7. What is the difference between pure arbitrage and risk arbitr.docx
1. 7. What is the difference between pure arbitrage and risk
arbitrage? If an investor observes the price of a stock trading in
one exchange to be different from its price in another exchange,
what form of arbitrage is applicable and how could the investor
participate in that arbitrage?
Pure arbitrage involves the immediate buying and selling of
similar assets trading at different price. Risk arbitrage also is
based on the similar principle of buying low and selling a
similar asset (or an asset with same payoffs) at a higher price.
The difference is that with a risk arbitrage the investor buys
blocks of the stock in anticipation of some information release.
If an investor observes two similar assets trading at different
prices in different exchanges, he / she should sell the more
expensive stock and use the proceeds to purchase the cheaper
stock to lock in a given spread. This would be an example of a
pure arbitrage rather than risk arbitrage. We are assuming that
transactions costs are negligible.
8. How do agency transactions differ from principal
transactions for market makers?
Agency transactions are done on behalf of a customer. Thus the
investment banker is acting as a stockbroker, and the company
earns a fee or commission. In a principal transaction, the
investment bank is trading on its own account. In this case the
profit is made from the difference in the price that the company
pays for the security and the price at which it is sold. In the
first case the company bears no risk, but in the second case the
company is risking its own capital.
9. What are private placements and under what SEC rule are
3. The size of the industry is usually measured by the equity
capital of firms rather than total asset size
Equity capital in the industry in 2012 was $223 billion
The number of firms in the industry changed due to economies
of scale and scope, losses with the economy, scandals at some
firms, and regulations that allowed both inter- and intra-
industry mergers5,248 firms in 19809,515 firms in 19875,063
firms in 2010
As with commercial banks, consolidation has largely occurred
through mergers and acquisitions. Some of the most recent
consolidations include the acquisition of Bear Stearns by J. P.
Morgan Chase, the bankruptcy of Lehman Brothers, and the
acquisition of Merrill Lynch by Bank of America. the
investment banking industry has seen the failure or acquisition
of all but two of its largest firms (Goldman Sachs and Morgan
Stanley) and these two firms converted to commercial bank
holding companies in 2008.
*
Scale and scope economies provide pressure to get larger to
improve profitability. Several mergers occurred due to scandals
at firms and in the late 1980s regulators allowed more cross
border mergers.
The industry underwent shakeouts in the 1970s after “May Day”
and again after the 1987 crash
Commercial bank holding companies (so called financial
4. holding companies) that operate diversified national full-line
firmsservice both retail and wholesale customers by acting as
broker-dealersservice corporate customers by underwriting
security issues
National full-line firms (not bank holding companies)
specializing in corporate financeThe second largest group of
firms are full-service firms that specialize in corporate finance
or primary market activity (i.e., focus less on secondary market
activities)
*
Commercial bank examples include Bank of America and J.P.
Morgan Chase. These firms’ income comes primarily from
brokerage, lending, and underwriting and trading activities.
National full line firms specializing in corporate finance such as
Goldman Sachs. Their income is primarily from underwriting,
placement, mergers and acquisitions other consulting services
and trading income.
Largest full-service investment banks
1 - Goldman Sachs.
2 - Morgan Stanley.
3 - JPMorgan Chase.
4 - Bank of America Merrill Lynch.
5 - Deutsche Bank.
6 (tie) - Citigroup.
6 (tie) - Credit Suisse.
8 - Barclays Capital.
