38578923 Investment Banking

8/8/2019 38578923 Investment Banking

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GROUP NO:-4

Prepared By:-

BULCHANDANI VASHDEV 09

CHOKSI VIRAJ 12

KANDALGAONKAR KAIVALYA 26

SHAH HARSH 49SHAH PRIYAM 50

SURANA NALIN 56

WADHWANI RITESH 58


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` GlassSteagall Act- Stock Market Crash of 1929

` GlassSteagall was effectively repealed for many largefinancial institutions by the GrammLeachBliley Act in1999.

` The Dictionary of Banking and Finance definesinvestment bank as a term used in the US to mean abank which deals with the underwriting of new issuesand advises corporations on their financial affairs.

` Primary function of assisting capital market in themovement of financial resources from those who havethem (investors) to those who want them (issuers).


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` For corporations- raising its capital. It facilitatesthe trading of securities thereby, increasing theliquidity of the securities.

` For Individuals- It provides investmentopportunities to the individuals or entities.

` Most of the corporations get advisory servicesfrom the investment banks regarding themergers, acquisitions and divestiture.


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` Investment banks are organized into "Front Office", "Middle Office", and"Back Office" operations.

` Front Office Helping customers raise funds in the capital markets and advise on

mergers and acquisitions

professional management of various securities and other assets

Buying and selling financial products with the goal of making money oneach trade

Creating and marketing financial products Researching industries, companies, and products

` Middle Office

Analyzing credit and market risk for the bank

Making sure operations are complying with regulations

Responsible for capital management and risk monitoring` Back Office

making sure the bank runs smoothly by submitting trades, maintainingdatabases, and transacting required money transfers

Tthe information technology department


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` The origin of investment banking in India can be traced

back to the 19th century when European merchant banksset-up their agency houses in the country to assist in the

setting of new projects.

` In the early 20th century, large business houses followedsuit by establishing managing agencies which acted as

issue house for securities, promoters for new projects

and also provided finance to Greenfield ventures.

` A few small brokers also started rendering Merchant

banking services, but theirs was limited due to their

small capital base.


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` It was soon followed by Citibank, which started

rendering these services.

` The banking committee, in its report in 1972, took noteof this with concern and recommended setting up ofmerchant banking institutions by commercial banks and

financial intuitions.

` State bank of India ventured into this business bystarting a merchant banking bureau in 1972.

` In 1967, ANZ Grindlays bank set - up a separatemerchant banking division to handle new capital issues.


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` Grindlays bank began Investment Banking (MerchantBanking) in India in 1967 with RBI issuing the secondlicense to Citi in 1970.

` These two banks primarily provided services which

included loan syndication, equity raising and otheradvisory services.` In 1972, a Banking Commission report asserted the

need for Merchant Banking services in India by publicsector banks.

` The commission recommended the same structure asAmerican investment banks (Glass-Steagall Act).

` Merchant banks were meant to manage investments andprovide advisory services.


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` SBI was the first Indian public sector bank to set up itsmerchant banking division in 1972.

` This was followed by Bank of India, Central Bank ofIndia, Bank of Baroda and many more.

` SBI Caps and IDBI Caps are two prime examples ofmerchant banks in India today.` Currently, there are 136 merchant banks registered with

SEBI.` Currently, without holding a certificate of registration

granted by the Securities and Exchange Board of India,no person can act as a merchant banker.


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` Consulting. Offer advices on mergers and acquisitions tocompanies.

` Focus on environmental Issues in below twocircumstances

For IPO, Due diligence and disclosure process Transactions relating to environmental Service

Industry` Relevance to developing and transition economies,

Underwriting Goverement Bonds.`

Brokering Privatization` Tracking the market


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` Managing public assets of businesses.` Similar with that of a private brokerage house.` Assisting the capital market in its function of capital

intermediation, i.e., the movement of financial resources

from those who have them (the investors), to those whoneed to make use of them for producing GDP (theissuers).

` Helps the corporations in raising capital.` Trading of securities thereby, increasing the liquidity of

the securities.` It provides investment opportunities to the individuals or

entities.


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` Underwriting (Public offering of securities)

` Trading of Securities

` Private Placement of Securities` Mergers and Acquisitions

` Merchant Banking

` Securitization of Assets

` Trading and Creation of Risk Control Instruments` Money Management


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Function:-

Public offering of securities.

