Corporate and Investment Banking

Course Introduction

1

Key Course Topics

Introduction to Investment Banking

History, Products and Services, Business Models, Clients and Segments

Introduction to Mergers and Acquisitions

Strategic Objectives, Regulation, Tactics, Negotiation, Valuation

Corporate Finance in Practice

Sell-side, Buy-side, LBOs, ECM, DCM, Distressed situations

Case studies

2

Rules of the Game

Course Structure

Interactive lessons

Case studies

Suggested additional readings

Student Evaluation

Class Participation 10%

Case Studies 15%

Final Exam 75% (oral only)

3

Lesson 1.1a – What is Investment Banking: Historical Perspectives

4

Corporate and Investment Banking

What is Investment Banking?

From a historical point of view, the main activity of investment banks was

“security underwriting”

Investment banks buy securities, such as bonds and stocks, from an issuer and

then sell them to the final investors

Today investment banking comprises a rather heterogeneous and complex

set of activities, including underwriting and advisory services, trading and

brokerage

5

Origins of Banking

First European banking institutions emerged in Genoa, Florence and Venice in early 12th

century

First financial securities emerged in Italy in the 13th and14th centuries:

Stocks, options, warrants representing ownership position in corporate entities

Bonds and other forms of debt representing creditor claims on assets of corporate entities

The great ancestors of Investment banking (1200-1500):

The merchant banker: a merchant who extended his activities by offering credit to his clients,

initially through the acceptance of commercial bills. Later, the merchant banker focused on trade

finance, securities and equity investments in commercial partnerships

The financier: a lender to the prince. The Church prohibited usury but not lending to governments.

Italian families such as the Bardi, Peruzzi and Medici and the Fuggers from Germany, financed the

European kings and the Papacy

Later, Amsterdam became a major securities exchange (1600s)

Futures contracts and derivatives were traded

Tulip mania: the first recorded speculative bubble

At the peak of tulip mania, at the beginning of 1637, some single tulip bulbs sold for more than 10

times the annual income of a skilled craftsman. However, in February 1637, the tulip bulb contract

prices collapsed abruptly and the bubble burst

6

European Family Banks

Major international family investment banks emerged in the late 18th and early

19th centuries

Investment banks were initially private partnerships that pooled large amounts of capital

to fund projects usually for governments (e.g.: military campaigns)

Main players: Rothschilds, Warburgs, (Germany), Baring Brothers, Kleinwort, Schroders

(UK) and Lazards (France)

These family banks became universal banks offering a broad range of financial services

and played a major role in the capitalization of the industrial revolution

London emerged as the dominant financial center of the western world after

Napoleon’s defeat in 1815

From London, European bankers started financing ventures in the US and established

their American offices

7

The Emergence of Wall Street

In Mid-1800s New York became the largest securities market in the US and the financial Capital of the country

Prominent American families began to establish banking operations as an outgrowth of their successful mercantile activities: Junius Spencer Morgan and later his son John Pierpont (J.P.) Morgan, the Seligmans, the Lehman Brothers, Solomon Loeb, Abraham Kahn and Marcus Goldman

Banks came to be sought more by private sector corporations (rail and canal companies) than by their traditional clients, sovereign states

By 1900, the US had surpassed Great Britain as the foremost industrial power in the world

1913 Federal Reserve Act

Established the US central bank, thereby supplanting the power of private financiers: “lender of last resort”

1929 Wall Street Crash and beginning of the Great Depression

1933 Glass-Steagall Act: separation of commercial banking (deposit taking and loan-making) from investment banking (securities dealing and underwriting)

Reasons for the G-S Act: Commercial Speculation. After the 1929 stock market crash commercial banks were accused of being too speculative in the pre-Depression era

Effects of the G-S Act: Creating Barriers. The G-S Act set up a regulatory firewall between commercial and investment bank activities. Financial giants at the time such as JP Morgan and Company, which were seen as part of the problem, were directly targeted and forced to cut their services and, hence, a main source of their income (e.g.: Separation of J.P. Morgan and Morgan Stanley)