5. Large investment banks Lazard Ltd Greenhill and Company
Have only limited branch networks concentrated in major cities
and service primarily financial institution clients
Smaller specialized firms (Raymond James) such as: regional
investment bankers (sometimes labeled ‘boutiques’)discount
brokers Internet brokers venture capital firms exchange floor
specialistsdealers in off exchange trading
*
Large investment banks include Lazard Ltd and Greenhill and
Company
regional investment bankers (D.A. Davidson, Raymond James),
(sometimes labeled ‘boutiques’)
discount brokers (Schwab),
Internet brokers (E-Trade),
venture capital firms (New Enterprise) &
exchange floor specialists (LaBranche & Co.)
dealers in off exchange trading (Knight Capital Group)
Lines of BusinessInvestment bankingfirst time debt and equity
issues occur through initial public offerings (IPOs)
new issues from a firm whose debt or equity is already traded
are called seasoned equity offerings (SEOs)
a private placement is a securities issue that is placed with one
or a few large institutional investors
public offerings are offered to the public at large
IBs act only as an agent in best efforts underwriting
IBs act as principals in firm commitments
6. *
Best Effort Versus Firm Commitment
An investment bank agrees to underwrite an issue of 20,000,000
shares of stock for Murray Construction Corp. on a firm
commitment basis. The investment bank pays $15.50 per share
to Murray Construction Corp. for the 20,000,000 shares of
stock. It then sells those shares to the public for $16.35 per
share. How much money does Murray Construction Corp.
receive? What is the profit to the investment bank?If the
investment bank can only sell the shares for 14.75, how much
money does Murray Construction Corp. receive? What is the
profit to the investment bank?
If the investment bank sells the stock for $16.35 per share,
Murray Construction Corp. receives $15.50 × 20,000,000 shares
= $310,000,000. The profit to the investment bank is ($16.35 -
$15.50) × 20,000,000 shares = $17,000,000. The stock price of
Murray Construction Corp. is $16.35, since that is what the
public agrees to pay. From the perspective of Murray
Construction Corp., the $17,000,000 represents the commission
that it must pay to issue the stock.
If the investment bank sells the stock for $14.75 per share,
7. Murray Construction Corp. still receives $15.50 × 20,000,000
shares = $310,000,000. The profit to the investment bank is
($14.75 - $15.50) × 20,000,000 shares = - $15,000,000. The
stock price of Murray Construction Corp. is $14.75, since that is
what the public agrees to pay. From the perspective of the
investment bank, the - $15,000,000 represents a loss for the
firm commitment it made to Murray Construction Corp. to issue
the stock.
Suppose instead the investment bank agrees to underwrite these
20,000,000 shares on a best efforts basis. The investment bank
is able to sell 18,400,000 shares for $15.50 per share, and it
charges Murray Construction Corp. $0.375 per share sold. How
much money does Murray Construction Corp. receive? What is
the profit to the investment bank? If the investment bank can
only sell the shares for 14.75, how much money does Murray
Construction Corp. receive? What is the profit to the investment
bank?
If the investment bank sells the stock for $15.50 per share,
Murray Construction Corp. receives ($15.50 - $0.375) ×
18,400,000 shares = $278,300,000, the investment bank's profit
is $0.375 × 18,400,000 shares = $6,900,000, and the stock price
is $15.50 per share, since that is what the public pays.
If the investment bank sells the stock for $14.75 per share,
Murray Construction Corp. receives ($14.75 - $0.375) ×
18,400,000 shares = $264,500,000, the investment bank's profit
is still $0.375 × 18,400,000 shares = $6,900,000, and the stock
price is $14.75 per share, since that is what the public pays.
Venture capital
(VC) is a professionally managed pool of money used to
finance new (i.e., start-up) and often high-risk firms.
VC usually purchases an equity stake in the start-upusually
become active in management of the start-upinstitutional
8. venture capital firms find and fund the most promising new
firms
venture capital limited partnerships
financial venture capital firms (subsidiaries of banks)
corporate venture capital firms (subsidiaries of nonfinancial )
*
Types of VCs Institutional venture capital firms are business
entities whose sole purpose is to find and fund the most
promising new firms.
