Are Huge Profits Of Investment Banks Justified?

Are Huge Profits of Investment Banks Justified? Investment banks are the financial institutes, that attract the capital for the large companies and governments on the global financial market, provide consulting services during buying and selling business, as well as provide the brokerage services. Being the leading mediator at the trading stocks and bonds, derivatives, currencies and raw materials, the investment banks also release analytical reports on all markets operated by it. Such banks play a significant role in the economic development of each country, as they have a huge impact on both money market and the capital of the country. Historically, during the times of the Great Depression of 1930s, the banks were divided
Investment banking targets on such customers as corporate companies; funds: pension funds, private equity and hedge funds , sovereign wealth funds ; governments, other governmental institutions; high net worth individuals, whose assets worth over $ 1 million; and bank itself, to gain profits for itself or save the bank from the potential risks. As for the functions, investment banks provide consulting, investment management, financing, trading and research services. The first function is related to the consulting sphere. The investment banks give advices for their clients on the issues of selling and buying companies, the tax payment issues, risk management, management of the financial affairs and operations, profit-making process, the stock exchange issues, and other potential issues that might occur. The ten biggest investment banks in the world earn approximately $ 35 billion annually just on underwriting and consulting services (Bird). The investment management is the second function, which is about the management of the investment of the properties and assets for the clients. Another function is organization of the financing. This function includes providing loans, purchasing the shares of the corporate companies, and/or helping their clients to find the possible ways for resolving those issues.
How much do they earn annually? A lot. The best example to show that is the research of the Bank of England that was made in 2013, which claims that the ten biggest investment banks in the world made about $140 billion, from which only 25 % is the amount that is paid for the direct responsibilities and services. The most common is fees that are charged for their direct responsibilities: for consulting, investment and trading services, financing arrangement and the research made. Other forms are dividends, which are the types of income that come from the investments that were made in shares; interest payment, when the income made from the loans provided; the investments – the direct income made from the investments; and trading – particular profit made from selling and purchasing securities. For the direct responsibilities and the services provided the investment bank employees most frequently are paid through fees and/or commissions rather than any sort of interest payment. But, there is one more way of payment for their employees – bonuses. The culture of the bonuses is mainly associated with the investment banking. The bankers’ bonuses are paid for the workers at the end of the financial year of the bank. Those bonuses are targeted to reward such behavior of the employee during that year that helped to raise the profits of the bank accordingly to the annual reports. Those bonuses are claimed to