Chapter 2

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Chapter 2

  1. 1. Chapter 2 Investment Banking Industry
  2. 2. I. Investment Banking in the U.S. <ul><li>Investment Banking Regulations </li></ul><ul><ul><li>1933 The Securities Act and 1934 The Securities Exchange Act </li></ul></ul><ul><ul><ul><li>The Securities Act of 1933 </li></ul></ul></ul><ul><ul><ul><ul><li>Regulation before public offering </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Full disclosure in Prospectus(Due-diligence) </li></ul></ul></ul></ul><ul><ul><ul><li>The Securities Exchange Act of 1934 </li></ul></ul></ul><ul><ul><ul><ul><li>Securities Exchange Commissions (SEC) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Securities Exchange Systems </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Securities Settlement Rules </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Registration Requirements </li></ul></ul></ul></ul>
  3. 3. I. Investment Banking in the U.S. <ul><ul><ul><ul><li>Illegal trades </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Registration statement (S-1) </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Financial statements </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Pricing </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Underwriter commission </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Contracts, documents </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Securities Exchange Commission (SEC) </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Regulations Implementation </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Corporate Finance </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Market Regulation </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Investment Management </li></ul></ul></ul></ul></ul>
  4. 4. I. Investment Banking in the U.S. <ul><ul><li>The Glass-Steagall Act of 1933 </li></ul></ul><ul><ul><ul><li>Separate the deposit-taking and loan-making banker form the underwriter or dealer banker; create firewall between the commercial bankers and investment bankers </li></ul></ul></ul><ul><ul><ul><li>The commercial banker was prohibited from participating in risk taking with regard to all corporate securities and governmental securities. e.g. J.P. Morgan, Morgan Stanley </li></ul></ul></ul>
  5. 5. I. Investment Banking in the U.S. <ul><ul><li>c. Gramm-Leach-Bliley Act of 1999 </li></ul></ul><ul><ul><ul><li>Glass-Steagall Act repeals </li></ul></ul></ul><ul><ul><ul><ul><li>Section 20 repealed </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Section 32 repealed </li></ul></ul></ul></ul><ul><ul><ul><li>Financial holding company or Financial affiliation </li></ul></ul></ul><ul><ul><ul><li>Financial activities </li></ul></ul></ul><ul><ul><ul><ul><li>Insurance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Securities underwriting </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Merchant banking </li></ul></ul></ul></ul>
  6. 6. I. Investment Banking in the U.S. <ul><li>Investment Bankers </li></ul><ul><ul><li>The New Inter-firm Competition </li></ul></ul><ul><ul><ul><li>Specialization </li></ul></ul></ul><ul><ul><ul><ul><li>Individual investors – Merrill Lynch </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Institutional investors – Salomon Smith Barney </li></ul></ul></ul></ul><ul><ul><ul><li>Deregulation </li></ul></ul></ul><ul><ul><ul><ul><li>Shelf-registration </li></ul></ul></ul></ul><ul><ul><ul><li>M&A and Junk bonds (LBOs) </li></ul></ul></ul>
  7. 7. I. Investment Banking in the U.S. <ul><ul><li>Leading Investment Bankers </li></ul></ul><ul><ul><ul><li>Securities Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Conventional Negotiated Debt </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Salomon Smith Barney, Morgan Stanley) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>High-yield Corporate Debt </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Drexel Burnham Larnbert) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Asset-Backed Debt </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Salomon Smith Barney, CS First Boston) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Municipal Debt </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Merrill Lynch, Goldman Sachs) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>U.S. Government Securities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Merrill Lynch, Goldman Sachs) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Corporate Equity Securities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Merrill Lynch, Lehman) </li></ul></ul></ul></ul>
