Invt Banking Ppt

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Transcript of Invt Banking Ppt

  • Presented By: -K . Arjun Goud

  • An investment banking is a financial institution that raises capital, trades securities and manages corporate mergers and acquisitions. Another term for investment banking is corporate finance.

  • Established on June 16, 1933

    It had a stronger impact on US banking regulation

    The Banking act 1933 was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation.

    GlassSteagall Act was a reaction to the collapse of a large portion of the American commercial banking system in early 1933. It introduced the separation of bank types according to their business (commercial and investment banking).

    The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company.

    GlassSteagall Act

  • Enacted on November12, 1999

    The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms and insurance companies to consolidate.

    Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. Such combinations were common in Europe but illegal in the United States prior to passage of the Gramm-Leach-Bliley Act of 1999.

    History

  • 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 JPMorgan Chase (J.P. Morgan Investment Bank) Morgan StanleyNomura Holdings Inc UBS (UBS Investment Bank) RBS (RBS Global Banking and Markets) Wells Fargo Securities

  • ABN AmroBank of Montreal (BMO Capital Markets) BNP Paribas FortisHSBC ING GroupKotak Mahindra BankNomura Securities Co. Royal Bank of Canada (RBC Capital Markets) Royal Bank of Scotland Group (RBS Securities) Standard Chartered Bank

  • The origin of investment banking in India can be traced back to the 19th century when European merchant banks set-up their agency houses in the country to assist in the setting of new projects.

    In the early 20th century, large business houses followed suit 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.

  • It was soon followed by Citibank, which started rendering these services.

    The banking committee, in its report in 1972, took note of this with concern and recommended setting up of merchant banking institutions by commercial banks and financial intuitions.

    State bank of India ventured into this business by starting a merchant banking bureau in 1972.

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

  • By 1980, the number of merchant banks rose to 33 and was set-up by commercial banks, financial institutions and private sector.

    JM finance was set-up by Mr. Nimesh Kampani as an exclusive merchant bank in 1973.

    In 1972, ICICI became the first financial institution to offer merchant banking services.

  • SEBI Rules 1992 define Investment Banking as: A person who is engaged in the business of issue management either by making arrangements regarding selling, buying, or subscribing to securities as manager, Consultant, Advisor or rendering corporate advisory services in relation to such issue management.

  • Underwriting (Public offering of securities)Trading of SecuritiesMergers and AcquisitionsPrivate Placement of SecuritiesMerchant BankingSecuritization of AssetsTrading and Creation of Risk Control InstrumentsMoney Management

  • Function:-

    Public offering of securities.

    Helping firms raise funds thru stocks or bond issues.

    It is a traditional activity -- "sponsoring.

  • 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.

  • 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 there will 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-lead underwriters (or co-managers) to share the capital risk.

  • The trading arm of an investment bank provides important 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 via

    bid-ask spread, andappreciation of the price of the securities held in inventory

  • Find M&A candidates:

    vertical mergerhorizontal mergeruse for excess cash/way to expandfind undervalued business (bad management?) access to another marketRole of investment banking in M&A

  • Advise acquiring firms or target firms with respect to price and nonprice terms of an exchange or help target firms fend off an unfriendly takeover attempt.

    Assist acquiring firms in obtaining financing.

  • Investment banks assist the placement of securities with a limited number of institutional or wealthy individual investors.Fee for private placement:

    Size (in million)fee$ 5 - 101.5 - 4.0%10 - 151.0 - 3.0%

    25 - 50 0.7 - 2.0%

    over 50 0.5 - 1.5%

  • Merchant banking refers to a transaction in which an investment banking firm commits its own funds by either taking an equity interest or creditor position in companies.An example is bridge financing wherein an investment banking firm loans funds to a client to consummate a takeover. Bridge financing is important for its potential source of interest income.

  • 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 issuePrice difference

  • 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

  • Investment banking firms have created subsidiaries that manage funds for either individual investors or institutional investors such as pension funds.

  • 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 securities from 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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