Economic History Association; but it prolonged a middle-term research programme which Hubert Bonin, Carlo Brambilla and Giandomenico Piluso had set up as soon as a EBHA (European Business History Association) congress in Copenhagen (2007) and developed afterwards (Geneva: 2007; Bergen: 2008). Since then, our informal academic “club” deepened its analysis and moreover; it could confront its analysis about the past to the arguments among academics fuelled by the present crisis, where investment banks were suspected to play altogether as triggers to the krash (Bear Stearns, Lehman Brothers) and the greedy sharks swallowing the fundamentals of capitalism and even market economy. But the final version of the collective process which gave birth to this book was completed under the Franco-Italian guidance of professors Bonin and Brambilla.

1. Varieties of investment banking: How to unify our prospects?

Sure, one might pretend that everything has already been told about investment banking history, models, strategy, and even prospects… A few books brought rich materials and arguments to this topics, line those of Vincent Carosso, in his time one of the founders of such investigations about US investment banks (1970),1Samuel Hayes and Philip Hubbard ← 21 | 22 → (1990),2 Alan Morrison and William Wilhelm, a perfect handbook (2007),3 like that of Richard Roberts (1988).4 Anyway, banking and business historians can enrich the analysis of banking and economic experts, of researchers in banking and finance management, because they confront archives recently scrutinised – thus renewing somewhat narrative history – with the business models and the evolution of the finance system. Throughout the process of maturing our programme, we could observe once again the extreme variety of investment banking and the adaptive character of strategies carried out by financial actors in relation to widely different contexts, circumstances and institutional frameworks. Our debate has shown that it is hard to rely upon a too strict definition of investment banking and that the sector is susceptible to changes stemming out both from autonomous strategies and external regulation or interventions. Moreover, economic historians are aware that, as a matter of fact, investment banking ever modified its characters, profiles, and rules over time as well as it differs, say, between the US and Europe, advanced economies and “followers”, core countries and peripheries or emerging markets. The emphasis on the variety of business models and practices – in lieu of the idea of the “one best way” or model – is probably the main point of our specific contribution to the comprehension of the evolution of this peculiar industry, from which all major financial innovations have often spun off. And we know that such variety has even fostered arguments about the very vocabulary used to nominate and define investment banks5

Our attention to regulation, national contexts and peripheral or emerging markets thus tries to add to the analysis of investment banking and its main tendencies in history.

To put it in a nutshell, we think that the very core of this book is the extreme variety of investment banking and the adaptive character of strategies carried out by financial actors in relation to widely different contexts ← 22 | 23 → and circumstances. The underlying evolutionary approach will help us putting together all various chapters and cases in a coherent frame. As we all know, investment banking took the stage during the last years of financial turmoil, raising worries and being blamed for the part it took in the crisis. Many voices have been calling for a tougher regulation of this segment of the financial industry, though, more recently, others have been arguing for lower controls and supervision, especially major investment banks, which claimed for their peculiar functions and specific status.

Investment banks are today in the eye of a storm, of an extensive and devastating crisis. They had huge responsibilities in igniting it, and a part of the public opinion blames them for the derailment of the world economy from “Main Street toward Wall Street”, and for all the consequences such a turn has had. Some of them, such as Bear Stearns and Lehman Brothers,6 paid a steep price for it, though nothing compared to the huge costs the crisis imposed to so many countries. This notwithstanding, nothing of what happened in the last few years was implicit in their very original nature, in intrinsically distorted mechanisms of management of a risky business. The choice of many investment banks to venture in highly risky operations is due to the historical evolution of the banking industry as a whole and to relevant institutional changes, that can be understood in the light of the historical evolution of the industry during the last thirty or forty years. The current crisis has been ascribed to the greedy sharks swallowing the fundamentals of capitalism and even of the market economy. Nonetheless, we think a better explanation lies in structural and operational changes in the financial industry that increasingly weakened global capitalism because they did not provide for protection nets and disincentives to adopt hazardous behaviours and to build major conflicts of interests, finally resulting in huge information asymmetries.

