Merchant and Investment Banking in europe and america.pptx
MERCHANT BANKING IN AMERICA
A merchant bank is a financial institution which provides capital to
companies in the form of share ownership instead of loans. A
merchant bank also provides advisory on corporate matters to the
firms they lend to.
In the United Kingdom, the term "merchant bank" refers to an
An investment bank is a financial institution that assists individuals,
corporations, and governments in raising capital by underwriting
and/or acting as the client's agent in the issuance of securities.
An investment bank may also assist companies involved in
mergers and acquisitions, and provide ancillary services such as
market making, trading of derivatives, fixed income instruments,
foreign exchange,commodities, and equity securities.
Merchant banks are in fact the original banks. These were invented in
the Middle Ages by Italian grain merchants. As the Lombardy merchants and
bankers grew in stature based on the strength of the
Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution
were attracted to the trade. They brought with them ancient practices from
the Middle and Far East silk routes. Originally intended for the finance of
long trading journeys
In the 19th century, the rise of trade and industry in the US led
to powerful new private merchant banks, culminating in J.P.
Morgan & Co.
During the 20th century, however, the financial world began to
outgrow the resources of family-owned and other forms of
private-equity banking. Corporations came to dominate the
banking business. For the same reasons, merchant banking
activities became just one area of interest for modern banks.
During the first 10 months of 1930, 744 US banks failed. By April
1933, around $7 billion in deposits had been frozen in failed banks
1930s Great Depression led many countries significantly increased
financial regulation. The U.S. established the Securities and Exchange
Commission in 1933, and passed the Glass–Steagall Act, which
separated investment banking and commercial banking.
This was to avoid more risky investment banking activities from ever
again causing commercial bank failures.
Two collapses of the stock market and the sub-prime crisis
have taken their toll on the investment banking industry.
Landmark companies including Bear Stearns, Lehman
Brothers and Merrill Lynch have been adversely affected in
the sub-prime crisis.
Goldman Sachs and Morgan Stanley have moved from pure
play investment banks to become commercial banks after the
repealing of the Glass-Steagall Act.
But still, investment banking remains a key element of our
Goldman Sachs, UBS, Credit Suisse are the major players in
the global investment banking industry
Goldman Sachs is a leading global investment banking,
securities and investment management firm
Provides services to a substantial and diversified client base
like corporations, financial institutions, governments and highnet-worth individuals.
Goldman Sachs is the successor to a commercial
paper business founded in 1869 by Marcus Goldman. On May
7, 1999, the Company converted from a partnership to a
corporation and completed an initial public offering of its
On September 21, 2008, the Group became a bank holding
company regulated by the Board of Governors of the Federal
The Glass-Steagall Act was enacted
during the Great Depression. It protected
bank depositors from the additional risks
associated with security transactions.
The act was dismantled in 1999.
Consequently, the distinction between
commercial banks and brokerage firms
has blurred; many banks now own
brokerage firms and provide investment
THE MODERN MERCHANTBANK
During the 20th century, European merchant
banks became increasingly involved in the actual
running of the business for whom the
transaction was conducted. Today, merchant
banks actually own and run businesses for their
own account, and that of others.
Since the 18th century, the term merchant
banker has, therefore, been considerably
broadened to include a composite of modern
These skills include those inherent in an
entrepreneur, a management advisor, a
commercial and/or investment banker plus that
of a transaction broker.
Today a merchant banker is who has
the ability to merchandise --that is, create or
expand a need –and fulfil capital requirements.
Merchant banking in Britain developed partly as a result of
the operation of historical factors and partly in response to
the requirements of trade and industry for their short and
long term needs. Though merchant banks themselves
collect deposits and grant credit to a limited extent,
they act mainly as intermediaries to :
In channelling short term credit from commercial banks
through discount houses to merchants engaged in the
import and export trade or in the marketing of goods in the
In channelling medium and long term capital from those
who wish to lend to those who are in need of funds.
MBs render a variety of advisory services to individuals
and corporate bodies including such financial institutions
as investment trust and unit trusts, of which they
are the promoters and managers.
