Investment Banking 9.6.09

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Investment Banking 9.6.09

  1. 1. INVESTMENT BANKING & FINANCIAL SERVICES By: Prof. V.K.AGARWAL 12/01/09 <ul><ul><li></li></ul></ul>
  2. 2. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>PERSONAL BANKING </li></ul><ul><li>SB A/C </li></ul><ul><li>C/A </li></ul><ul><li>BUSINESS BANKING </li></ul><ul><li>RETAIL, SME, CORPORATE </li></ul><ul><li>COMMERCIAL BANKING </li></ul><ul><li>MERCHANT BANKING </li></ul><ul><li>INVESTMENT BANKING </li></ul><ul><li>KNOWLEDGE BANKING </li></ul><ul><li>TELE BANKING </li></ul><ul><li>ON LINE BANKING </li></ul><ul><li>INTERNET BANKING </li></ul><ul><li>MOBILE BANKING </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  3. 3. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Originally “Merchant Bank” was the British English Term for an investment bank meeting with the requirements related with financial needs of the businessmen. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  4. 4. INVESTMENT BANKING & FINANCIAL SERVICES The investment banking division is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry such as healthcare, industrials, or technology, and maintain relationships with corporations with in the industry to bring in business for a bank. 12/01/09 <ul><ul><li></li></ul></ul>
  5. 5. INVESTMENT BANKING & FINANCIAL SERVICES Product coverage groups focus on financial products, such as mergers & acquisitions, leveraged finance, equity and high grade debt. Wockhart Hospital, Apollo Hospital 12/01/09 <ul><ul><li></li></ul></ul>
  6. 6. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>An investment bank is financial </li></ul><ul><li>institution that raises capital, trades in </li></ul><ul><li>securities and manage corporate mergers </li></ul><ul><li>and acquisitions. </li></ul><ul><li>Investment banks profit from companies </li></ul><ul><li>and governments by raising money </li></ul><ul><li>through issuing and selling securities in </li></ul><ul><li>the capital markets (both equity & bond). </li></ul><ul><li>Advising on transactions such as mergers & </li></ul><ul><li>acquisitions. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  7. 7. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>To perform these services in US, an adviser must be a licensed broker. </li></ul><ul><li>US maintained a separation between investment banking and commercial banks. </li></ul><ul><li>Other developed countries have not maintained this separation historically. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  8. 8. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Investment banking is a field of banking that helps companies in acquiring funds. </li></ul><ul><li>In addition to the acquisition of new funds, investment banking also offers advice for a wide range of transactions a company might engage in. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  9. 9. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Traditionally, banks either engaged in commercial banking or investment banking. In commercial banking, the institution collects deposits from clients and gives direct loans to businesses and individuals. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  10. 10. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>In the United States, it was illegal for a bank to have both commercial and investment banking until 1999, when the Gramm-Leach-Bliley Act legalized it. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  11. 11. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Through investment banking, an institution generates funds in two different ways. They may draw on public funds through the capital market by selling stock in their company, and they may also seek out venture capital or private equity in exchange for a stake in their company. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  12. 12. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>An investment banking firm also does a large amount of consulting. Investment bankers give companies advice on mergers and acquisitions, for example. They also track the market in order to give advice on when to make public offerings and how best to manage the business' public assets. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  13. 13. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Some of the consultative activities investment banking firms engage in overlap with those of a private brokerage , as they will often give buy-and-sell advice to the companies they represent. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  14. 14. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>They also track the market in order to give advice on when to make public offerings and how best to manage the business' public assets. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  15. 15. INVESGTMENT BANKING & FINANCIAL SERVICES <ul><li>The line between investment banking and other forms of banking has blurred in recent years, as deregulation allows banking institutions to take on more and more sectors. