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INVE$TMENT

BANKING


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History (contd..)

Modern banking finds its roots in Italy in the

13th century.

The cities financed its developmental

activities and wars through issuance of bonds

or from borrowing through public.

Worlds oldest known bank has its roots in

Italy. Its The Monte di Piet, or Monte Pio set

up in 1472.


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The need for Investment Banks

First stock market in Antwerp Belgium in 1531 sansthe stock!!

Limited liabilities companies came into existence in the1600s to sponsor trade voyages to the East Indies fromcountries such as Britain, France etc.

Investors spread their risk by investing in severaldifferent ventures at the same time, thereby playingthe odds against all of them ending in disaster.

This kind of business model led to risk management .

Dutch East India company was the 1st to allow outsideinvestors to purchase shares.


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The need for Investment Banks

Share trading at the Jonathan coffee shop in

London.

Investors who wished to buy or sell securities

posted the details at the coffee shop and the

trade happened.

A formal stock exchange was built in 1773.

NYSE came around 19 years later.


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Investment banks help companies andgovernments and their agencies to raise moneyby issuing and selling securities in the primary

market. They assist public and private corporations in

raising funds in the capital markets (both equityand debt),

as well as in providing strategic advisory servicesfor mergers, acquisitions and other types offinancial transactions.


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Whats the Difference??

Commercial Bank

Individual or small to mid

sized companies.

Loans to buy a house orfuture education etc.

Bank- Creditor & General

Public Debtor

Earns money through theinterest charged on loans

Investment Bank

Companies/ Start-ups

Borrows to finance thegrowth of a company.

Investors Creditor &

Companies Debtor

Earns money through thefees charged for providing

services


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Why an Investment Bank

It performs the following functions

Raise Capital PortfolioManagement

M & A Research


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Principal Businesses of Investment

Banks Arranges financing for corporations and governments.

1] Debt

2] Equity

3] Convertibles

Advises on mergers and acquisitions (M&A) transactions. Asset Management Business

1] Offers equity, fixed income, alternative investments, andmoney market investment products and services to individual

and institutional clients2] For alternative investment products, the firm co-investswith clients in hedge fund, private equity and real estate funds


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Principal Businesses of Investment

Banks

Client Trading

Sells and trades securities

and other financial assets

as intermediary on behalfof investing clients.

Proprietary Trading

Investment activity by the

firm that affects the firm'saccounts, but does not

involve investing clients.


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Investment Banking In India

SBI was the first Indian public sector bank to setup its investment banking division in 1972.

SBI Caps and IDBI Caps are two prime examplesof investment banks in India today.

Currently, there are 300 investment banksregistered with SEBI.

Currently, without holding a certificate ofregistrationgranted by the Securities and Exchange Board ofIndia,no person can act as a investment banker.


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Investments in

India

0

2000

4000

6000

8000

10000

12000

14000

16000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Deal Value in Million

Source www.livemint.com


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Companies

Start-ups

Mid-sized firms

Large firms

Govt. InstitutionsCommercial Banks

Investors

High Networth Ind.

Venture Capitalists

Based on age group

Based on profession

Based on investing knowhow

Functioning

SEBI

Rating Agencies

Due Diligence firms

Underwriters

Stock exchange

Brokerage Firms


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Value Parameters

1] ROI

2] Network

3]Risk factor

4]Fees/Charge/Cost

5]Familiarity/Relationship6]Experience of the bank & the banker

7]Performance

8] Industry Knowledge

9] Personal Attention

10]Time taken to close a deal

http://www.ft.com

The Banker Sept 2011
http://www.ft.com/http://www.ft.com/


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Venture Capital n Investment Bank

New Business Venture Capital

Expansion Venture Capital withIB acting as the intermediary

Exit Option Through IPOshandled by the IBs


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FRONT OFFICE


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Front Office

Pitching to various clients and institutions

Setting the terms and conditions for any form of deal

Trading of securities on behalf of clients

In the process of market making, traders will buy andsell financial products with the goal of making anincremental amount of money on each trade.

Sales desks communicate their clients' orders to the

appropriate trading desks, who can price and executetrades, or structure new products that fit a specificneed.


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Brokerage Rates

Firm Brokerage for Delivery Brokerage for Intraday trading

SBICAP Securities

brokerage charges 0.50% 0.10%

Sharekhan

brokerage charges0.03% - 0.50% 0.03% - 0.10%

Motilal Oswal


Angel Brokingbrokerage charges

0.50% 0.02% - 0.03%

ICICI direct

brokerage charges0.75% 0.15%

HDFC Securities


Religare


Reliance Money


www.niftyprediction.blogspot.com
http://www.niftyprediction.blogspot.com/http://www.niftyprediction.blogspot.com/


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Research is the division which reviewscompanies and writes reports about theirprospects, often with "buy" or "sell" ratings.