  8. 8. I. Investment Banking in the U.S. <ul><ul><ul><li>Secondary Market Business </li></ul></ul></ul><ul><ul><ul><ul><li>Commissions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Trading profit </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Research Service (Merrill Lynch, Goldman Sachs) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Money management (Merrill Lynch, Lehman) </li></ul></ul></ul></ul><ul><ul><ul><li>Corporate Financing Activities </li></ul></ul></ul><ul><ul><ul><ul><li>Traditional Corporate Finance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>M&A (Goldman Sachs, Morgan Stanley) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Venture Capital ( Donaldson Lufkin and Jenrette, DLJ) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Real Estate (Morgan Stanley, Goldman Sachs) </li></ul></ul></ul></ul>
  9. 9. I. Investment Banking in the U.S. <ul><li>Investment Banking Activities </li></ul><ul><ul><li>Investment banking </li></ul></ul><ul><ul><ul><li>Securities underwriting </li></ul></ul></ul><ul><ul><ul><li>Merger and acquisition </li></ul></ul></ul><ul><ul><ul><li>Financial consulting </li></ul></ul></ul><ul><ul><ul><li>Venture capitalist </li></ul></ul></ul><ul><ul><ul><li>Securities (derivatives) dealer and broker </li></ul></ul></ul><ul><ul><ul><li>Bonds (derivatives) dealer and broker </li></ul></ul></ul><ul><ul><ul><li>Futures </li></ul></ul></ul><ul><ul><ul><li>Forex trading </li></ul></ul></ul><ul><ul><ul><li>Investment Management </li></ul></ul></ul><ul><ul><ul><li>Real estate investment </li></ul></ul></ul>
  10. 10. I. Investment Banking in the U.S. <ul><ul><li>Underwriting types </li></ul></ul><ul><ul><ul><li>Negotiation Underwriting (Full Underwriting) </li></ul></ul></ul><ul><ul><ul><ul><li>Syndicate (Syndicate Manager) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Proportional distribution </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Price stabilization </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Gross spread (1%-10%, Mostly 7%) </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Hot issue? </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Risk? (Market, idiosyncratic) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Distribution channel </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Components of revenue </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Syndicate manager expenditures </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Investment bankers return </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Selling commission </li></ul></ul></ul></ul></ul>
  11. 11. I. Investment Banking in the U.S. <ul><ul><ul><ul><li>Hot issues </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Overallotment ( short 15%) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Overallotment Option (Green Shoe, x<p) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Pricing </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Price negotiation </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Underpricing (10% -20%) </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Stand-by Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Absorb by investment bankers </li></ul></ul></ul></ul><ul><ul><ul><li>Best-efforts Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Commission only </li></ul></ul></ul></ul>
  12. 12. II. Investment Banking in the U.K. <ul><li>Investment Banking Regulations </li></ul><ul><ul><li>1986 Financial Services Act </li></ul></ul><ul><ul><ul><li>Department of Trade and Industry </li></ul></ul></ul><ul><ul><ul><li>Securities and Investment Board Limited </li></ul></ul></ul><ul><ul><ul><ul><li>Minister of DTI </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Governor of the Bank of England </li></ul></ul></ul></ul><ul><ul><ul><li>The Securities and Futures Authority, SFA (The Securities and Investment Board, SIB) </li></ul></ul></ul>
  13. 13. <ul><li>b. The Financial Services and Markets Act, 2000 </li></ul><ul><ul><li>Financial Services Authority </li></ul></ul><ul><ul><ul><li>Market confidence </li></ul></ul></ul><ul><ul><ul><li>Public awareness </li></ul></ul></ul><ul><ul><ul><li>Protection of consumers </li></ul></ul></ul><ul><ul><ul><li>Reduction of financial crime </li></ul></ul></ul>
  14. 14. II. Investment Banking in the U.K. Lord Chancellor Financial Service tribunal Secretary of state For Trade and Industry Financial Services Authority Self-regulatory organizations Recognized Investment exchanges