The federal government, through the SBA, operates Small
Business Investment Companies (SBICs). SBICs are privately
organized venture capital firms licensed by the SBA that make
equity investments (as well as loans) to entrepreneurs for start-
up activities and expansions. As federally sponsored entities,
SBICs have relied on their unique opportunity to obtain
investment funds from the U.S. Treasury at very low rates
relative to private-sector institutional venture capital firms.
Angel venture capitalists (or angels) are wealthy individuals
who make equity investments. Angel venture capitalists have
invested much more in new and small firms than institutional
venture capital firms.
Private equity investments
Private equity (PE) differs from VC in funds sources and in
types of investments
PE firms raise funds by selling securities rather than
commingling private funds
PE firms often acquire established existing firms (restructuring,
selling parts …)rather than purchase start-ups
9. *
During and after the crisis however there have been fewer
promising startups so VC firms have begun engaging in PE type
investments.
Market making involves the creation of secondary markets for
an issue of securities. In addition to being primary dealers in
government securities and underwriters of corporate bonds and
equities, investment banks make a secondary market in these
instruments.
Agency transactions are two-way transactions on behalf of
customers. Acting as a stockbroker or dealer for a fee or
commission
Principal transactions: the market maker seeks to profit on the
price movements of securities and takes either long or short
inventory positions for its own account.
Goldman Sachs managed $43 trillion in derivatives securities in
2013 (about 18% of total held by FIs)
*
Derivatives are a major source of income for banks and why
they don’t like the new restrictions in the Dodd-Frank bill.
Losses from subprimes and derivatives were over $1 trillion in
2009 so these are risky.
Trading involves taking an active net position in an asset
Position trading involves purchases of large blocks of securities
on the expectation of a favorable price move. Position traders
maintain long or short positions for intervals of up to several
weeks or even months.
Pure arbitrage entails buying an asset in one market at one price
10. and selling it immediately in another market at a higher price.
Pure arbitrageurs often attempt to profit from price
discrepancies that may exist between the spot, or cash, price of
a security and its corresponding futures price.
Risk arbitrage involves buying securities in anticipation of
some information release—such as a merger or takeover
announcement or a Federal Reserve interest rate announcement.
*
Program trading is defined by the NYSE as the simultaneous
buying and selling of a portfolio of at least 15 different stocks
valued at more than $1 million, using computer programs to
initiate such trades.
Stock brokerage involves the trading of securities on behalf of
individuals who want to transact in the money or capital
markets. To conduct such transactions, individuals contact their
broker (such as Merrill Lynch), who then sends the orders to its
representative at the exchange to conduct the trades.
Electronic brokerage involves direct access, via the Internet, to
the trading floor, therefore bypassing traditional brokers. Many
securities firms and investment banks offer online trading
services to their customers as well as direct access to a client
representative
*
Investing involves managing pools of assets such as closed- and
11. open-end mutual funds (in competition with commercial banks,
life insurance companies, and pension funds). Securities firms
can manage such funds either as agents for other investors or as
principals for themselves and their stockholders
Cash management involves deposit-like accounts such as money
market mutual funds (MMMFs) that offer check writing
privileges
*
Currently money market investments have a fixed $1 net asset
value (NAV). As part of increased oversight from the Dodd-
Frank bill these accounts will soon be forced to trade at varying
NAV so that investors can understand the risks they face in
these investments. It remains to be seen whether investors will
no longer consider these accounts as close substitutes for bank
deposits.
Merger and acquisition (M&A) assistanceFor example, they
assist in finding merger partners, underwrite any new securities
to be issued by the merged firms, assess the value of target
firms, recommend terms of the merger agreement, and even
assist target firms in preventing a merger (for example, writing
restrictive provisions into a potential target firm's securities
contracts).
