Econ 310 Financial Institutions in Hong Kong Investment Bank – Merrill Lynch.

Econ 310 Financial Econ 310 Financial Institutions in Hong KongInstitutions in Hong Kong

Investment Bank – Investment Bank –

Merrill LynchMerrill Lynch

The Nature of Investment BankThe Nature of Investment Bank

- intermediary that help corporations raise funds- intermediary that help corporations raise funds

Role of investment banksRole of investment banks

- underwrite the initial sale of stocks - underwrite the initial sale of stocks and bondsand bonds

- a deal maker in mergers, acquisitions, - a deal maker in mergers, acquisitions, and spin-offsand spin-offs

- a middleman in the purchase and sale - a middleman in the purchase and sale of companiesof companies

- a private broker to the very wealthy- a private broker to the very wealthy

The revenue of investment banksThe revenue of investment banks

- Commission- Commission

- fee income- fee income

- Spread- Spread

- principal activities- principal activities

Global investment banking revenGlobal investment banking revenue increased in to $52.8bn 2005ue increased in to $52.8bn 2005 ..

- This was up 14% on the previous year- This was up 14% on the previous year

- The recovery resulted in an increase in - The recovery resulted in an increase in M&A activityM&A activity

The US was 51% of the totalThe US was 51% of the total

Europe (with Middle East and Africa) Europe (with Middle East and Africa) generated 31% of the totalgenerated 31% of the total

Asian countries generated the remaining Asian countries generated the remaining 18%.18%.

51%

18%

31%

US

Europe

Asia

Well-known investment banking Well-known investment banking firmsfirms

- Morgan Stanley- Morgan Stanley

- Merrill Lynch- Merrill Lynch

- Salomon brothers- Salomon brothers

- First Boston Corporation- First Boston Corporation

- Goldman, Sachs.- Goldman, Sachs.

The Background of Merrill LynchThe Background of Merrill Lynch

1914 - Charles E. Merrill & Co. opened for 1914 - Charles E. Merrill & Co. opened for business at 7 Wall Street in New York business at 7 Wall Street in New York CityCity on January 6. A few months later, on January 6. A few months later, Edmund C. Lynch, joined him Edmund C. Lynch, joined him

1915 - The name was officially changed to 1915 - The name was officially changed to Merrill Lynch & Co. inMerrill Lynch & Co. in

1941 – Merrill Lynch became the first 1941 – Merrill Lynch became the first company of announcing annual report at company of announcing annual report at Wall streetWall street

1955 – It gained a underwriting contract of 1955 – It gained a underwriting contract of 100million in the first time100million in the first time

1960 and 1961 – It set up in London and 1960 and 1961 – It set up in London and Tokyo separatelyTokyo separately

1993 – It became the first securities firm of 1993 – It became the first securities firm of BeijingBeijing

- with offices in 37 countries and territories - with offices in 37 countries and territories

- total client assets of approximately $1.5 - total client assets of approximately $1.5 trilliontrillion

- ranked No.34 in Fortune 500 from the April - ranked No.34 in Fortune 500 from the April 1717th th 2006 issue2006 issue

- topped Barron's annual "Top 100 Financial - topped Barron's annual "Top 100 Financial Advisers" again in April 2006, with the Advisers" again in April 2006, with the largest number on the list of any firm — 22largest number on the list of any firm — 22

Two core businesses of Two core businesses of Merrill LynchMerrill Lynch

- Global Private Client - Global Private Client

- Global Markets & Investment Banking - Global Markets & Investment Banking GroupGroup

Services of Merrill LynchServices of Merrill Lynch

- Securities origination, brokerage, dealer and related acti- Securities origination, brokerage, dealer and related activitiesvities

- Investment banking- Investment banking

- Securities clearance, settlement, equity financing and se- Securities clearance, settlement, equity financing and services, including prime brokeragervices, including prime brokerage

- Wealth management products and services, including fi- Wealth management products and services, including financial, retirement and generational planningnancial, retirement and generational planning