  15. 15. II. Investment Banking in the U.K <ul><li>Characteristics </li></ul><ul><ul><li>The U.K. Structure is fundamentally pyramidal </li></ul></ul><ul><ul><li>The secretary of state for Trade and Industry is vested with the full oversight authority and power of the system </li></ul></ul><ul><ul><li>FSA has power to regulate the functioning of a broadly defined financial and investment business in the U.K. </li></ul></ul>
  16. 16. II. Investment Banking in the U.K <ul><ul><li>SROs are responsible for regulating the relationships between their members and customers </li></ul></ul><ul><ul><li>The International Stock Exchange determines listing requirement (LSE) </li></ul></ul>
  17. 17. II. Investment Banking in the U.K. <ul><li>Investment Bankers </li></ul><ul><ul><li>Financial System in the U.K. </li></ul></ul><ul><ul><ul><li>Clearing banks (Commercial Banks) </li></ul></ul></ul><ul><ul><ul><li>Merchant banks (Investment Banks) </li></ul></ul></ul><ul><ul><ul><li>Stock brokers </li></ul></ul></ul><ul><ul><ul><li>Jobbers </li></ul></ul></ul><ul><ul><li>Investment bankers </li></ul></ul><ul><ul><ul><li>Merchant bank (S.G. Warburg, N.M. Rothschild, J. Henry, Schroder Wagg) </li></ul></ul></ul><ul><ul><ul><ul><li>Financial advisory services ( James Capel, Barclays, Warburg) </li></ul></ul></ul></ul>
  18. 18. II. Investment Banking in the U.K. <ul><ul><ul><ul><li>M&A </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Underwriting securities (Samuel Montagu, Goldman Sachs) </li></ul></ul></ul></ul><ul><ul><ul><li>Stock brokers </li></ul></ul></ul><ul><ul><ul><ul><li>Fixed commission agent for individual or institutional investors ( Zoete & Bevan, Strauss Turnbull, etc. ) </li></ul></ul></ul></ul><ul><ul><ul><li>Jobbers </li></ul></ul></ul><ul><ul><ul><ul><li>Market makers (Specialist) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(Akroyd & Smithers, Wedd Durlacher) </li></ul></ul></ul></ul>
  19. 19. II. Investment Banking in the U.K. <ul><li>Investment Banking Activities </li></ul><ul><ul><li>Securities Underwriting </li></ul></ul><ul><ul><ul><li>Corporate Equity Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Merchant banks </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Underwriting syndicates </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Right offerings </li></ul></ul></ul></ul><ul><ul><ul><li>Debt underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Debentures (secured) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Loan stocks (unsecured) </li></ul></ul></ul></ul>
  20. 20. II. Investment Banking in the U.K. <ul><ul><li>U.K. Government Securities Trading </li></ul></ul><ul><ul><ul><li>Short (up to five years) </li></ul></ul></ul><ul><ul><ul><li>Medium (5-15 years) </li></ul></ul></ul><ul><ul><ul><li>Long (over 15 years) </li></ul></ul></ul><ul><ul><ul><li>Undated (perpetual) </li></ul></ul></ul><ul><ul><li>Other Securities Trading </li></ul></ul><ul><ul><ul><li>* Eurobonds </li></ul></ul></ul><ul><ul><ul><ul><li>*Domestic equities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>*International equities </li></ul></ul></ul></ul><ul><ul><ul><li>The Stock Exchange Automated Quotation System (SEAQ) </li></ul></ul></ul>
  21. 21. II. Investment Banking in the U.K. <ul><ul><ul><li>* Alpha stocks – most active </li></ul></ul></ul><ul><ul><ul><ul><li>* Beta stocks – second rank in volume </li></ul></ul></ul></ul><ul><ul><ul><ul><li>* Gamma stocks – less active </li></ul></ul></ul></ul><ul><ul><ul><ul><li>* Delta stocks – least liquid </li></ul></ul></ul></ul><ul><ul><li>Research activities </li></ul></ul><ul><ul><li>Money Management </li></ul></ul><ul><ul><li>Mergers and Acquisitions </li></ul></ul>
  22. 22. <ul><ul><li>Underwriting Types </li></ul></ul><ul><ul><ul><li>Full Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Merchant banks </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Syndicates (Syndicates Manager) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>* Merchant banks </li></ul></ul></ul></ul><ul><ul><ul><ul><li>* British institutional investors </li></ul></ul></ul></ul><ul><ul><ul><ul><li>* Foreign securities firms </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Offering for sale ( proportional distribution) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Shares may be privately placed directly to institutions </li></ul></ul></ul></ul>II. Investment Banking in the U.K.