M&A activity brings large fees to bankers
M&A business remains very cyclical and depends on the
economy
*
12. Other Service Functions include custody and escrow services,
clearance and settlement services, and
research and advisory services—for example, giving advice on
divestitures, spin-offs, and asset sales. Investment banks are
making increasing inroads into traditional bank service areas
such as small-business lending and the trading of loans
*
Fees for these services are often bundled together and allocated
for different activities
Industry PerformanceIndustry trends depend heavily on the state
of the stock market and the economy
Commission income fell after the 1987 stock market crash and
the 2001-2002 stock market decline
Improvements in the U.S. economy in the mid-2000s led to
increases in commission income, but income fell with the stock
market in 2006-2008 because of rising oil prices and the
subprime mortgage collapse
*
In 2008 the industry reported net losses of $34.1 billion as
revenues fell 38.7%. Expenses fell as well particularly because
with the lower interest rates, interest expense declined.
Trading and investment account losses for the industry were $65
billion. As a result employment in the industry fell from
13. 869,000 to 840,800. Employment kept falling to 779,800 in
September 2009. Profits rebounded sharply in 2009 reaching a
record $61.4 billion. Commissions, fee income and trading
profits all rebounded and interest expense remained very low as
the Fed kept interest rates down. High profits helped in
rebuilding capital and efforts to raise external equity.
Revenues and profits fell record amounts in 2008, but
rebounded sharply in 2009
Industry employment fell sharply
Low interest rates and strong stock market helped fuel profit
recovery
Profits began to recover in 2010 but the ‘fiscal cliff’ problems
and Euro area problems hurt profits in 2011 and 2012, but
profits improved in 2013
*
In 2008 the industry reported net losses of $34.1 billion as
revenues fell 38.7%. Expenses fell as well particularly because
with the lower interest rates, interest expense declined.
Trading and investment account losses for the industry were $65
billion. As a result employment in the industry fell from
869,000 to 840,800. Employment kept falling to 779,800 in
September 2009. Profits rebounded sharply in 2009 reaching a
record $61.4 billion. Commissions, fee income and trading
profits all rebounded and interest expense remained very low as
the Fed kept interest rates down. High profits helped in
rebuilding capital and efforts to raise external equity.
The years 2010 through 2012 brought many new challenges.
The threat of a ‘fiscal cliff’ as U.S. government debt levels
grew rapidly while Congress could not decide whether to
14. increase the debt ceilings, the problems in the Euro area,
increasing regulations and generally weak U.S. economic
growth limited profitability for many firms. In May 2010 the
‘flash crash’ brought more scrutiny to trading activities as did
the collapse in October 2011 of MF Global along with the
trading glitch at Knight Capital in August 2012. Pretax profits
fell from 2010 levels of $34.8 billion to $10.6 billion in 2011
and $12.4 billion in 2012. The fiscal cliff problem was resolved
in January 2013 and after the European Central Bank pumped
about $1 trillion into euro area banks the euro crisis subsided.
In 2013, trading activity, and municipal bond and equity
underwriting began to grow once more and profitability
improved.
Balance Sheets of Securities Firms and Investment Banks (IBs)
Receivables represent trading activity
What are securities purchased under agreements to resell?
*
Note that large amounts of receivables represents trading
activity
15. Securities purchased under agreements to resell (i.e., the broker
gives a short-term loan to the repurchase agreement seller)
accounted for 34.21 percent of assets.
Securities sold under repurchase agreement amounted to 45.83
percent of total liabilities and equity.
Equity capital amounted to only 4.68 percent of total assets,
while total capital (equity capital plus subordinated liabilities)
accounted for 7.13 percent of total assets. These levels are
generally below the levels held by commercial banks (11.3
percent in 2013). Firms in this industry are required by the SEC
to maintain a minimum net worth (capital) to assets ratio of 2
percent.
One reason for their lower equity capital levels is that securities
firm and investment bank balance sheets contain tradable
securities compared to the relatively illiquid loans that
represent a significant portion of banks' asset portfolios.
However, this low level of capital can leave stand-alone
investment banks vulnerable to runs. For example, in the
summer of 2007, two Bear Stearns hedge funds suffered heavy
losses on investments in the subprime mortgage market. The
two funds filed for bankruptcy in the fall of 2007. Bear
Stearns's market value was hurt badly from these losses.