Helping firms raise funds thru stocks or bond

issues.

It is a traditional activity -- "sponsoring.


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` Origination: advising the issuer on the terms (what

type and how much) and timing of the offering

` Underwriting: a kind of insurance

IBs buy securities from issuers and re-sell them to

customers.

If demand is lower than expected, IBs take loss.


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` Making a market afterwards:

IBs may act as a dealer later, giving the issue extra liquidity.

Investors are more willing to buy the issue if they know therewill be a market later.

` Sales and distribution:

IBs have built up regular network to sell securities.

Often, a syndicate is often organized by the lead or co-leadunderwriters (or co-managers) to share the capital risk.


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` The trading arm of an investment bank providesimportant input for the pricing of a security, the

selling of the issue, and the subsequent liquidity

for the issue.

` IBs must take a principal position in a transaction.` Revenue from trading is generated viabid-ask spread, and

appreciation of the price of the securities held in

inventory


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` Investment banks assist the placement of

securities with a limited number of institutional orwealthy individual investors.

` Fee for private placement:

Size (in million) fee

$ 5 - 10 1.5 - 4.0%

10 - 15 1.0 - 3.0%

25 - 50 0.7 - 2.0%

over 50 0.5 - 1.5%


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` FindM&A candidates:

vertical merger

horizontal merger

use for excess cash/way to expand

find undervalued business (badmanagement?)

access to another market

Role of investment banking in M&A


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` Advise acquiring firms or target firms with respect

to price and nonprice terms of an exchange or

help target firms fend off an unfriendly takeoverattempt.

` Assist acquiring firms in obtaining financing.


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` Merchant banking refers to a transaction in whichan investment banking firm commits its own fundsby either taking an equity interest or creditorposition in companies.

` An example is bridge financing wherein aninvestment bankingfirm loans funds to a client toconsummate a takeover. Bridge financing is not

only important for its potential source of interestincome, but also to attract clients who areconsidering an LBO.


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` Securitization of assets refers to the issuance of

securities that have a pool of assets as

collateral.

` Example: Citibank and Cheung Kong Holding's

Mortgage-backed securities.

` Revenue from securitization:The underwriting of an issue

Price difference


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` There are risk control instruments which an investment

banking firm creates for its clients and in which it acts as a

counterpart to the agreement.

` Examples of contracts that can be used to control risk for

both investors and issuers include futures, options, interest

rate swaps, and customized interest rate agreements.

` Risk control instruments are also used by investment

banking firms to protect their own position in transactions


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` Investment banking firms have created

subsidiaries that manage funds for either

individual investors or institutional investors such

as pension funds.


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Investment banking firms are facing competition from:

Commercial banks with the virtual elimination of Glass-Steagall

New trading technology that is allowing institutional investors to execute

trades without employing investment banking firms as intermediaries.

Direct purchase by institutional investors of publicly registered securitiesfrom issuers.

some of the more sophisticated corporations themselves who are

establishing in-house groups to perform some of the activities traditionally

done by investment banking firms.


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` Vendus Capital` Bajaj Capital` Cholamandalam Investment & Finance Company` ICICI Securities Ltd` IDFC` Kotak Mahindra Capital Company` SBI Capital Markets` Tata Investment Corporation Limited (TICL)

` Yes Bank` UTI Securities Ltd


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` Bank of America (Bank of America Merrill Lynch)

` Barclays (Barclays Capital)` BNP Paribas (BNP Paribas CIB)` Citigroup (Citi Institutional Clients Group)` Credit Suisse

` Deutsche Bank` Goldman Sachs

` HSBC

` JPMorgan Chase (J.P. Morgan Investment Bank)

` Morgan Stanley` Nomura Holdings`

UBS (UBS Investment Bank)` Royal Bank of Canada (RBC Capital Markets)` Royal Bank of Scotland

` Wells Fargo (Wells Fargo Securities)


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` ABN Amro

` Bank of Montreal (BMO Capital Markets)

` BNP Paribas (BNP Paribas CIB)

` Fortis

` HSBC` ING Group

` KBC Bank

` Kotak Mahindra Bank

` Nomura Securities Co.

` Royal Bank of Canada (RBC Capital Markets)

` Royal Bank of Scotland Group (RBS Securities)

` Standard Bank

` Standard Chartered Bank

38578923 Investment Banking

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