8

Post II World War

Investment bankers, not commercial bankers, emerged as principal counselors to corporations

Underwriting syndicates continued to be dominated by few bulge bracket firms: Morgan Stanley, First Boston, Dillon Read and Kuhn Loeb (1940s), Morgan Stanley, First Boston, Salomon Brothers and Merrill Lynch (1970s)

Emergence of Private Equity (1970s)

Merchant banking in its modern context refers to using one's own equity (often accompanied by external debt financing) in a private transaction, as opposed to underwriting a share issue via publicly traded securities on an exchange

Bull Market of the 1980s and the 1990s: deregulation and globalization

Corporations’ allegiance to single banks began to be challenged in favor of multiple banking relationships

Creation of a mortgage and asset backed securities market; Junk bond (high yield) market; Financial engineering

1986 Big Bang (London SE)

Introduction of electronic exchange; broker/dealer dual capacity; member firm ownership by outside corporations London as primary SE; Globalization of banking

1999 Gramm-Leach-Bliley Act (Glass-Steagall Act repeal)

Reasons for the G-S Act repeal: Diversification and Transparence

Diversification offers the banking industry the potential to reduce risk, so the restrictions of the G-S Act could have actually had an adverse effect

Big banks are more transparent; self-regulation

Effects of the G-S Act repeal: Global universal banks

Retail banks started to merge (cross-border) with investment banks and stock brokers creating global universal banks able to offer the full range of banking services

9

21st Century

Early 2000s characterized by:

Loose oligopoly with each firm having multiple product lines + Consolidation of existing banks

Hour-glass structure of the industry: many small firms on a regional basis, few and often changing middle-bracket firms, and a stable set of “bulge-bracket” firms

2007 subprime crisis and credit crisis

Collapse of IBs such as Bear Stearns and Lehman Brothers

Governments bailouts

A global recession starts

2010-2011 EU sovereign debt crisis

Policy reactions: austerity measures

LIBOR scandal

Barclays Bank fined for attempted manipulation of the LIBOR and EURIBOR rates (Jun2012)

Financial crisis debate:

IBs business model

Capital requirements

Proprietary trading (Dodd–Frank Wall Street Reform: Volcker rule ban on proprietary trading)

Financial products regulation (derivatives)

Credit rating

Executive pay

…

10

Financial Crisis Timeline

11

1637 1873-79

1929-mid40s

1973-74

early 1990

1997-99

early 2000

1637 Tulip Mania

(The Netherlands)

1873-79 Long Depression (EU and USA)

Following the Second Industrial Revolution

speculation

1929 Wall Street Crash

and Great Depression

1973-74 Oil crisis and stock

market crash

1989-91 USA Savings

and Loan Crisis

1990 Japanese asset

price bubble collapsed

1990-1994 Swedish

banking crisis

1997-99 Asian Financial

Crisis - Devaluations and

banking crises across Asia

1998 Russian Financial Crisis

(Ruble crisis)

1998 LTCM bail out

2001 Bursting of dot-com

bubble - Speculations

concerning internet

companies crashed

1999-2002 Argentine

economic crisis

2007-12 Global

financial crisis

including the 2010

European

sovereign debt

crisis

2007-12

1980s Latin

American

debt crisis

1987 - Black

Monday

European Family

Banks

Emergence

of Wall

Street

bankers

G-S Act

Separation

of

commercial

and

investment

banks

Global

Universal

Banks

Emergence of

Private Equity

Lehman Brothers

collapse, Government

bailouts, etc.

– New Model?

1980s

12

M&A Historical Trends Overview

Source: Thomson SDC from 1980 through 1995; Dealogic, from 1996 through 2006; Mergermarket for 2007 and 2014 Note: M&A volumes refer to

announced deals.