Here we would emphasise two main aspects that we consider particularly relevant in the understanding of the past and, in its light, of the present, too. They indeed emerge more or less explicitly in all the contributions to the book, and seem to have had an important role in shaping the peculiar evolutions of investment banking in the various contexts. The first one is regulation, also meant as the interaction between banks and non-bank institutions and the financial markets. The second one is the deeper and deeper chasm that might divide the “real” from the “financial” economy. The processes of steep “financialisation” of the economy can lead to the accumulation of distortions in the propensity to invest, shorten the investors’ time horizon, and subvert the “natural” and sound ← 23 | 24 → hierarchy of the industrial and financial capital yields, and the prospects of the programmes of investments into manufacturing or services infrastructures. Investment banks place themselves on the faulty lines, they can contribute to stitch up as well as they can widen the divide between the two worlds. The history of finance of modern industrial capitalism shows alternate phases of conjunction and disjunction.

Investment banks do have some common features: they have usually enjoyed wide degrees of freedom in their activities, wider than those granted to banks; the long-lived ones were founded by merchant-bankers at the end of the 19th century, or even before, and they kept many of their original characters over time, in particular their specialisation in activities such as corporate finance,7 corporate control, originating, issuing, underwriting and trading financial assets, etc.; they have seldom entered the business of deposit taking; they have often been protagonists in promoting financial innovations connected with market activities, a role that became progressively more relevant since banks had been excluded from regularly and massively operating on the stock exchanges, or in those countries where the universal bank had been banned.

These being the scope and framework “defining” investment banks, their evolutionary paths show an increasing variety of patterns over time and places, that further deepened differences among national cases. Why was that? Some hypothesis can be suggested, in the light of the chapters contributing to this book. Investment banks playing a growing role in granting highly specialised services and funds to industrial companies were confined to some countries, where a few but relevant institutional conditions were present: financial markets were able to grow bigger and deeper, not being constrained by strict regulation on monetary fluxes; state bonds did not have relevant effects of crowding out; markets for corporate control were relatively open and contestable, transparency and publicity of information relatively high.

In the last decades of the 20th century many things have changed. The demise of the Bretton Woods’ system put an end to the long run stability of the monetary variables resulting in the diffusion and increase of risks, both on credit activities and on financial trading operations. The necessity to handle higher risks fostered financial innovation aimed at securing against them, and triggered an increase in the volume of hedging operations that eventually had the effect of boosting risk. The development of the markets for future contracts and other derivatives resulted in an opportunity of growth for investment banks and other similar financial intermediaries. Deregulation then was a further ← 24 | 25 → incentive to the growth of this kind of activities and services. More recently in some countries, especially in the US, investment banks transformed into big corporations, characterised by large dimension in terms of capital, asset volumes, number of employees, scope: many among them became multi-business firms and global players. The variety of ‘flavours’ of investment bankers, the differences in the craft are grown further.

2. Investment banking as leverage to financing firms

One of the most important differences among financial systems is probably the way by which firms’ extraordinary financial operations are organised and realised. In this respect, as recent literature points out, financial systems are relevant in order to shaping, at least to some extent, various corporate governance national models.8 Above all, firms need financial intermediaries during the most difficult phases of discontinuity in their life cycle, such as crisis, merger and acquisitions, changes affecting their major shareholders or management, active or passive takeovers, critical readjustment processes to contrast dramatic environmental changes (for example, typically, technological/product or market changes).9 Under these circumstances, financial intermediaries enable firms to overcome such a difficult phases assuring them long term resources and stability, both in their capital structure and management. These functions are generally exerted by financial institutions whose main characteristics can vary according to the specific functional and regulatory structures of the national systems.10 From this point of view, it does not matter whether the financial system is a market oriented or a bank oriented one: Market and bank oriented financial systems11 have broadly the same functions, even if they act very differently and, indeed, they reach non homogenous degrees of success in providing resources to the economy, both to micro- and to macro-levels. Even though along ← 25 | 26 → different ways and methods, both these systems need special intermediaries for attaining a more efficient functioning of markets and firms.12