  23. 23. II. Investment Banking in the U.K. <ul><ul><ul><ul><li>Best-efforts Underwriting </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Moral underwriting </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>No legal obligation </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Rights offering </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Existing shareholders </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Purchase price 15-30% below current market price </li></ul></ul></ul></ul></ul>
  24. 24. III. Investment Banking in Japan <ul><li>Investment Banking Regulations </li></ul><ul><li>Characteristics of Japanese Business Environment </li></ul><ul><ul><ul><li>A pervasive national concern with external perils </li></ul></ul></ul><ul><ul><ul><li>Society’s acceptance of a major role for government in the financial markets </li></ul></ul></ul><ul><ul><ul><li>Openness to adapting the practices of Western financial institutions to its own needs </li></ul></ul></ul>
  25. 25. <ul><ul><ul><li>The particularly Japanese structure of Industrial organization – the “zaibatsu” </li></ul></ul></ul><ul><ul><ul><ul><li>Meiji era </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Giant Conglomerates </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Holding company with a major private bank </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The bank nourished the companies in its zaibatsu with the necessary financing </li></ul></ul></ul></ul>III. Investment Banking in Japan
  26. 26. <ul><ul><li>The early Meiji Restoration Period </li></ul></ul><ul><ul><ul><li>The Stock Exchange Regulations, 1878 </li></ul></ul></ul><ul><ul><ul><ul><li>London Stock Exchange style </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Tokyo Stock Exchange, etc. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Government bond issues </li></ul></ul></ul></ul><ul><ul><ul><ul><li>( Warriors of samurai family) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Two sessions’ trade </li></ul></ul></ul></ul><ul><ul><ul><ul><li>( 10 a.m. and 2 p.m.) </li></ul></ul></ul></ul><ul><ul><ul><li>Bourse Regulations,1887 </li></ul></ul></ul><ul><ul><ul><ul><li>German legal advisor, Hermann Roesler </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Public securities trading </li></ul></ul></ul></ul>III. Investment Banking in Japan
  27. 27. <ul><ul><li>WWI to the Great Depression </li></ul></ul><ul><ul><ul><li>1922, the Law of Trust Companies </li></ul></ul></ul><ul><ul><li>The postwar recovery to internationalization </li></ul></ul><ul><ul><ul><li>1947, Securities and Exchange Law </li></ul></ul></ul><ul><ul><ul><li>Article 65: </li></ul></ul></ul><ul><ul><ul><li>A bank, trust company or such other financial institution as may be designated by a Securities and Exchange Commission Regulation shall not engage in any of the acts enumerated in Paragraph 8 of Article 2. </li></ul></ul></ul>III. Investment Banking in Japan
  28. 28. <ul><ul><ul><ul><li>Article 2 :” Securities business” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To buy and sell securities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To act as broker, agent or proxy with respect to buying and selling of securities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To act as broker, agent or proxy with respect to the entrustment of transaction on a securities market </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To underwrite securities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To sell securities by public offering </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To handle the issuance or sale of securities by public offering </li></ul></ul></ul></ul>III. Investment Banking in Japan
  29. 29. <ul><ul><ul><li>1952, Long-term Credit Bank Law </li></ul></ul></ul><ul><ul><ul><ul><li>Authorize banks to borrow 20-30 times of their capital to accommodate corporate borrowers </li></ul></ul></ul></ul><ul><ul><ul><li>1971, Law Concerning Foreign Securities Firms </li></ul></ul></ul><ul><ul><ul><ul><li>Non-Japanese firms for branch-office license </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Merrill Lynch (1972) </li></ul></ul></ul></ul>III. Investment Banking in Japan
  30. 30. III. Investment Banking in Japan <ul><li>Investment Bankers </li></ul><ul><ul><li>The Early Meiji Restoration Period </li></ul></ul><ul><ul><ul><li>1893, Standard Securities Underwriting </li></ul></ul></ul><ul><ul><ul><li>Managed by one or two national banks </li></ul></ul></ul><ul><ul><ul><li>National banks issue stock for public subscription </li></ul></ul></ul><ul><ul><ul><li>Other banks act as selling agents </li></ul></ul></ul><ul><ul><ul><li>1902, Industrial Bank of Japan (IBJ) </li></ul></ul></ul><ul><ul><ul><li>Government created </li></ul></ul></ul><ul><ul><ul><li>Financing the longer-term capital needs of Japanese industry </li></ul></ul></ul><ul><ul><ul><li>Corporate debentures underwriters </li></ul></ul></ul>
  31. 31. III. Investment Banking in Japan <ul><ul><li>WW I to the Great Depression </li></ul></ul><ul><ul><ul><li>Emergence of leading securities firms </li></ul></ul></ul><ul><ul><ul><ul><li>Koike Company (Yamaichi Securities) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fujimote Bank(Daiwa Securities) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>National City Co.(Nikko Securities) </li></ul></ul></ul></ul><ul><ul><ul><li>Emergence of leading Trusts </li></ul></ul></ul><ul><ul><ul><ul><li>Mitsui Trust (1924) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Mutual Trust (Yasuda Trust,1925) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Sumitomo Trust (1925) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Mitsubishi Trust (1927) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Issuance of new corporate debentures </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Underwriting new securities offerings of their group affiliated companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>1927,”Big Five” (Daiichi+Big Four) </li></ul></ul></ul></ul>