Correlation with Equity Indexes

$Bn Crisis Crisis Crisis Crisis Growth Growth

LatAm debt

crisis

Fourth Merger Wave (1980–1990)

Changes in antitrust policy

Deregulation (financial, air

transport, broadcasting sectors)

New financial instruments

(high yield bond)

Hostile takeovers

Fifth Merger Wave (1993–

2000)

International expansion to

compensate for low

organic growth

Development of new

technologies (i.e. internet

with consequent creation

of new end markets)

Saving and

Loans crisis

Tech and

dot-com

bubble

Financial crisis

Subprime mortgages loans

European Sovereign

debt crisis

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14

M&A US M&A Global S&P 500 NASDAQ 100

Growth

Sixth Merger

Wave (2003–

2008)

Industry

consolidatio

n

(i.e. Telecom

sector)

Huge

availability of

liquidity on

banks/

corporates

balance

sheets

13

2015 Global Top 10 Banks Ranking Based on Fees

Source: Financial Times. Notes: (1) Calculated as the % of fees against the total amount of fees globally.

Source: Financial Times; Dealogic. 14

Total Investment Banking Fees Evolution -Breakdown by Region

Total Investment Banking market growth of ca.+110%

The fastest growing region is Asia Pacific with ca. +360% between 2002 and 2016LTM

Americas still represents the biggest market

FY2002 Total Investment Banking Fees: $35.7bn 2016LTM Total Investment Banking Fees: $74.9bn

EMEA26%

Asia Pacific16%

Americas58%

EMEA42%

Asia Pacific

8%

Americas50%

EMEA 24%

Asia Pacific 22%

Americas 54%

Corporate and Investment Banking

Lesson 1.1b – What is Investment Banking: Main services offered

15

The Product/Client Matrix

Clients Advisory Capital Raising Capital Markets

Corporations/

Financial Institutions/

Private Equity

Government

M&A

Privatization

Equity and Debt

Underwriting

Debt Underwriting

Risk Management

Government

Dealer

Financial investors

Individuals

Research

Private Banking

Prime Brokerage

Financing

Sales and Trading

Private Banking

16

Services: Advising

Advising Advisory services and M&A

Advisor to Clients

Corporations or Financial Institutions: M&A advisory (target, strategy,

deal structure, financing method, valuation, negotiations)

e.g.: LVMH / Bulgari; Enel / Endesa

Governments: advisory on privatizations

e.g.: Telecom Italia privatization

Advisor to Financial Investors

Sales relationships with institutional investors. Investment banks

offer investment ideas and liquidity services (e.g.: prime

brokerage)

Research (macroeconomic, fixed income or securities research)

17

Services: Capital Raising

Capital Raising Role in primary markets

Equity Markets

Initial Public Offerings (IPOs), Follow-on Offerings, Accelerated

Book Buildings, Block Trades, Convertible Bonds, other Hybrid

Securities

e.g.: Prada IPO; Unicredit capital increase; Enel Green Power IPO

Debt Markets

Investment grade and High Yield Bond, Mortgage - Backed

Securities (MBS), Asset - Backed Securities (ABS)

e.g.: Telecom Italia bond issue

18

Services: Trading Securities

Trading Securities Role in secondary markets

Capital Markets

Securities, derivatives, currencies, other

Public regulated markets vs. OTC markets

19

Corporate and Investment Banking

Lesson 1.2 – Investment Banking Business Models

20

Investment Banking Business Models

Overview

Global Universal Banks

Global Investment Banks

Global Boutiques

Domestic Universal Banks

Local Boutiques

21

1

2

3

4

5

Overview - Traditional IBs vs. Universal Banks

Universal Banking Synergies - integrated approach, one-stop shop

Potential conflict of interests - e.g.: commercial bank might use its lending power

to force a firm to use its underwriting or advisory services

Universal Banks

Perform both Commercial Banking activities (lending) & Investment Banking activities

(underwriting and advisory)

Traditional Investment Banks

“Residual” definition: banking activity not classifiable as commercial banking

(commercial banking: deposits taking and loans making)