Probably, it is possible to attribute a part of responsibility to the financial system which has not been able to provide resources to new firms and emerging technologies. The relationship bias implicit in the merchant banking activities in Continental Europe has had some role in rationing credit to emerging entrepreneurs and sectors: indeed, a sharp contrast with the Schumpeterian attitude supposed to be the cornerstone of the banking activities.13 During the 1950s and the early 1960s large industrial firms could finance medium and long-term investments essentially by self financing or, especially in Italy, through the domestic bonds market. From the late 1960s, instead, large firms needed more external financial support and French and Italian banking systems became to diverge: the first one modified its regulatory architecture in 1965, with a new banking law which allowed universal banks to operate, even if banques d’affaires – such as the most prestigious Lazard, Paribas or Indosuez – continued to exert their role. The second one did not modify its fundamental banking law and long term finance was exclusively committed to the so-called “istituti di credito speciale”, such as Istituto Mobiliare Italiano (IMI) and Mediobanca, a well international linked institution and probably the only real merchant bank in Italy. Due to the lack of an effective market for corporate control, supporting firms’ long-term growth and dynamic efficiency was assured by these merchant banking institutions, through issuing bonds or equity capital, providing advisory assistance in merger and acquisition, consulting for long term strategic alliances (both for financial or production and technological goals), assuring ownership or management turn over vis-à-vis firms’ difficulties or crisis.

3. Specialisation vs. despecialisation

Traditional banking activity, that performed by merchant-bankers between the 18th century and the beginning of the 19th century, is basically un unspecialised activity in the sense that every banker would enter any financial business he is able to, unless he finds a comparative advantage in specialisation (e.g. in financing international trade, or in issuing activities), or he is constrained by institutional or consuetudinary restrictions, ← 26 | 27 → or finally by regulation. The institutionalisation of banking that took place around the mid-19th century, known as ‘financial revolution’ made some of those bankers gradually leave the old business to become promoters of new banks in the form of joint-stock companies, gathering deposits, mobilising them and lending on large scale. From then on, others further specialised their competences and skills to become ‘pure’ financiers.

These banking intermediaries had their particular traditions and features. They evolved over time according to practices, scope, and techniques in the United States, in Great Britain and in Continental Europe. The range of functions has been historically exerted by New York “investment banks” in United States, London “merchant banks” in Great Britain14 and “banques d’affaires” in France, while in the rest of Continental Europe had been generally attributed to universal banks – even if some Privat Banken did assume activities in investment banking (Oppenheim, Bleichröder, Warburg, etc.).

It is worthy to observe that, nevertheless, the role played by these institutions in the international markets – in order to finance international trade, underwriting foreign and domestic public debts, organising syndicates for equity issuing or structured financing, etc. – induced the formation, so to speak, of a common stock of knowledge and the sharing of similar practices and techniques.

Moreover, this process of sharing worldwide instruments and techniques had naturally been enhanced by the cosmopolite character of the investment and merchant bankers.15 It may be enough to remember, for example, that a German merchant banker, Paul Warburg, was the real promoter of the Federal Reserve after the 1907 crisis and of the Glass-Steagall Act during the Great Depression,16 or similarly, after the second world war, that a French banker, André Meyer, was a prominent figure of the New York scene17 until the 1970s and almost in the same period a German banker, Sigmund Warburg, was a leading ← 27 | 28 → and innovative London banker.18 A number of investment and merchant banks have had a typical transnational origin, structure and history: the Rothschilds had a five-countries structure from the early 19th century, being present in Frankfurt, Vienna, Paris, London and Naples; the Morgans operated on the two sides of the Atlantic with JP Morgan in New York and Morgan Grenfell in London; similarly, the Lazards were established in New York, Paris and London; the Warburgs were based in Hamburg but had strong personal links with the Kuhn Loeb of New York and, after the Second World War, SG Warburg became a brilliant operator in London; from the beginnings Paribas used three bases in Paris, Amsterdam and Brussels.19