MBs therefore from an integral part of the complex
of financial institutions like commercial banks,
discount houses, long-term financial institutions and
capital markets and have therefore established intimate
business relationships with them through daily contacts
and advisory services.
The prominent MBs act as issuing houses, some are
financial bankers, some do foreign exchange
business, some are engaged in bullion business.
All of them do banking in some form by keeping money
incurrent or other accounts for their customers at home
or abroad. This type of banking activity ancillary to other
services, but the keeping of current account on which
their customers draw by cheque is a substantial business
for many of them.
keeping of securities in safe custody including the
accounts of customers and making and realizing
investments on their behalf. This has led in many
cases to giving advise to customers on their
investments as well as on the management of
pension funds, college endowments and other funds
of a similar nature.
Some of them have an active trustee business which
either a departmentor a separate subsidiary
company handles. They also act as registrars and
transfer agents for industrial companies.
Many MBs have promoted and are managers of
investment trusts and unit trusts. By developing
unit-linked insurance business, they have set up
their own life insurance companies, or have
established business connections with the existing
life insurance offices.
MBs are active in the following
Manage individual funds individuals, firms
or charitable trusts on a large scale.
Finance foreign trade both in acceptance business
and in the post-war practice of arranging medium
term export credit.
Advise a growing number of industrial companies
not only on how and when to raise capital but also
on their financial affairs generally.
placing American shares in Europe and vice versa,
running European and off-shore trusts thus
concerning themselves with foreign loan business.
Europe accounts for 35% of investment banking
revenues and US 45% and Asia accounted for 20%
in the year 2011.
Investment banking was perhaps lagging in France in front
of the City, as this one was the hub of worldwide financial
operations and of globalised forex. But French companies
helped the Paris marketplace to take part to this
it could also be argued that French culture is innately
unsuited to investment banking. Lucy Wadham, a writer
formerly married to a French investment banker, postulates
that French culture is all about the achievement of status
through nobility and ideas.
France’s Socialist government for stimulating business
growth by setting up a state-owned investment bank
offering €42bn in financial backing for small and mediumsized enterprises. It is aimed at providing finance and longterm support for business and export development which is
currently lacking for smaller companies
performs most of the traditional investment banking functions of the group
including mergers and acquisitions advisory, and equity raising operations
such as Initial Public Offerings (IPOs), rights issues, and convertible
It acts on three core businesses that are equity brokerage, equity derivatives
and asset management has an Equity of € 414.1 million (2009)
Commerzbank, the country's third-largest listed bank,
announced big layoffs in investment banking, where it
made an operating loss of €171m ($210m) last quarter.
That leaves only two German institutions, Deutsche
Bank and Dresdner Bank, with pretensions to
international investment banking.
This is happening at a time when optimists predict a
big increase in demand for investment-banking
services in Germany in the next few years.
Privatisations worth an estimated €50 billion are in the
Corporate restructuring and spin-offs should generate
€1.7 billion a year in mergers and acquisitions (M&A)
Spain's Banco Bilbao Vizcaya Argentaria (BBVA) SA is
launching an aggressive bid to expand its investment bank in
Latin America, Asia and the U.S., a move that seeks to take
advantage of its existing footholds and the weaker position
of some rivals.
Europe’s failure to resolve its sovereign-debt crisis will
force investment-banks to be out of business. Deal
making fees may drop 25% this year from 2009.
The Bloomberg Industries European Investment Banks
Index, which tracks UBS, Barclays, Deutsche Bank AG,
and Credit Suisse Group AG, has dropped 4.7% this
year compared with a 13% gain in the 329-member
MSCI World Financials Index.
European crisis would have an adverse impact on
Investment banking jobs.
Market Fluctuation Slows Growth
The Impact of Increased Regulation.
More job losses predicted by European banks as
crisis refuses to fade.
Cost cutting to bite in first half of 2013
with more job losses
Impact of sovereign debt crisis expected to
The industry will be reshaped through
consolidation, asset sales and joint ventures.
Renewed emphasis on increasing cash
reserves and deleveraging
Provide stability and employment to more
Bringing about economic reforms and
recovery proposals that involves the
direct loans to banks and banking
addressing current account imbalances,
mobilization of credit.