Because Bear Stearns operated with low levels of capital, the
losses became so great that by March 2008 Bear Stearns was
struggling to finance its day-to-day operations.
Securities sold under
repurchase agreement
(short-term)
Shadow Bank 1
Long-term positions in
16. securities and commodities
(long-term)
Interest Rate Risk
Shadow Bank 2
Reverse Repo
Securities sold under
repurchase agreement
What are the major sources of financing?
Is there a sufficient level of equity capital?
*
Note that large amounts of receivables represents trading
activity
QuestionWhat the trend in profitability in the securities industry
has been over the last 20 years?
What the major assets held by broker-dealers are?
Why broker-dealers tend to hold less equity capital than
commercial banks and thrifts?
Regulation of Securities Firms
and Investment Banks (IBs)
The Securities and Exchange Commission (SEC)
The primary regulator of the securities industry has been the
17. Securities and Exchange Commission (SEC), established in
1934 largely in response to abuses by securities firms that many
at the time felt were partly responsible for the economic
problems in the United States.
The primary role of the SEC includes administration of
securities laws,review and evaluation of registrations of new
securities offerings (ensuring that all relevant information is
revealed to potential investors), review and evaluation of annual
(10-K) and quarterly reports (10-Q) summarizing the financial
status of all publicly held corporations, and the prohibition of
any form of security market manipulation.
*
The National Securities Markets Improvement Act (NSMIA) of
1996 reaffirmed the significance of the SEC as the primary
regulator of securities firms.
According to the NSMIA, states are not allowed to require
federally registered securities firms to be registered in a state as
well.
States are also prohibited from requiring registrations of
securities firms' transactions and from imposing substantive
requirements on private placements.
Prior to NSMIA, most securities firms were subject to
regulation from both the SEC and the state in which they
operated. NSMIA provides that states may still require
securities firms to pay fees and file documents submitted to the
SEC, but most of the regulatory burden imposed by states has
been removed. Thus, NSMIA effectively gives the SEC primary
regulatory jurisdiction over securities firms.
The early 2000s saw a reversal of this trend toward the
18. dominance of the SEC with states—especially their attorneys
general—increasingly intervening through securities-related
investigations. Several highly publicized securities violations
resulted in criminal cases brought against securities law
violators by state prosecutors.
For example, the New York State attorney general forced
Merrill Lynch to pay a $100 million penalty because of
allegations that Merrill Lynch brokers gave investors overly
optimistic reports about the stock of its investment banking
clients.
Financial Industry Regulatory Authority (FINRA)
FINRA is not part of the government. It is an independent, not-
for-profit organization authorized by Congress to protect
America’s investors by making sure the securities industry
operates fairly and honestly.It does this by:writing and
enforcing rules governing the activities of more than
4,035 securities firms with approximately 638,020 brokers;
examining firms for compliance with those rules;
fostering market transparency; and
educating investors.
*
While the SEC sets the overall regulatory standards for the
industry, the Financial Industry Regulatory Authority (FINRA)
is involved in the day-to-day regulation of trading practices.
FINRA monitors trading abuses (such as insider trading),
trading rule violations, and securities firms' capital (solvency
positions)—such as the 2 percent net worth to assets minimum
capital ratio.
19. FINRA also performs market regulation under contract for the
major U.S. stock exchanges. For example, in January 2013,
FINRA announced that it is expanding its oversight of dark pool
trading
The Sarbanes-Oxley Act (SOX) of 2002Along with regulations
instituted by the SEC, the U.S. Congress passed the
SarbanesOxley Act, a corporate governance and accounting
oversight bill, in July 2002. This bill created an independent
auditing oversight board under the SEC,
increased penalties for corporate wrongdoers,
forced faster and more extensive financial disclosure, and
created avenues of recourse for aggrieved shareholders. .