  32. 32. III. Investment Banking in Japan <ul><ul><li>The postwar recovery to internationalization </li></ul></ul><ul><ul><ul><li>Japanese securities firms </li></ul></ul></ul><ul><ul><ul><ul><li>the Big Four (Nomura, Daiwa, Nikko, and Yamaichi) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>21 other large firms directly supervised by the Tokyo office of MOF </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Small Local firms supervised by the branch offices of MOF </li></ul></ul></ul></ul><ul><ul><ul><li>International investment bankers </li></ul></ul></ul><ul><ul><ul><ul><li>Merrill Lynch, 1972 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>1986 TSE members </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Merrill Lynch </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Morgan Stanley </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Goldman Sachs </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Vickers da Costa </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Jardine Flemming </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>S.G. Warburg </li></ul></ul></ul></ul></ul>
  33. 33. III. Investment Banking in Japan <ul><li>Investment banking activities </li></ul><ul><ul><li>Investment banking activities </li></ul></ul><ul><ul><ul><li>Brokerage activities </li></ul></ul></ul><ul><ul><ul><ul><li>Brokerage commission (60% of revenue) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Secondary market trading </li></ul></ul></ul></ul><ul><ul><ul><li>Future market </li></ul></ul></ul><ul><ul><ul><ul><li>1985, Japanese government bond futures </li></ul></ul></ul></ul><ul><ul><ul><ul><li>1987, Nikkei stock index futures </li></ul></ul></ul></ul><ul><ul><ul><ul><li>1989, TSE futures </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Interest rate futures on Euroyen and Eurodollars </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Currency futures </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Japanese government bond underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>40%--- Competitive bids from members of underwriting </li></ul></ul></ul></ul><ul><ul><ul><ul><li>syndicates </li></ul></ul></ul></ul><ul><ul><ul><ul><li>60%--- Syndicates members under fixed allocation </li></ul></ul></ul></ul>
  34. 34. III. Investment Banking in Japan <ul><ul><ul><li>Corporate Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Euromarkets and TSE </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Government subsides rationing </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>insistence of collateral in banks </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>“ BIG Four” dominance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Equity-linked securities offering </li></ul></ul></ul></ul><ul><ul><ul><li>Offshore Corporate Underwriting </li></ul></ul></ul><ul><ul><ul><ul><li>Securities Firms, commercial banks </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Commercial banks established subsidiaries in the major offshore markets </li></ul></ul></ul></ul><ul><ul><ul><ul><li>MOF “three bureaus agreement” </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Banking </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Securities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>International finance </li></ul></ul></ul></ul></ul>
  35. 35. III. Investment Banking in Japan <ul><ul><li>Corporate Finance Activities </li></ul></ul><ul><ul><ul><li>Minor </li></ul></ul></ul><ul><ul><ul><li>The leading securities firms </li></ul></ul></ul><ul><ul><ul><ul><li>Financial engineering skills </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Long-term financial planning </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Valuation and financing skill in M & A ) </li></ul></ul></ul></ul>
  36. 36. <ul><li>Securities Underwriting </li></ul><ul><ul><li>Securities underwriting procedures </li></ul></ul><ul><ul><ul><li>Financial plan consulting </li></ul></ul></ul><ul><ul><ul><li>Capital structure adjustments </li></ul></ul></ul><ul><ul><ul><li>IPO </li></ul></ul></ul><ul><ul><ul><ul><li>Pricing </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Time table </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Review of corporate charter </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Review of directors meeting </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Review of management </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Compliance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Registration(MOF) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Underwriting Syndicates (The Big Four </li></ul></ul></ul></ul>III. Investment Banking in Japan
  37. 37. III. Investment Banking in Japan <ul><ul><li>Proposal Method (MOF) </li></ul></ul><ul><ul><ul><li>Electric utilities and Telephones </li></ul></ul></ul><ul><ul><ul><li>Compete for syndicate managers </li></ul></ul></ul><ul><ul><li>Shelf Registration (Oct. 1. 1988) </li></ul></ul><ul><ul><ul><li>Qualified issuers can preregister securities and hold them ready for an offering on short notice if market conditions become favorable </li></ul></ul></ul><ul><li>Public bidding System (April, 1989) </li></ul><ul><ul><li>Fixed proportion for public bidding </li></ul></ul><ul><ul><li>Price floor, Price ceiling (Comparison,EPS,BPS) </li></ul></ul><ul><ul><li>Exclusive restriction (Major shareholders) </li></ul></ul><ul><ul><li>Top-down bidding </li></ul></ul><ul><li>After market support </li></ul><ul><ul><li>Application for price stabilization (MOF) </li></ul></ul><ul><ul><li>Restrictions of initiators, period, price limit, etc. </li></ul></ul>

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