E437_11_08.ppt

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E437_11_08.ppt

  1. 1. Behavioral Finance Economics 437
  2. 2. Bear Stearns (BSC) May 2007 160 Sept 2007 Mar 1 Wed Today 80 52 30 4 1/2 105
  3. 3. A Primer on Investment Banks and Broker Dealers <ul><li>Investment Banking </li></ul><ul><ul><li>Public Offerings </li></ul></ul><ul><ul><li>Mergers and Acquisitions </li></ul></ul><ul><li>Sales and Trading </li></ul><ul><ul><li>Equity </li></ul></ul><ul><ul><li>Fixed Income </li></ul></ul><ul><ul><li>Derivatives </li></ul></ul><ul><li>Wealth Management </li></ul><ul><li>Prime Brokerage </li></ul><ul><ul><li>Retail Brokerage </li></ul></ul>
  4. 4. Who Does What? <ul><li>Bear Stearns (Value of equity in May, 2007 - $ 20 billion) </li></ul><ul><ul><li>Fixed Income </li></ul></ul><ul><ul><ul><li>Investment Banking </li></ul></ul></ul><ul><ul><ul><li>Sales and Trading </li></ul></ul></ul><ul><ul><li>Equity </li></ul></ul><ul><ul><ul><li>Investment Banking </li></ul></ul></ul><ul><ul><ul><li>Sales and Trading </li></ul></ul></ul><ul><ul><li>Prime Brokerage </li></ul></ul><ul><ul><li>“ Clearing” </li></ul></ul><ul><li>Customers </li></ul><ul><ul><li>Institutions (meaning mainly mutual funds, investment advisors and hedge funds) </li></ul></ul><ul><ul><li>High net worth families or individuals </li></ul></ul>
  5. 5. Other Firms <ul><li>Citigroup ($ 96 B) </li></ul><ul><li>Merrill Lynch ($ 40 B) </li></ul><ul><li>Goldman Sachs ($ 60 B) </li></ul><ul><li>Morgan Stanley ($ 40 B </li></ul><ul><li>JP Morgan (including Bank One) ($ 136 B) </li></ul><ul><li>Lehman Brothers ($ 16 B) </li></ul>
  6. 6. How do they make money? <ul><li>As a lender </li></ul><ul><ul><li>Commercial banking </li></ul></ul><ul><ul><li>Margin lending </li></ul></ul><ul><ul><li>Prime brokerage </li></ul></ul><ul><li>As a financial engineer </li></ul><ul><ul><li>Structured debt </li></ul></ul><ul><ul><li>Derivatives </li></ul></ul><ul><li>As an investment banker </li></ul><ul><ul><li>Mergers and acquisitions </li></ul></ul><ul><li>As a money manager for others </li></ul><ul><ul><li>Wealth management </li></ul></ul><ul><li>As a stock broker </li></ul><ul><ul><li>Retail </li></ul></ul><ul><ul><li>High Net Worth (or Private Banking) </li></ul></ul><ul><li>Proprietary Trading </li></ul>
  7. 7. What do they not make money in? <ul><li>Equity and fixed income trading </li></ul><ul><li>IPO Investment banking </li></ul><ul><li>Proprietary trading (?) </li></ul>
  8. 8. A Look at the Balance Sheet for Lehman Brothers (Market Cap $ 16 B) <ul><li>Assets $ 691 Billion </li></ul><ul><li>Liabilities $ 669 Billion </li></ul><ul><li>Book Equity $ 22.4 Billion </li></ul><ul><li>Try Goldman Sachs (Market Cap $ 60 Billion) </li></ul><ul><ul><li>Assets $ 1.2 Trillion </li></ul></ul><ul><ul><li>Liabilities $ 1.08 Trillion </li></ul></ul><ul><ul><li>Book Equity $ 37 Billion) </li></ul></ul>
  9. 9. The two big enchiladas <ul><li>Structured debt </li></ul><ul><ul><li>CDOs, SIVs, etc. </li></ul></ul><ul><li>The repo market </li></ul><ul><li>Plus </li></ul><ul><ul><li>The demise of structured debt and ibanking </li></ul></ul>
  10. 10. End

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