Core IB activities: underwriting & advisory services

Other: sales and trading

22

Overview - The “One Bank” Approach

Advantages

Provide clients with advice and

solutions across all asset classes and

global markets through a single point

of contact – the Relationship Manager

Involve specialists in areas such as

corporate finance and real estate to

address the full extent of clients

financial interests

Give all clients access to

opportunities that are usually only

available to major corporate clients

and institutional investors

e.g.: Credit Suisse; UBS

23 Source: Credit Suisse website.

Investment

Banking

Asset

Management

Private

Banking

Client

Overview - Business Model Matrix Pro

duct

Offeri

ng

Geographic Reach Mono Country Global

Mono product

Full range

Local Boutiques Global Boutiques

Domestic Universal Banks

Global Investment Banks

Global Universal Banks

24

Overview

Global Universal Banks

Global Investment Banks

Global Boutiques

Domestic Universal Banks

Local Boutiques

1

2

3

4

5

1

2

3

4

5

Global Universal Banks – Business Segments

Commercial Banking

Provides lending, treasury services, investment banking and investment management services clients

including corporations, municipalities, financial institutions and not-for-profit entities

Investment Banking

Provides clients with strategic advice, lends money, raises capital, helps manage risk, makes markets and

extends liquidity

Securities Services

Helps institutional investors, alternative asset managers, broker dealers and equity issuers optimize

efficiency, mitigate risk and enhance revenue

Treasury Services

Provides innovative payment, collection, liquidity and investment management, trade finance, commercial

card and information solutions to the world’s leading companies, governments, regional banks and global

financial institutions

Asset Management

Provides institutional, high-net-worth and individual investor clients with high quality global investment

management in equities, fixed income, real assets, hedge funds, private equity and cash liquidity

Private Banking

Offers a diverse range of services spanning investments, wealth structuring, trust and estate planning,

credit, banking and risk management

25

1

Global Universal Banks – Geographical Footprint

26

1

Source: Companies websites.

Global Universal Banks – Key Financials

27

Net Revenues ($bn) Net Income ($bn)

Total Assets ($bn) Total SHs Equity ($bn) – ROE(3) (%)

3.5% 7.8% 9.4% 9.9% 2.5% n.a. 2.0% 6.2%

1

Source: Companies reports.

Notes: The results of Deutsche Bank were converted through EUR/USD exchange rate, using $1,239 for 2014 and $1,109 for 2015. (1) The increase is

related to the reduction of operating expenses. (2) The loss is due to the Impairment losses of goodwill. (3)Computed as Net Income of the year divided

by Total SHs Equity of the year.

(2)

(1)

Global Investment Banks – Business Segments

Investment Banking

Investment Banking provides a broad range of financial products and services, with a focus on

businesses that are client-driven, flow-based and capital-efficient. The products and services include

global securities sales, trading and execution, prime brokerage and capital raising and advisory services,

as well as comprehensive investment research

Private Banking

Private Banking offers comprehensive advice and a broad range of financial solutions to private,

corporate and institutional clients. Private Banking comprises the wealth management clients and

corporate and institutional clients businesses

Asset Management

Asset Management offers products across a broad range of investment classes, from alternative

investments such as hedge funds, private equity, credit, index, real estate, and commodities, to multi-

asset class solutions including equities and fixed income products, as well as emerging markets

28

2

29

2

Source: Companies websites.

Global Investment Banks – Geographical Footprint

Global Investment Banks – Key Financials

30

Net Revenues ($bn) Net Income ($bn)

Total Assets ($bn) Total SHs Equity ($bn) – ROE(1) (%)

10.2% 7.0% 5.2% 8.4% 4.3% n.a.

2

Source: Companies reports. Notes: The results of Credit Suisse Bank were converted through the CHF/USD exchange rate using $1,094 for 2014 and

$1,041 for 2015. (1) Computed as Net income of the year divided by Total SHs Equity of the year.