- Banking, trust and lending services- Banking, trust and lending services

- Insurance and annuity products and annuity underwritin- Insurance and annuity products and annuity underwritingg

- Private equity and other principal investing activities- Private equity and other principal investing activities

- Global investment research- Global investment research

- BlackRock - BlackRock

Major locationsMajor locations

- New York City, New York, U.S., global headquarters - New York City, New York, U.S., global headquarters

- Jacksonville, Florida, U.S., corporate center, supporting - Jacksonville, Florida, U.S., corporate center, supporting North America operations North America operations

- Hopewell, New Jersey U.S., corporate center, supporting - Hopewell, New Jersey U.S., corporate center, supporting North America operations North America operations

- London, UK, European headquarters - London, UK, European headquarters

- Hong Kong, PRC - Hong Kong, PRC

- Tokyo, Japan- Tokyo, Japan

Other Services of Merrill LynchOther Services of Merrill Lynch

Two global businessTwo global business

- global private client - global private client

- global marketsglobal markets

Global private clientGlobal private client

Main Services providedMain Services provided

GPC business modelGPC business model

Target CustomersTarget Customers


Four main services of small and mid-Four main services of small and mid-sized businesses :sized businesses :

- integrated cash management - integrated cash management

- flexible financing - flexible financing

- retirement & benefits - retirement & benefits

- personalized advice - personalized advice


Role of GPCRole of GPC

Total MerrillSMTotal MerrillSM

Awards Awards

Global MarketsGlobal Markets

Services providedServices provided

Fixed Income, Currencies and Fixed Income, Currencies and Commodities group (FICC) Commodities group (FICC)

Global Equities Global Equities

AwardAward

Performance of Merrill LynchPerformance of Merrill Lynch

2005 Financial Data2005 Financial Data

Total Revenue : $ 26.0 billion USDTotal Revenue : $ 26.0 billion USD

Change : ↑18% Change : ↑18%

Net Profit Margin : $ 5.1 billion USDNet Profit Margin : $ 5.1 billion USD

Change : Change : ↑↑15%15%

Total Asset : $ 681 billion USDTotal Asset : $ 681 billion USD

Change : Change : ↑8.4%↑8.4%

Revenue from :Revenue from : - Asset management fees- Asset management fees- Portfolio service fees- Portfolio service fees- Commissions of Equities and Mutual - Commissions of Equities and Mutual

FundsFunds- Principal transactions- Principal transactions- Underwriting- Underwriting- Strategic advisory- Strategic advisory

Revenue Composition

GMI

GPC

MLIM

Key Event in 2006 Key Event in 2006

- Merger Merrill Lynch Investment ManagerMerger Merrill Lynch Investment Managers with BlackRock, Inc.s with BlackRock, Inc.

- 49.8% shareholding- 49.8% shareholding

- more than $1 trillion in assets under manamore than $1 trillion in assets under management gement

Total Revenue

23.524

24.525

25.526

26.527

MerrillLynch

GoldmanSachs

MorganStanley

billi

on (in

USD

)

Net Profit

4.64.8

55.25.45.65.8

Merrill Lynch GoldmanSachs

MorganStanley

$ (billion U

SD

)

Change in Net Profit

0%

5%

10%

15%

20%

25%

Merrill Lynch Goldman Sachs MorganStanley

Perc

enta

ge

Stock Performance of Merrill Lynch (MER)Stock Performance of Merrill Lynch (MER)

Primary SponsorPrimary Sponsor （保薦人（保薦人 ) of IPO) of IPO

Morgan Stanley :Morgan Stanley :

凹凸科技凹凸科技 (457)(457)

中國建材中國建材 (3323)(3323)

湖南有色湖南有色 (2626) (2626)

世茂房地產世茂房地產 (813)(813)

中煤能源中煤能源 (1898)(1898)

Goldman Sachs :Goldman Sachs :

上海先進半導體上海先進半導體 (3355)(3355)

中國銀行中國銀行 (3988)(3988)

建滔積層板建滔積層板 (1888)(1888)

中國通信服務中國通信服務 (552)(552)

Merrill Lynch : - ICBC (1398)- 中國交通建設 (1800)

Case Study: ICBCCase Study: ICBC

210 hundred million US dollars 210 hundred million US dollars

ICBC will purchase in Hong Kong and ICBC will purchase in Hong Kong and Shanghai, distribute 483 hundred million Shanghai, distribute 483 hundred million for A shares and H shares for A shares and H shares

Hong Kong release partially approximately Hong Kong release partially approximately composes for 3/4 composes for 3/4

ICBC can become the stock which goes ICBC can become the stock which goes on the market in Hong Kong and China. on the market in Hong Kong and China.