*
Sarbanes-Oxley Section 302Sarbanes-Oxley Section
401Sarbanes-Oxley Section 404Sarbanes-Oxley Section
409Sarbanes-Oxley Section 802
The goal of the legislation was to prevent deceptive accounting
and management practices, which result when corporate
governance in firms is weak, and bring stability to jittery stock
markets battered in the summer of 2002 by the corporate
governance scandals of Enron, Global Crossings, Tyco,
WorldCom, and others.
The SEC sets rules governing underwriting and trading
activitySEC Rule 144A defines boundaries between public
20. offerings and private placements.Restricted securities are
securities acquired in unregistered, private sales from the
issuing company or from an affiliate of the issuer. Investors
typically receive restricted securities through private placement
offerings.Rule 144A governs the sale of restricted securities.
Restrictive securities, have a certificate stamped with a
"restrictive" legend. The legend indicates that the securities
may not be resold in the marketplace unless they are registered
with the SEC or are exempt from the registration requirements.
*
SEC Rule 415 allows shelf registration
allows firms that plan to offer multiple issues of stock over a
two-year period to submit one registration statement
summarizing the firm’s financing plans for the period
SEC Rule 415
allows shelf registration
allows firms that plan to offer multiple issues of stock over a
two-year period to submit one registration statement
summarizing the firm’s financing plans for the period
Other regulatory organizations oversee the day-to-day
regulation of trading practices.
the New York Stock Exchange (NYSE)
The U.S.A. Patriot Act became effective in 2003firms must
verify identities of customers
firms must maintain records of identities of customers
firms must verify customers are not on suspected terrorist lists
The U.S. Senate Permanent Subcommittee on Investigations was
created with the broad mandate to determine whether any
changes are required in U.S. law to better protect the public. In
the spring of 2010, a subcommittee hearing focused on the
21. contributing role of investment banks in the financial crisis.
Investment banks such as Goldman Sachs bundled toxic
mortgages into complex financial instruments, many of which
were rated AAA by credit-rating agencies, and sold them to
investors.
*
Investors in the industry are protected by the Securities Investor
Protection Corporation (SIPC)
protects investors against losses of up to $500,000 due to
securities firm failures (but not against poor investment
decisions)
created following passage of the Securities Investor Protection
Act in 1970
*
Under the Dodd-Frank Act, the Financial Services Oversight
Council (FSOC) has oversight of systemic risk of the industry
More investment advisors will have to be registered with either
the SEC or state advisors
Securitization markets should now have more oversight and
originators will have to retain a greater interest in loans that
will be resold
Greater transparency and regulation for OTC derivatives
*
22. The government can also mandate higher capital requirements
for larger and for interconnected firms
Conclusion: Government oversight of industry practices has
increased as a result of the law
Wall Street Reform and Consumer Protection Act
*
Executive compensation restrictions imposed by the Obama
administration
Strengthen the independence of the compensation committee
from senior management
Shareholders now also have a non-binding vote on executive
compensation packages
Administration has a say on executive pay for firms that
accepted bailout money
Further Regulations
*
Ask students whether limits on executive pay are appropriate or
not. What would be the pros and cons? The industry argues
that they will be unable to attract top talent without large
performance type bonuses. Executive pay would seem to be
very high however and it is higher than is typical in much of the
rest of the world. Many in the public would argue that
executives in firms that took taxpayer dollars have no business
receiving any performance bonuses. AIG executives received
bonuses even as the firm was on the verge of bankruptcy.
23. Continuing Ethical ProblemsAre bankers unethical? Are
regulations sufficient to limit ethical breaches?