Global Boutiques

Financial Advisory

Advisor on strategic transactions such

as mergers, acquisitions, restructurings

and other financial matters

Asset Management

Provides investment management and

advisory services to institutional clients,

financial intermediaries, private clients,

and investment vehicles around the

world

Geographical Footprint

31

Business Segments

Key Financials

Net Revenues ($bn) Net Income ($m) Total Assets ($bn) Total SHs Equity ($m) – ROE(3) (%)

56.4% 72.6% 7.3% 11.3%

3

Source: Companies websites and reports. Notes: (1) Referred to the financial years ended on 31 March. (2) The increase is related to an increase in operating

profitability. (3) Computed as Net Income of the year divided by Total SHs Equity of the year.

(1) (1)

(1)

(1)

(1)

(1)

(1) (1)

(2)

Domestic Universal Banks – Business Segments

Domestic Commercial Banking

Based on a model that supports and enhances regional brands, upgrades local commercial

positioning and strengthens relations with individuals, small businesses, SMEs and non-profit entities.

It includes also private banking, bancassurance and industrial credit

Corporate and Investment Banking

Provides services in M&As, structured finance and capital markets as well as leasing, factoring and

merchant banking. It also operates in the public finance sector as partner for public administration,

public utilities and the execution of infrastructure

International Banking

These Italian Universal Banks have a growing European presence, especially in the countries of

Central-Eastern Europe

Asset Management

Italian leading asset management firms

Financial Advisory

32

4

Domestic Universal Banks – Key Financials

33

Net Revenues ($bn) Net Income ($bn)

Total Assets ($bn) Total SHs Equity ($bn) – ROE(3) (%)

4.1% 3.4% 2.9% 5.8%

4

Source: Companies reports. Notes: (1) Mainly related to: impairment of Ukrsotsbank, the systemic charges for 4 Italian banks and 1 Polish bank rescue, write-

downs on loans’ accruals, some non-recurring positive tax items. (2) The increase in revenues (fees, commissions, profits on trading and income from insurance

business) and significant decrease in net adjustments to loans have doubled the profits. (3) Computed as Net Income of the year divided by Total SHs Equity of

the year.

(1)

(2)

(2)

Local Boutiques

The structure (limited number of people based in Milan) includes professionals

with backgrounds gained in some of the leading international investment banks, management

consulting firms and large corporations

These Italian Local Boutiques are involved in many corporate finance transactions as advisors of

large industrial groups, both Italian and international, entrepreneurs’ families and private equity

funds

Their activity is mainly focused on advisory, applied to different areas such as mergers &

acquisitions, transactions on regulated capital markets, debt and equity restructuring, fund raising

34

5

na na

18x

5x

na na

7x

12x 13x

24x

11x

na

11x

16x19x

12x

21x

10x

17x 16x 16x

11x

19x

12x 11x 12x

17x14x

na

12x9x

na

10x14x

10x10x 11x

0x

14x16x 14x

na

Citi JPM DB BofA GS MS CS

1990 1995 2000 2005 2010 2016YTD

14%8%

na

12%

na na na

16% 16%

na

16%

na na na

23%17% 19%

16%23%

30%

16%18%

8%13%

16%21%

18%15%

7%10%

5%nm

11% 9%14%

8% 10%

-10%

6% 7% 8%

-7%Citi JPM DB BofA GS MS CS

1990 1995 2000 2005 2010 2016YTD

3 1 18 2 na na 546 26 24 19 na 8 19

256

8852

7452

8857

242

138

49

185

56 60 57

137166

48

13585

41 47

136

240

20

160

68 6028

Citi JPM DB BofA GS MS CS

1990 1995 2000 2005 2010 2016YTD

35

Top Banks’ Key Stats Evolution in the Last 20 years

Market Cap ($bn)

Return on Average Total Equity (%)

Price to Earnings

Source: Factset as of 13 September 2016. Notes: (1) Goldman Sachs IPO in 1995.