Investment and merchant banks were generally independent intermediaries in financial systems in which a credit specialisation principle is affirmed. Otherwise, universal or mixed banks played more or less the same role vis-à-vis financed firms by relating to them along side the position of a “Hausbank”, according to a scheme of long term inside relations: according to some scholars, this kind of scheme was more effective in promoting the long run growth of industrial firms through a better screening and monitoring of the borrowers.20 Our study therefore determines why and how these networks of relationship were more developed and active by the investment banks than by the commercial banks, why they were more able to confront the asymetry of information about projects requiring huge amount of middle and long term money, although the commercial banks did practice “industrial finance”, e.g. intensified their relations with a core of key entreprise clients and accompanied them on the long run for their banking and financial needs. Why did the process of “specialisation”21 take shape in several countries on several periods and led to a somewhat binary22 division of tasks within the banking system? ← 28 | 29 → For instance in Britain, commercial banks23 enlivened their own deposit banking activities instead of competing directly with merchant banks. Even in West-Germany, the decline of the Privat Banken in the first third of the 20th century24 was followed in the 1950s-1970s by the emergence of mixed banking25 with a large part dedicated to “banque d’affaires à la française”, that is a mixture of commercial banking and investment banking – even with actual proprietary investments in the equity of large customers.26

Our chapters achieved thus some kind of a process of “disaggregation” of investment banks’ portfolio of skills in order to gauge their key specialties. Using present models of analysis of banking activities, we determine how much difference appeared in the past between investment banks and commercial banks, what was the degree of specialisation for each key sector of activity. Several questions have been raised: Did investment banks assume a key role in the structuration of the economy of their country and thus assume a “historical function” within its banking system? What was their “historical usefulness” or even “necessity” as a leverage to growth and as parts of the financial machinery? As tools or lubricants to help money to “circulate” (from piled up assets to investing facilities or to financial markets) and to be “transformed” (from short term cash to middle and long term investments)? Such key questions find answers throughout the various chapters there.

Sure, regulation, monetary policies and overall economic policies of the State were equally or more important in the building of each ← 29 | 30 → banking system, whilst the process of internationalisation and integration of the markets (foreign exchange, international credit, stock exchanges, then futures markets or else) fixed the background for banking and finance activities. But, within such patterns, specialised investment banks became among the main developers of the banking system, owing to the transformation of “ancient banks” into “modern banks” (French maisons de Haute Banque joining into Paribas or Banque de l’union parisienne;27 British merchants banks into investment banking business, US investment bank houses contributing to the building of big corporate banks, etc.) or institutions created from scratch thanks to financiers and institutional investors – like Italian Mediobanca.

4. From specialisation to differentiation: Business models challenged

In 2008, arguments among economists challenged the re-establishment of the “business model” of “universal banking” which had been suspended by national laws (US Glass-Steagall act in 1933, Swiss and Belgian laws in 1934-1935, French 1941-1946 laws, etc.) or limited by cultural and historical habits separating banks alongside patterns of liquidity, in the UK or in Germany. New impetus has been thus be given to reflections about the “business model” of investment banking (“banque de financement et d’investissement” or “banque d’affaires”, in French; “merchant banking” in the UK, etc.). Historians have therefore to take part to the present debates and bring their contribution through analysis of the very nature, the portfolio of skills, the corporate culture, the advantage edge, of investment banks.