Sources: Wall Street Journal & Bloomberg (various dates)
Sources: Text, Wall Street Journal and Bloomberg, various
issuesDateFirm/PrincipalActivitySettlement PaymentJanuary
2011Primary Global Research LLC, Bob NguyenSoliciting
information for inside tradingJune 2012Barclays BankLIBOR
manipulation$450 millionJuly 2012Peregrine Financial, Russell
Wassendorf , Sr.Misallocating and misreporting usage of $215
million in client fundsDecember 2012Goldman Sachs trader
Matthew TaylorConcealed $8.3 billion futures position$1.5
millionDecember 2012Morgan StanleySenior banker influenced
analyst and share allocation of Facebook IPODecember
2012UBSLIBOR manipulation$1.5 billionDecember
2012HSBCMoney laundering$1.9 billionFebruary 2013Royal
Bank of ScotlandLIBOR manipulation$610 millionOctober
2013J. P. MorganBad mortgage practices origination and
sale$13 billionOctober 2013J. P. MorganTrade error in London
cost firm $6 billion$920 millionOctober 2013J. P.
MorganExcessive credit card charges$ 80 millionOctober
2013J. P. MorganManipulating energy markets$410
millionDecember 2013Deutsche BankEuribor manipulation$981
millionFebruary 2014Morgan StanleyBad mortgage practices
origination and sale$1.25 billionJuly 2014CitigroupBad
mortgage practices origination and sale$7.00 billion
24. *
This list is not complete. Charges of manipulating ISDAfix, a
rate used for swaps, are also emerging, (the same banks
involved in the LIBOR scandal). As of this writing, evidence is
emerging of allegations that the Bank of England, the British
central bank, knew of manipulations of currency rate quotes for
as long as eight years without taking action. The currency
markets involve over $5.3 trillion in daily trading volume. The
SEC is investigating whether traders distorted prices for
currency options and exchange traded funds. Reports are
emerging that traders shared information about client orders in
order to manipulate prices. As of June 2014 about 20 traders at
the top three banks (Deutsche, Citi and Barclays) involved in
currency trading had been fired.
See for instance: Carney Faces Grilling as Currency Scandal
Snares BOE. Bloomberg, By Scott Hamilton and Suzi Ring
Mar 10, 2014 8:37 AM MT,
http://www.bloomberg.com/news/2014-03-10/carney-faces-
leadership-test-as-currency-scandal-snares-boe.html.
25. Interesting side note: As of January 1, 2013 Dutch bankers are
required by law to swear an oath to act ethically, details can be
found at: http://www.nibc.com/investor-relations/dutch-
banking-code.html
Global IssuesMore so than other sectors of the financial
institutions industry, securities firms and investment banks
operate globally.
Both U.S. and European investment banks compete for business
worldwide.
Three of the top five underwriters of global debt and equity are
U.S. investment banks (J. P. Morgan Chase, Citigroup, and
Goldman Sachs) and the rest are European banks (Barclays
Capital and Deutsche Bank).
Through September 2013, in M&A deals involving U.S. targets,
6 of the top 10 advisors were U.S. investment banks (including
Goldman Sachs and J. P. Morgan Chase) and four were
European banks (including Barclays Capital and Deutsche
Bank).
Further, U.S. investment banks held 5 of the top 10 spots on
M&A deals in Europe and held two of the top five spots on
deals in Asia.
*
The financial crisis has increased the need for capital at banks.
Many firms are now engaging in strategic alliances with foreign
partners. For instance, Morgan Stanley sold a 21% stake of its
firm to Mitsubishi UFJ in 2008. Citigroup took a different tact
and sold some of its foreign businesses such as Nikko Asset
Management and Nikko Citi Trust to increase capital. The
26. industry continues to restructure as a result of the crisis.
The financial crisis has increased the need for capital at banks.
Many firms are now engaging in strategic alliances with foreign
partners.For instance, Morgan Stanley sold a 21% stake of its
firm to Mitsubishi UFJ in 2008. Citigroup took a different tact
and sold some of its foreign businesses such as Nikko Asset
Management and Nikko Citi Trust to increase capital.
The industry continues to restructure as a result of the crisis.
*
*