Feburary,2006 Feburary,2006

ICBC gathers capital the amount 100 ICBC gathers capital the amount 100 hundred million US dollars hundred million US dollars

the bank choice goes on the market sells the bank choice goes on the market sells on consignment business certainly to have on consignment business certainly to have to enjoy a higher well-knowingness in the to enjoy a higher well-knowingness in the local capital market, and has a stronger local capital market, and has a stronger comprehensive strength.comprehensive strength.

March 2006March 2006

requested them to make the suggestion requested them to make the suggestion estimate and the detailed plan book estimate and the detailed plan book

July 2006 July 2006

ICBC incurs the stock price approximately ICBC incurs the stock price approximately 2.76 dollars 2.76 dollars

the independence buyers should have the independence buyers should have 3,000 dollars 3,000 dollars

September 2006, September 2006,

ICBC in the preliminary of raising capital ICBC in the preliminary of raising capital which submits to which submits to Securities and Futures CommissionSecurities and Futures Commission

the ICBC can distribute 130 hundred the ICBC can distribute 130 hundred million of A shares, but H shares achieved million of A shares, but H shares achieved 353 hundred million 353 hundred million

public shares are partial initially only public shares are partial initially only accounts for 5% accounts for 5%

The ICBC amounts between 180 to 210 The ICBC amounts between 180 to 210 hundred million US dollars hundred million US dollars

ICBC of stock price possibly lies between ICBC of stock price possibly lies between 2.6 dollars to 3.05 dollars 2.6 dollars to 3.05 dollars

On 27 of October, 2006 (1st Day)On 27 of October, 2006 (1st Day)

All independence buyer totaled gains All independence buyer totaled gains approximately 16 hundred million dollars. approximately 16 hundred million dollars.

ICBC of H shares receives nearly 15%, ICBC of H shares receives nearly 15%, reports 3.52 dollars reports 3.52 dollars

each independence buyers gain 319 dollar each independence buyers gain 319 dollar

ICBCICBC

Merrill set the right priceMerrill set the right price

Over subscribe existOver subscribe exist

ICBCICBC

- 1- 1stst day (opening) day (opening)

Share price $3.60 Share price $3.60

Higher than listing priceHigher than listing price

($3.07 $3.6) 17%($3.07 $3.6) 17%

$450/1000 share$450/1000 share

ICBCICBC

China Merchants bank 24.9%China Merchants bank 24.9%

Bank of China 15.3%Bank of China 15.3%

ICBC 14.6%ICBC 14.6%

Bank of Communication 13.2%Bank of Communication 13.2%

China Construction Bank 0%China Construction Bank 0%

ICBCICBC

- Professional’s expectation- Professional’s expectation

Long termLong term

- Trend is going upward (share price)- Trend is going upward (share price)

日期日期開市開市最高最高最低最低收市收市成交量成交量調整收市價調整收市價 * *

2006-11-232006-11-23 4.154.15 4.204.20 4.084.08 4.114.11 605,236,992605,236,992 4.114.11

2006-11-222006-11-22 4.024.02 4.144.14 4.024.02 4.134.13 685,890,112685,890,112 4.134.13

2006-11-212006-11-21 4.034.03 4.054.05 3.993.99 4.014.01 357,018,912357,018,912 4.014.01

2006-11-202006-11-20 3.973.97 4.054.05 3.953.95 4.014.01 450,274,496450,274,496 4.014.01