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  16. 16. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>With the advent of mega-banks which operate at a number of levels, many of the services often associated with investment banking are being made available to clients who would otherwise be too small to make their business profitable. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  17. 17. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Investment banking is a particular form of banking which finances capital requirements of enterprises. </li></ul><ul><li>Investment banking assists as it performs IPO’s, private placement and bond offerings. </li></ul><ul><li>Also acts as broker and carries through mergers and acquisitions.   </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  18. 18. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Functions of Investment Banking:   </li></ul><ul><li>Investment banks have multilateral functions to perform. Some of the most important functions of investment banking may be: </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  19. 19. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>To help public and private </li></ul><ul><li>corporations in issuing securities in </li></ul><ul><li>the primary market. </li></ul><ul><li>To guarantee by standby </li></ul><ul><li>underwriting or best efforts selling and </li></ul><ul><li>foreign exchange management. </li></ul><ul><li>Other services include acting as </li></ul><ul><li>intermediaries in trading for clients. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  20. 20. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Investment banking provides financial advice to investors and serves them by assisting in purchasing securities, managing financial assets and trading securities. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  21. 21. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Investment banking differ from commercial banking in the sense that they don't accept deposits and grant retail loans. However the dividing lines between the two fraternal twins have become flimsy with loans and securities becoming almost substitutable ways of raising funds. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  22. 22. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Small firms providing services of investment banking are called boutiques. These mainly specialize in bond trading, advising for mergers and acquisitions, providing technical analysis or program trading. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  23. 23. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>In short, Investment banking includes the activity of raising funds, managing them, advising about investments and marketing of financial products. In the US and Europe. </li></ul><ul><li>In India, mostly the commercial banks undertake investment banking in toto or part thereof. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  24. 24. INVESTMENT BANKING & FINANCIAL SERVICES Size of Industry: In 2007 $ 84.3 billion It was up by 21% on the previous year. More than double the level in 2003 12/01/09 <ul><ul><li></li></ul></ul>
  25. 25. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>Despite a record year for fee income, many investment banks have experienced large losses related to their exposure to US sub-prime securities investments. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  26. 26. INVESTMENT BANKING & FINANCIAL SERVICES ACTIVITIES: ADVISING ADMINISTRATION UNDERWRITING DISTRIBUTION 12/01/09 <ul><ul><li></li></ul></ul>
  27. 27. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>ACTIVITY OF RAISING FUNDS </li></ul><ul><li>MANAGING THEM </li></ul><ul><li>ADVISING ABOUT INVESTMENT </li></ul><ul><li>MARKETING OF FINANCIAL PRODUCTS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  28. 28. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>IN US AND EUROPE: </li></ul><ul><li>SEPARATE BANKS </li></ul><ul><li>IN INDIA: </li></ul><ul><li>COMMERCIAL BANKS </li></ul><ul><li>MERCHANT BANKING </li></ul><ul><li>IT’S A PART OF INVESTMENT BANKING </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  29. 29. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>FUNCTIONS: </li></ul><ul><li>ADVISING THE CLIENTS </li></ul><ul><li>ADMINISTRATION OF FUNDS </li></ul><ul><li>UNDERWRITING OF ISSUES </li></ul><ul><li>DISTRIBUTION OF FINANCIAL PRODUCTS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  30. 30. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>OTHER FUNCTIONS: </li></ul><ul><li>MERGERS AND ACQUISITIONS </li></ul><ul><li>INVESTMENT MANAGEMENT </li></ul><ul><li>SECURITIES SALES </li></ul><ul><li>SECURITIES TRADING </li></ul><ul><li>INSURANCE PRODUCTS DESIGNING </li></ul><ul><li>PENSION PLANS DESIGNING </li></ul><ul><li>HEDGING FOREIGN CURRENCY POSITION </li></ul><ul><li>REAL ESTATE DEALING </li></ul><ul><li>ASSET MANAGEMENT SERVICES </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  31. 31. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>FEE: </li></ul><ul><li>FIXED SUM </li></ul><ul><li>PERCENTAGE OF THE FUNDS RAISED OR MANAGED </li></ul><ul><li>PROFESSIONAL MONEY MANAGER </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  32. 32. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>ADVISORY FUNCTIONS: </li></ul><ul><li>ASSESSING THE FUND REQUIREMENTS OF IT’S CLIENT - INDIVIDUAL/ CORPORATE </li></ul><ul><li>AMOUNT OF FUNDS REQUIRED </li></ul><ul><li>PURPOSE </li></ul><ul><li>TIME </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  33. 33. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>HAVING KNOWING THE REQUIREMENTS: </li></ul><ul><li>COSTS </li></ul><ul><li>BENEFITS OF VARIOUS SOURCES OF FINANCE WHICH ARE VIABLE AND </li></ul><ul><li>TIMING OF EACH ONE FOR RAISING REQUIRED FUNDS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  34. 34. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>FINALLY INVESTMENT BANKER WILL ADVISE: </li></ul><ul><li>BEST SOURCE AND </li></ul><ul><li>RECOMMEND A GROUP OF INSTITUTIONS THAT CAN ASSEMBLE THE PACKAGE AND FULFILL THE FUNDING NEEDS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  35. 35. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>ADMINISTRATIVE FUNCTIONS: </li></ul><ul><li>TO PREPARE THE DOCUMENTATION </li></ul><ul><li>COLLECT THE DETAILS ASSOCIATED WITH THE REGULATORY FRAME WORK OF THE COUNTRY IN WHICH THE FUND BEING RAISED </li></ul><ul><li>PREPARATION OF THE DOCUMENTS OF THE ISSUE AND PROSPECTUS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  36. 36. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>UNDERWRITING FUNCTIONS: </li></ul><ul><li>MEANS: </li></ul><ul><li>GUARANTEEING A FIXED PRICE TO THE SECURITY ISSUER </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  37. 37. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>INVESTMENT BANKERS UNDERTAKE UNDERWRITING OF THE ISSUES THAT ARE BROUGHT TO THE MARKET BY THEIR CLIENTS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  38. 38. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>RISK TO THE INVESTMENT BANKER: </li></ul><ul><li>UNDERWRITING PRICE IS VERY HIGH </li></ul><ul><li>ISSUE IS NOT FULLY SUBCRIBED </li></ul><ul><li>TIME IS NOT GOOOD </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  39. 39. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>OTHER FUNCTIONS: </li></ul><ul><li>BOUGHT OUT DEALS </li></ul><ul><li>PRIVATE PLACEMENTS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  40. 40. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>DISTRIBUTION FUNCTIONS: </li></ul><ul><li>PLACEMENT OF NEWLY ISSUED SECURITIES </li></ul><ul><li>TO BUILDUP A PROPER CHANNEL FOR THE DISTRIBUTION OF THE ISSUE </li></ul><ul><li>FORM A SYNDICATE OF UNDERWRITERS TO MINIMISE THE RISKS ON THE ISSUE </li></ul><ul><li>STABILIZE THE PRICE </li></ul><ul><li>PRINTING OF SECURITY PAPERS, </li></ul><ul><li>ALLOTMENT, </li></ul><ul><li>REGISTRAR WORK ETC. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  41. 41. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>INVESTMENT MANAGEMENT FUNCTIONS: </li></ul><ul><li>ANALYZE THE SECURITY AND FIRMS </li></ul><ul><li>ALSO INVITE FUNDS FROM PUBLIC IN GENERAL AND </li></ul><ul><li>MANAGE THE SAME UNDER GUARANTEE TO PROVIDE A CERTAIN PERCENTAGE OF RETURN </li></ul><ul><li>INVESTMENT IN VARIOUS STOCK, BONDS, GILT-EDGED INSTRUMENTS </li></ul><ul><li>SUCH INVESTMENT MANAGERS ARE ALSO KNOWN AS MONEY MANGERS </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  42. 42. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>IN SHORT, INVESTMENT BANKERS WORLD WIDE PROVIDES THE SERVICES: </li></ul><ul><li>INDIVIDUAL INVESTMENT SERVICES </li></ul><ul><li>MONEY MANAGEMNT </li></ul><ul><li>POOLING OF FUNDS FOR JOINT INVESTMENT </li></ul><ul><li>INDEX FUND INVESTMENT </li></ul><ul><li>CONSULTANCY SERVICES </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  43. 43. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>MERGER AND ACQUISITIONS: </li></ul><ul><li>HELP THE CLIENT TO FIND OUT PROSPECTIVE MERGER PARTNER OR ACQUISITON TARGET OR PROSPECTIVE CLIENT FOR SALE </li></ul><ul><li>APPROPRIATE STRATEGIES FOR ACQUISITION INCLUDING RAISING FUNDS. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  44. 44. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>OTHER ACTIVITIES: </li></ul><ul><li>DESIGNATION OF INSURANCE PRODUCTS </li></ul><ul><li>PENSION PLANS </li></ul><ul><li>HEDGING RISKS AND RISK MANAGEMENT </li></ul><ul><li>FOREIGN CURRENCY ACTIVITIES. </li></ul>12/01/09 <ul><ul><li></li></ul></ul>
  45. 45. INVESTMENT BANKING & FINANCIAL SERVICES <ul><li>INVESTMENT BANKING FIRMS ABROAD: </li></ul><ul><li>MERRILL LYNCH </li></ul><ul><li>GOLDMAN SACHS </li></ul><ul><li>J.P. MORGAN </li></ul><ul><li>CHASE MANHATTAN </li></ul><ul><li>SOLOMON SMITH BARNEY </li></ul><ul><li>ABN AMRO </li></ul><ul><li>MORGAN STANLEY </li></ul>12/01/09 <ul><ul><li></li></ul></ul>

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