A first flow of books had been published in the 1960s-1970s, which provided a first mainframe for a comprehensive understanding of the factual history of investment banks. Since then a fresh flow of researches gathered momentum, thanks to new generations of historians (and economists), to the access to large amounts of archives, and even to the collection of testimonies. A reconsideration of the history of investment banking seemed relevant, through the confrontation of historians and economists, and of national histories, through the assessment of the degree of internationalisation of investment banks and thus of the reality of a money and banking market within a transatlantic business community, then at the scale of a worldwide and now globalised business community. Key issues could be: Was there a business model of internationalised investment bank? How much ← 30 | 31 → investment bankers were able to be “ground-setters”, “path-breakers”, “trendsetters”, or “rainmakers” of national and international economy and growth? What core competences were those of investment bankers?

Banking history has considerably benefited from numerous individual and collective studies: deposit banking, merchant banking, family banking, local and regional banking, and thematic approaches (industrial banking, etc.) complemented such breakthroughs. But investment banking might seem to have escaped to such deepening of knowledge and analysis – beyond the fate of merchants or investment banks about which monographs have already been published (Kleinwort-Benson, Schroders, Morgan Grenfell, Goldman Sachs, Lazard, Baring,28 etc., and in France: Banque de l’union parisienne, Paribas and a few merchant houses of the Haute Banque29 community). In the meanwhile anyway, micro-economists did gauge the business model of investment banking, their portfolio of “functions”, their leverage force on the range of commercial, market and merchant banking, their part on the big banking and financial places, which can lead banking historians to a better understanding of these issues between the past and the present times.

Such issues may join one key issue, about “differentiation”. We mean there the distinction between commercial banks and investment banks. The present krach revealed how far commercial banks did practice what is commonly called “investment banking”, that is commitment to ← 31 | 32 → financial markets (proprietary trading, M&A, secondary markets) beyond their classical portfolio of commercial banking dedicated to companies, that is “corporate banking”. On several periods of banking history (and also business history), bank managers often followed “fads”,30 along with sheepish trends or herding behiavours. Some chapters ponder how far deposit and commercial banks did practice investment banking whilst extending their range of services in corporate banking, to propose them the engineering of schemes about project financing, issuing of securities, international credits, middle and long term banking or financial products adapted to the development of equipments and investments – which had been the “prehistoric” purpose of new types of investment banking in the mid-19th century, to supply means of growth to emerging big firms of the first industrial revolution (1780s-1880s).

5. The “originality” of investment banking?

Such arguments about differentiation cannot but foster reflections about the historical “necessity” of investment banking will also be a key issue. Despite the recent trend towards “universal banking” on one side, and towards “financialisation”, on the other side, which somewhat short-circuited banking intermediation from the 1980s in favour of investment funds and direct access to stock exchanges, our book assess how investment bankers – within universal banks or elsewhere – preserved their ability of being influential and active on the markets of mergers & acquisitions, of project financing, in issuing. Despite the building of huge corporate and investment banking bodies (mainly in the US, with a very few “national champions” in each European countries and in Japan), the resurgence of “boutiques” – little investment banks – in the 21st century draws attention to such an issue of the “necessity” of investment bankers. This led our book to a long term argument about the “usefulness” of investment banking, to determine in conclusion why such competences kept momentum through three industrial revolutions, and also through the various stages of banking history and even through what we can call “banking revolutions”.31 At each period of growth or at each cyclical “boom”, new instruments to act on the fields of financial markets and medium-long term credit were set up, and new actors were created by speculators, feeling the windows of opportunities for profit, and more frequently by innovators or ← 32 | 33 → followers of the move: that was the case during the ultimate boom of the first industrial and banking revolutions in France in the 1870s-1880s with a burst of maisons de Haute Banque, during the Gründerzeit in Germany, during both booms in the US in the 1890s-1900s or in the 1920s, for instance. “Fever” provoked such initiatives on every banking and finance place, all the more that emulation guided ground-setters among “capitals of capital”.32

Our table there under could appear as an attempt to summarise what paths of differentiation could be followed to identify pure investment banking, investment and corporate banking, and mere commercial banking, along with the various functions and fields of activity – the very issue being that of their “identity” indeed.33