2006-11-172006-11-17 3.983.98 4.034.03 3.963.96 4.014.01 593,172,928593,172,928 4.014.01

2006-11-162006-11-16 4.054.05 4.144.14 3.973.97 4.034.03 1,049,694,9121,049,694,912 4.034.03

2006-11-152006-11-15 3.883.88 4.024.02 3.883.88 4.004.00 1,160,173,0561,160,173,056 4.004.00

2006-11-142006-11-14 3.823.82 3.933.93 3.803.80 3.873.87 1,464,082,3041,464,082,304 3.873.87

2006-11-132006-11-13 3.643.64 3.783.78 3.633.63 3.773.77 1,197,494,6561,197,494,656 3.773.77

2006-11-102006-11-10 3.653.65 3.673.67 3.623.62 3.653.65 1,055,038,7841,055,038,784 3.653.65

2006-11-092006-11-09 3.563.56 3.643.64 3.563.56 3.633.63 832,210,752832,210,752 3.633.63

2006-11-082006-11-08 3.603.60 3.603.60 3.553.55 3.563.56 508,204,160508,204,160 3.563.56

2006-11-072006-11-07 3.633.63 3.643.64 3.593.59 3.613.61 508,741,152508,741,152 3.613.61

2006-11-062006-11-06 3.583.58 3.653.65 3.563.56 3.623.62 952,751,488952,751,488 3.623.62

2006-11-032006-11-03 3.513.51 3.633.63 3.503.50 3.583.58 2,051,865,8562,051,865,856 3.583.58

2006-11-022006-11-02 3.493.49 3.513.51 3.483.48 3.503.50 512,928,032512,928,032 3.503.50

2006-11-012006-11-01 3.483.48 3.523.52 3.473.47 3.493.49 984,243,840984,243,840 3.493.49

2006-10-312006-10-31 3.483.48 3.493.49 3.453.45 3.483.48 2,253,748,2242,253,748,224 3.483.48

Competitors Competitors

Short termShort term

Great competition in local marketGreat competition in local market

1.1. 58 banks providing investment banks’ 58 banks providing investment banks’ servicesservices

2.2. many choices to choose underwriting many choices to choose underwriting IPOIPO

e.g. ICBC casee.g. ICBC case


local banks are expanding their business local banks are expanding their business to different categories, e.g. HSBCto different categories, e.g. HSBC


1.1. Commercial bank – the Hongkong and Shanghai banking Commercial bank – the Hongkong and Shanghai banking co-operationco-operation

2.2. Investment Banking Investment Banking -- HSB-- HSBC Investment C Investment (Hong Kong) (Hong Kong) LimiLimitedted

3.3. InsuranceInsurance

4.4. Leasing, Finance and FactoringLeasing, Finance and Factoring

5.5. HSBC Securities ServicesHSBC Securities Services

6.6. Global Payments and Cash ManagementGlobal Payments and Cash Management

7.7. Trade ServicesTrade Services

8.8. Corporate, Investment Banking and MarketsCorporate, Investment Banking and Markets

9.9. Property ServicesProperty Services

10.10. ShippingShipping


Long termLong term

Merrill is not a local I-bank, cannot share Merrill is not a local I-bank, cannot share the benefit of CEPAthe benefit of CEPA

Competitors doing more advancedCompetitors doing more advanced

Market predicted is negative to MerrillMarket predicted is negative to Merrill

ConclusionConclusion

The EndThe End

Group membersGroup members

Ng Sin Kwan 043057Ng Sin Kwan 043057

Chiu Pui Ming Stephanie 055012 Chiu Pui Ming Stephanie 055012

Or Chung Ching 035165 Or Chung Ching 035165

Lai Man Yan 043012Lai Man Yan 043012

Fan Man Kit 043022Fan Man Kit 043022

Wong Ping Yiu, Brian 043195 Wong Ping Yiu, Brian 043195

Econ 310 Financial Institutions in Hong Kong Investment Bank – Merrill Lynch.

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Transcript of Econ 310 Financial Institutions in Hong Kong Investment Bank – Merrill Lynch.