Investment Banking - · PDF fileThe Banking Commission in its Report in 1972 has indicated the...

16
Investment Banking Origin, History in U.S., U.K., etc. - Anand Bathiya B.Com., A.C.A., LL.B., D.I.S.A. [email protected]

Transcript of Investment Banking - · PDF fileThe Banking Commission in its Report in 1972 has indicated the...

Investment Banking Origin, History in U.S., U.K., etc.

- Anand Bathiya

B.Com., A.C.A., LL.B., D.I.S.A.

[email protected]

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

QUICK POINTS

“A financial intermediary that

performs a variety of services.

It includes underwriting, acting as an

intermediary between an issuer and

the investing public, facilitating

mergers and other corporate

reorganizations, and also acting as a

broker for institutional clients”

Definition by ‘Investopedia’

QUICK POINTS

Functions towards ‘capital intermediation’ and hence the term ‘bank’.

‘Investment Banking is what investment banks do’ – John F. Marshalls

Very matured industry in the developed nations. At nascent stage in India.

Work specific regulatory registration in India.

INTRODUCTION Discussion Points

2

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

3

What’s in the Name?

The distinction between commercial banking and investment banking was unique and

confined to the United States and Japan, where legislation separated them.

Issuer Investment Bank Investor

Bank is derived from the Italian for bench, ‘banco’, as in a counter

The term Bankrupt is a corruption of the Italian ‘banca rotta’, or broken bench

Investment Bank? Merchant Bank? Issuing Bank? Accepting House?

Merchant banking has different connotations in the US and other

markets.

In the US it is primarily a fund based activity while in the UK and in

India it implies intermediation and advisory activity in connection with

public floatation of securities

Banking

Commercial Investment

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

History of U.K. Merchant Banking

They financed the British government to purchase shares of the Suez Canal, helped America purchase

the State of Louisiana from Napoleon by raising loans from money market in London

Lazard Brothers granted loan to Government of India for Durgapur Steel Plant.

“There are six great powers in Europe: England, France, Prussia, Austria, Russia, and

Baring Brothers.” —Duc de Richelieu, Prime Minister under Louis XVIII

• The first European Banking institutions emerged in cities of Italy (12th century).

• The first financial instrument was ‘a proportionate representation in ownership’ - (Italy, 12th

century)

• The republic of Venice issues long-term loans called ‘prestiti’ which were publicly traded

and listed.

• Medici bank of Florence became first bank to have branches in all major Italian cities.

• The five sons of the patriarch, Meyer Amschel Rothschild, established offices in Frankfurt,

London, Paris, Vienna, and Naples – (18th Century)

• Family banks dominated the scenario Warburgs, the Lazards, the Schroders, the Barings,

etc.(jews)

• The first major bankers were “merchant bankers,” traders of commodities and goods

besides capital.

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

History of U.S. Investment Banking

1837: the Rothschilds sent as their New York representative August Belmont, who became one

of the wealthiest Americans in the 19th century.

1854: American Mr. Peabody migrated to London and partnered with another american

Spencer Morgan founding the House of Morgan.

The invention of Telegraph enabled the New York ‘Wall Street’ to overtake Philadelphia.

1861: House of Morgan set up a New York Office led by Spencer Morgan’s 24 year-old son,

John Pierpont Morgan (JP Morgan).

1931: JP Morgan dies and Federal Reserve Act passed

1933: The Glass-Steagall Act and The Securities Exchange Act was passed and 1940:

Investment Advisors Act was passed.

Either be ‘deposit-taking and loan-making’ OR ‘securities dealing and

underwriting’

As commercial banks were seperated, standalone I-Banks were born.

Enter Lehman, First Boston, etc.

USA and Japan had split banking rules in place. In 1990, there were

2500 investment banking firms in USA.

“Many prominent Wall Street firms chose not to have nameplates on their headquarters, the prevailing

attitude being that it was beneath the dignity of banks to solicit business.”

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Indian Merchant Banking regime

The Banking Commission in its Report in 1972 has indicated the necessity of merchant banking

service in view of the wide industrial base of the Indian economy. The Commission was in

favour of a separate institutions (as distinct from commercial banks and term lending

institutions) to render merchant banking services.

Merchant banking activity was formally initiated into the Indian capital markets when Grindlays

Bank received the license from Reserve Bank in 1967.

Grindlays started with management of capital issues, production planning, systems design and

market research.