Table 1. Towards a process of "disaggregation" of investment banks’ portfolio of skills: A first assessment of specialisation

Managing the primary market issuing and underwriting (as co-lead-managers of syndicates)
brokering equity and bonds
assessing the market’s ability of absorbing fresh financial paper
committing insider trading
buying the financial press
negotiating with the state
entertaining networks of family merchant banks, etc.
managing special relationship with a few states for bonds issuing
Managing the secondary markets Trading on equity and bonds
Managing of speculative trends, etc.
Managing discreetly emerging bids or counter-bids operations
Lead-managers of syndicates helping to maintain the value of the equity of enterprises as customers
Money markets management Managing debt assets and liabilities for customers (with rates risks); swaps of debts
FOREX (with exchange risks), swaps of currencies
← 33 | 34 → Assets management [Linked with the above sectors]
Proprietary management of assets
Assets management for institutional investors
(insurance companies, retirement funds, etc.)
Development and management of real estate assets “Research” (financial analysis) and economic studies
Wealth management ("private banking") In favour of family business, of well established fortunes, of rich managers, etc.
Managing inheritance processes within privately-owned companies
Managing (blinded or not) investment trusts
Tailor-made advice activities Mergers and acquisitions advice
Managing bids
Conceiving structured financement: project financing (huge equipments, plants, ship then planes, etc.)
Conceiving syndicated credits
Advice in “haut de bilan” operations, banking engineering
Financing innovation Raising funds to finance:
start-up companies
innovative specialised credits units
companies involved in industrial revolutions
Investing in companies’ capital Practicing industrial finance for proprietary investments [see above]
Stabilising the equity of partner companies and being part of their stakeholding
Managing financial groups, with industrial and services “partners” or almost “subsidiaries”
Helping investors to become stakeholders in companies (today: “private equity investments”)
Sustaining internationalisation Managing Foreign Exchange activities
Networking the City (then also in New York or in Asia)
Financing and managing the spreading of banking
managerial skills on emerging banking markets
(Central Europe, colonial areas, Latin America, Asia, etc.)
Project Financing [see above]
Taking part to classical corporate commercial banking, but with trends towards: Financing commodities trading
Structuring credits for export or import
Conceiving middle and long terms credits

6. Delving into investment banking in the making

Several issues were raised through our book. We applied the methods of business history to banking history, that is we questioned the history of investment banking through the spectrum of issues raised about stakeholders, strategies, internationalisation, innovation, corporate culture, ← 34 | 35 → portfolio of management skills, knowledge capital, differentiation, performance, and competitiveness, which required questioning the data and facts accurately. Despite our focus on the relevant balance of the “organisation of firm” and its overall portfolios of strategic activities and of skills, we provided sometimes biographical approaches, to assess how much investment bankers as personalities did orient the fate investment banks, as innovators, go-betweens, managers, financiers, “market markers”, etc.


ISBN (Softcover)
Publication date
2014 (April)
crisis discrepancy stability evolution
Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien, 2014. 533 pp., 54 tables, 11 graphs

Biographical notes

Hubert Bonin (Author) Carlo Brambilla (Author)

Hubert Bonin is professor in modern economic history at Sciences Po Bordeaux and a member of the GRETHA research centre at Bordeaux University. He is a specialist in the history of services companies, and moreover in French banking history (regional banks, Paris deposit, corporate and investment banks, with several published monography books and a few handbooks). He is currently preparing a large history of French Société générale. Carlo Brambilla is lecturer in Economic History in the Department of Economics at the University of Insubria. He got his PhD in Economic History from the Department of Economics, University of Pisa, in 2003. He has been a postdoctoral fellow at the Department of Economics, University of Bologna and a research fellow at the Economic History Unit, Bocconi University. His main research interests are in financial and banking history. His research focusses especially on issues such as patterns of banking systems.


Title: Investment Banking History