(1) (1)

(1) (1)

(1) (1)

Corporate and Investment Banking

Lesson 1.3 – Investment Banking Business Models

36

Investment Banking Business Models: Drivers

Drivers of the Banks’ Performance

a) Regulation

b) Economic growth, new markets

c) Technology

37

Pro

duct

Offeri

ng

Geographic Reach Mono Country Global

Mono product

Full range

Local Boutiques

Global Boutiques

Domestic Universal Banks

Global Investment Banks

Global Universal Banks 1

2

3

4

5

10.8% 10.9% 11.0% 11.0%

13.8% 13.8% 13.2% 13.0%

10.7% 12.1% 12.0%

12.7% 12.1% 12.5%

9.5%

5.4%

3.3% 2.6%

10.0%

2.8% 3.0% 3.6%

3.6% 1.9%

n.a.

3.0% 2.9% 1.9%

20.3%

16.3%

14.3% 13.6%

23.8%

16.5% 16.2% 16.6%

14.4% 13.9%

n.a.

15.7% 15.0%

14.4%

8.3%

9.3%

7.4%

8.2%

13.0%

4.2%

nm

4.0% 4.6%

2.1%

5.5% 3.3%

6.9% 8.7%

32.6x

27.9x

33.0x

23.8x

17.6x 19.4x

25.4x

14.3x

17.4x

12.1x

22.6x

14.0x 14.5x

15.4x

Casa SocGen Natixis BNP Aareal CoBa Deutsche ISP UCG UBI MPS Caixa BBVA San

CT1 ratio Tier 1 ratio RoAE Leverage

France Germany Italy Spain

(1)

38

Focus on capital: European Banks Basel III Fully

Loaded Core Tier 1 and Tier 1 Ratios

Source: FY2015 Reports. Notes: (1) Average total assets divided by average total equity.

Profitability of banks is impacted by cyclical effects (lower net

interested income and higher provisions) and secular trends

(higher capital requirements and lower leverage)

39

1H 2011

4.89%

6.55%

2006YE 18.71%

3.90%

Difference betwwern 1H 2011 vs. 2006YE

0.23% (0.18%) (0.24%) 0.01% (0.42%) (0.19%) (0.05%) (0.18%) (0.05%) 0.06% (0.41%) 0.99% (12.16%)

2.40%

0.45% 0.32%

1.20%

0.66%

0.35%

0.19%

1.20%1.58%

0.34%

0.13%0.03%

Net interest

income

Fees and

commissions

income

Trading income Other income Non-interest

income

Operating income Operating

expenses

Loan loss

provision

Other provisions,

income and

expenses

Income tax and

others

RoAA Equity RoAE

2.59%

0.73%0.97%

0.84%

0.59%

0.18%

1.62% 1.53%

0.16%0.19%

0.02%

Net interest

income

Fees and

commissions

income

Trading income Other income Non-interest

income

Operating income Operating

expenses

Loan loss

provision

Other provisions,

income and

expenses

Income tax and

others

RoAA Equity RoAE

Cyclical effect Secular trend B C Cyclical effect A

Source: SNL.

Percentage of Average Total Assets

Leverage has been the key profitability driver of

banks in the last decade…

40

There is a secular trend towards lower leverage and lighter balance sheets as a result of changes in regulations, especially Basel III

Source: SNL.

Evolution of Leverage for Selected European Banks

25.7x

25.2x

27.6x

25.3x

21.0x

20.5x

21.8x

22.6x

22.0x

20.7x

FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Average Total Assets / Averege Total Equity

…we estimate the secular decrease in leverage to

bring on average to a 4% reduction in RoAE

41

14.2

%

18.4

%

8.4

% 16.0

%

19.2

%

15.5

%

15.8

%

14.6

%

14.9

%

19.1

%

25.1

%

20.1

% 27.8

%

18.7

%

13.7

%

16.8

%

6.8

% 14.4

%

17.4

%

13.2

%

13.2

%

10.7

%

10.4

%

14.3

%

18.5

%

13.0

%

20.3

%

14.9

%

0.5%

1.6% 1.6% 1.6% 1.8% 2.3% 2.6%

3.9% 4.6% 4.7%

6.6% 7.1% 7.4%

CA

SA

N

NA

TIX

IS

DA

NS

KE

DB

BN

P

ST

AN

ISP

UC

G

SO

CG

EN

BB

VA

BA

RC

LB

G

Tot

al

Best performance 06/07 Maximum potential Difference

ca.4%

Source: SNL. Note: (1) Maximum potential RoAE = Best 06/07 RoAA / Leverage (latest available)