Citibank - 1970, followed by SBI - 1972

Merchant banking activities are regulated by (1) Guidelines of SEBI and Ministry of Finance,

(2) Companies Act, 1956 and (3) Listing Guidelines of Stock Exchange and (4) Securities

Contracts (Regulation) Act, 1956.

Only merchant bankers registered with SEBI can undertake issue

management, underwriting and offer portfolio services. Merchant banking

in India is non-fund based except underwriting.

SEBI has been pressing for merchant banks to be primarily fee based

institutions. Today approx. 200 merchant bankers are registered with

SEBI.

Did you know? – CA firms were earlier allowed to be registered as Merchant Bankers?

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Fund Raising

• Merchant Banking

• Underwriting

• Institutional Placements

• Corporate Bond Issuance

• Equity and Debt Placements

• Market Making

• Securitization

Deal-making

• Buy-Side

• Sell-Side

• Transaction structuring advisory

• Strategic\ Technical partners

• Corporate Restructuring

• Acquisitions & Takeovers

Broad Avenues Discussion Points

7

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Merchant Bankers with SEBI:

Size of the Investment Banking Industry (Fund raising)

No. of Initial Public Offers:

Private Placement of Corporate Bonds (as reported to NSE):

8

2008-09 2009-10 2010-11 2011-12*

No. of Issues 699 647 774 809

Amount (Crs.) 1,24,810 1,43,286 1,53,370 1,33,589

2008-09 2009-10 2010-11 2011-12*

No. of Issues 21 39 53 29*

Amount (Crs.) 2,082 24,696 35,559 4,981*

2008-09 2009-10 2010-11 2011-12*

No. of

participants

134 164 192 199

SEBI Newsletter – December 2011

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Size of the Investment Banking Industry (M&A)

9

Thomson Reuters IMAA Analysis

India USA

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Size of the Investment Banking Industry (PE)

10

www.indiavca.org

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Categories of Investment Banks

11

• Full Service IB desks

• Banks – BofA, Deutsche Bank, Barclays, UBS, JP Morgan, Kotak, Yes Bank, etc.

• Pure IBs – Lazard, Jefferies, Avendus, Ambit, etc.

• Brokerage Houses – Enam, Religare, Edelweiss, Motilal Oswal, JM, etc.

• Accounting cum Advisory Firms – E&Y, PWC, BDO, KPMG, etc.

• Boutique IBs

• Mid-Market IBs – Singhi Advisors, GCA, Elara, Equirus, MAPE, Candle Partners, etc.

• Sector specific IBs – Industry specific, Geography specific, sell-side specific, etc.

• Service specific IBs – Merchant Bankers, Bond specialists, etc.

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Global Leaders in Investment Banking Space

12

Thomson Reuters –Deal Intelligence

Rank Name Deal Value

($m)

1. Morgan Stanley 636,110

2. Goldman Sachs & Co. 631,545

3. JP Morgan 508,991

4. BofA-Merill 387,432

5. Citi 367,376

6. UBS 347,769

7. Credit Suisse 336,918

8. Deutsche 292,919

9. Barclays 267,872

10. Lazard 248,246

The ten largest global investment banks in M&A space in CY 2011, are as follows (by deal value):

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Leading M&A advisors in Indian market – CY 2011

13

Thomson Reuters – 2011 M&A

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Compartments of a bulge Investment Bank

14

Front-Office Mid-Office Back-Office

Deal Sourcing Risk Management Operations

Marketing Treasury Information Tech

Distribution Valuation Compliance

Project Finance Corporate

Strategy

Internal Audit

Merchant Banking Proprietary

Trading

Training

Research Market Making Internal Research

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

Chartered Accountancy and Investment Banking

15

• Best-positioned for a career in Investment Banking

• Sound technical knowledge of law, accounting, finance and business

is a robust advantage

• Not a signature profession and competition not just with accounting

professionals

• Few leading Chartered Accountants in the Indian I-Banking space:

• Ashok Wadhwa – Ambit Capital

• Vallabh Bhansali – Enam

• Nimesh Kampani – JM

• Anand Rathi – Anand Rathi Securities

• Motilal Oswal – Motilal Oswal

• Anil Singhvi – Ican Advisors

• Keki Mistry – HDFC

ON

TARG

ET

INVESTM

EN

T B

AN

KIN

G

16

Thank You

Anand Bathiya B. Com., A.C.A., LL.B., D.I.S.A.

[email protected]