Structuring has been a relatively recentdivision as derivatives have come into play,which involves creating complex structuredproducts which typically offer much greatermargins and returns than underlying cashsecurities.


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MIDDLE OFFICE


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Middle Office

Middle office usually consists of traders, analysts, andmanagers who are knowledgeable of trading activitiesbut usually dont engage in market activities

themselves. ( Chinese Wall Policy)Risk Management involves

analyzing the market and credit risk that traders aretaking onto the balance sheet in conducting their dailytrades,

setting limits on the amount of capital that they areable to trade in order to prevent 'bad' trades having adetrimental effect to a desk overall.


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Another key Middle Office role is to ensure

that the above mentioned economic risks are

captured accurately (as per agreement of

commercial terms with the client) correctlyand on time (typically within 30 minutes of

trade execution).


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BACK OFFICE


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Back Office

Operations involves data-checking trades thathave been conducted, ensuring that they arenot erroneous, and transacting the required

transfers. Every major investment bank has considerable

amounts of in-house software, created by theTechnology team, who are also responsible forComputer and Telecommunications-basedsupport.


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IPOs by Region and Globally

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011

Europe

USA

Asia Pacific

Source The Banker Sept 2011 Issue


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Front End Process (IPO)

1. Company asks for bids

2. Selecting lead managers as per bids

3. Prepare draft offer prospectus document for IPO.

4. Road shows for the IPO

5. Decide the issue date & issue price band with the help ofIssuer Company

6. RHP & IPO Application Forms are printed and posted tosyndicate members; through which they are distributed toinvestors

7. Investor Bidding for the public issue

8. Allocation of shares as per demand

9. Stocks listed on the market


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Institutions/Individuals in IPO process

Lead managers,also known as Book Running Lead Managerand Co Book Running Lead Managers.

Registrars.

Legal advisors.

Auditors.

SEBI.

Credit rating agencies.

Syndicate members.( generally banks )

Investors (Retail Individual Investor (RII), High Net worth

Individual (HNI), Non-institutional bidders, QualifiedInstitutional Bidders (QIB's).)

Advertising agencies.


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Back-end process of an IPO

1) Issuer Company - IPO Process Initialization

Appoints lead manager as book runner.

Appoints registrar of the issue.

Appoints syndicate members.

2) Lead Manager's - Pre Issue Role3) SEBI Prospectus Review

SEBI reviews draft offer prospectus.

Reverts it back to Lead Manager if needs clarificationor changes.

SEBI approve the draft offer prospectus, the draftoffer prospectus is now become Offer Prospectus.


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Back-end process of an IPO contd..

4) IPO should be graded by a CRA

5) Preparation of Red Herring prospectus

6) Investor Bidding for the public issue7) Lead Manager Price Fixing

8) Registrar - Processing IPO Applications

9) Lead manager Stock Listing


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MARKETING OF IPO

Press Conference

Investors Conference

The prospective investors are called by invitation.The Promoters and Lead Managers give

presentations. They reply to the questions of theinvestors to boost their confidence. HNI are called.Top brokers are also called.

Road ShowsRoad shows are becoming more and more popular

in India.


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MARKETING OF IPO contd..

Newspaper Advertisements.

Printing Prospectus.

The company has to print approved prospectus and provideenough copies to all intermediaries. If any investor asks for a

copy of prospectus it must be provided to him without anyfees. Sufficient quantities should be maintained at theregistered office of the company and with the Lead Managers.

Printing Application Forms

Sufficient number of application forms must be printed much

before the opening of the issue. Each form must containabridged prospectus in SEBI approved format. It is compulsoryto provide stationery to all underwriters and brokers. They willarrange distribution to their sub- brokers and other clients


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MARKETING OF IPO contd..

The reputation of a merchant banker could

expand a firms investor base at a lower cost

than the firm can, since the promotional

efforts of a merchant banker on behalf of thefirm would be more creditable.


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Networking and Promotions

Customer Relationship Managers building the trust

Networking via already existing clients

Pitching by interaction with the CEOs and CFOs ofcompanies

Hiring people from other firms with strong networkand good customer relationships

Holding roadshows

Holding seminars to attract investors

Structured products and services to attract customers .Eg. ICICIdirect money Kitchen


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Need Gaps in the IB sector

Front EndIB is still at a very nascent stage in India andhence needs to be developed and promotedproperly.

The trust factor is still not been built up amongstthe companies and investors. Here there is needof trained analysts to do the same.

Lack of Investor knowhow

Still concentrated only on the metros. Need tomove to the tier-2 and tier-3 cities to tap in morepotential investors.


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Back End

Need to develop more robust risk

management systems.

Use of better technology and systems required

for 2 main purposes

1. To keep track of an investors database better

2. Bring in faster and more intelligent systems


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Thank You

Shweta Kucheria

Ram ShuklaAnand Kumar Mishra

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