Illustrative comparison between 2006-07 RoAE and the maximum potential RoAE(1) assuming reduction of leverage

Total

Global Markets

42 Source: Bank of International Settlements; Dealogic; SIFMA, S&P; McKinsey Global Banking Pools; McKinsey Global Institute analysis; Roxburgh, C.,

Lund, S., Piotrowski, J. 2011. Mapping global capital markets 2011. McKinsey Global Institute. Notes: (1) Based on a sample of 79 countries. (2) Central

and Eastern Europe and Commonwealth of Independent States.

US31.9%

Western Europe30.1%

Japan11.7%

Other Developed

8.7%

China7.6%

LatAm2.7%

CEE and CIS2.5%

Middle East and Africa

2.0%

India1.5% Other Asia

1.3%

2.4

5.2

5.2

8.2

11.9

15.2

15.8

20.5

20.8

23.0

Japan

US

Western Europe

Other Developed

Other Asia

LatAm

Middle Eastand Africa

CEE and CIS

China

India

Stock of Debt and Equity Outstanding, 2010(1)

% of Total, End of Period

100%=US$212 Trillion

Compound Annual Growth Rate,2000–2010 (%)

(2)

Emerging markets account for the smallest share but also the fastest growth in the global

financial stock.

Global Markets

43 Source: CIA and FBI World Factbook, March 2012.

Nominal GDP in US$bn

10,000+

5,000–10,000

2,000–5,000

1,000–2,000

500–1,000

200–500

100–200

50–100

20–50

10–20

0–10

Global Markets

IBs global services to home multinationals

Investments/acquisitions from emerging economies in developed markets

e.g.: Volvo acquired by Zhejiang Geely Holding (China); Valentino Fashion Group acquired by Mayhoola for Investments ( Qatar)

44 Source: CIA and FBI World Factbook, March 2012; International Monetary Fund; McKinsey Global Institute analysis Notes: (1) Includes total value

of cross-border investments in equity and debt securities, loans and deposits, and foreign direct investment.

In 1999, Cross-border Investing was Taking Hold Cross-border Investments had Grown Substantially by 2009

Western

Europe

LatAm Middle East,

Africa, and

RoW

North America

Russia and Eastern

Europe

Other Asia

Japan

Australia and

New Zealand

4.0

7.9

6.6

64.0 29.0

26.8

63.1

4.3

Western

Europe

LatAm Middle East,

Africa, and

RoW

North America

Russia and Eastern

Europe

Other Asia

Japan

Australia and

New Zealand

1.5

1.7

1.8

22.7 40.8

0.5

7.0

35.3

Total Domestic Financial Assets, 1999 (US$ in Trillion)

World GDP, 1999 = US$35 Trillion

Total Value of Cross-border Investments(1) Between Regions

% of World GDP (US$ in Trillion)

0.5–1% (US$0.2–0.4)

1–3% (US$0.4–1.0)

3–5% (US$1.0–1.8)

5–10% (US$1.8–3.5)

10%+ (US$3.5+)

Technology

Access to information - Changed the rules of the business

IBs’ investments in technology - A barrier to entrance

45

References

Fleuriet, 2008. Investment banking explained, McGraw-Hill: chapters 1-5

Nanda, Delong and Roy, 2002. History of Investment Banking, Harvard Business School

Morrison, A.D., Wilhelm, W.J., 2007. Investment Banking: Past, Present, and Future. Journal of Applied

Corporate Finance, Volume 19 Number 1

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