Financial Services Project

8/20/2019 Financial Services Project

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EXECUTIVE SUMMARY

An investment bank is a financial institution that assists individuals, corporations,

and governments in raising capital by underwriting or acting as the client's agent in

the issuance of securities (or both). An investment bank may also assist companies

involved in mergers and acquisitions (MA) and provide ancillary services such as

market making, trading of derivatives and equity securities, and !"## services (fi$ed

income instruments, currencies, and commodities).

"nvestment banking includes a wide variety of activities, including underwriting,

selling, and trading securities, providing financial advisory services, and managing

assets. "nvestment banks cater to a diverse group of stakeholders companies,

governments, non%profit institutions, and individuals and help them raise funds on the

capital market. &hey perform the following maor functions for their customers

• erve as trading intermediaries for clients

• *end and invest banks assets

• +rovide advice on mergers, acquisitions, and other financial transactions

• esearch and develop opinions on securities, markets, and economies

• "ssue, buy, sell, and trade stocks and bonds

Manage investment portfolios"nvestment banks once contrasted sharply with

commercial banks, where people mainly deposited their money and sought

commercial and retail loans. "nrecent years, though, the two types of structures have

become increasingly similar-commercial banks now offer more investment banking

services as they attempt tocorner the market by presenting themselves as one%stop

shops."nvestment banks do differ from brokerages and broker%dealers, though,even

though those three entities are often thought of as one and the same. A brokerage firm

takes a commission for assisting in the purchase and sale of stocks, bonds, and mutualfunds. A broker%dealer e$ecutes similar functions, but it alsotrades for its own

account. An investment bank actually is a broker%dealer that provides corporations

with financial services, such as assistance with initial publicofferings, merger and

acquisitions advice, and strategic planning.

INVESTMENT BANKINGPage 1


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CHAPTER 1

INTRODUCTION

Investment banking is a particular form of banking which finances capital

requirements of an enterprise. "nvestment banking assists as it performs "+s, private

placement and bond offerings, acts as brker and carries through mergers and

acquisitions. "nvestment banking is a field of banking that aids companies in

acquiring funds. "n addition to the acquisition of new funds, investment banking also

offers advice for a wide range of transactions a company might engage in.

&raditionally, banks either engaged in commercial banking or investment

banking. "n commercial banking, the institution collects deposits from clients and

gives !ire"t #ans to businesses and individuals.

&hrough investment banking, an institution generates funds in two different

ways. &hey may draw on public funds through the "a$ita# market by selling stock in

their company, and they may also seek out venture capital or private equity in

e$change for a stake in their company.

An investment banking firm also does a large amount of consulting.

"nvestment bankers give companies advice on mergers and acquisitions, for e$ample.

&hey also track the market in order to give advice on when to make public offerings

and how best to manage the business' public assets. ome of the consultative activities

investment banking firms engage in overlap with those of a private brokerage, as they

will often give buy%and%sell advice to the companies they represent.

&he line between investment banking and other forms of banking has blurredin recent years, as deregulation allows banking institutions to take on more and more

sectors. /ith the advent of mega%banks which operate at a number of levels, many of

the services often associated with investment banking are being made available to

clients who would otherwise be too small to make their business profitable.

At a very macro level, 0"nvestment 1anking2 as term suggests, is concerned with

the primary function of assisting the capital market in its function of capital intermediation,

i.e., the movement of financial resources from those who have them (the "nvestors), to


http://www.economywatch.com/banking/investment/http://www.wisegeek.com/what-are-direct-loans.htmhttp://www.wisegeek.com/what-is-capital-market.htmhttp://www.wisegeek.com/what-is-venture-capital.htmhttp://www.wisegeek.com/what-is-a-merger.htmhttp://www.wisegeek.com/what-is-a-brokerage.htmhttp://www.wisegeek.com/what-is-a-brokerage.htmhttp://www.wisegeek.com/what-are-direct-loans.htmhttp://www.wisegeek.com/what-is-capital-market.htmhttp://www.wisegeek.com/what-is-venture-capital.htmhttp://www.wisegeek.com/what-is-a-merger.htmhttp://www.wisegeek.com/what-is-a-brokerage.htmhttp://www.economywatch.com/banking/investment/


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those who need to make use of them for generating 34+ (the "ssuers). 1anking and

financial institution on the one hand and the capital market on the other are the two broad

platforms of institutional that investment for capital flows in economy. &herefore, it could

be inferred that investment banks are those institutions that are counterparts of banks in the

capital markets in the function of intermediation in the resource allocation.

DE%INITIONS&

• A financial intermediary that performs a variety of services. "nvestment banks

speciali5e in large and comple$ financial transactions such as underwriting, acting

as an intermediary between a securities issuer and the investing public, facilitating

mergers and other corporate reorgani5ations, and acting as a broker and6or financialadviser for institutional clients. Maor investment banks include 1arclays, 1ofA

Merrill *ynch, /arburgs, 3oldman achs, 4eutsche 1ank, 7+ Morgan, Morgan

tanley, alomon 1rothers, 81, #redit uisse, #itibank and *a5ard. ome

investment banks speciali5e in particular industry sectors. Many investment banks

also have retail operations that serve small, individual customers.

• As per 1usiness4ictionery.com

!inancial institution that provides large amounts of long%term fi$ed capital,

primarily for established firms. "nvestment banks generally take an equity stake in

the borrower firm to e$ercise some influence on its direction and operations. &hey

also act (often ointly) as financial intermediaries by underwriting the sale of

new securities.

INVESTOPEDIA EXP'AINS (INVESTMENT )AN* + I)(

&he advisory divisions of investment banks are paid a fee for their services,while the trading divisions e$perience profit or loss based on their market

performance. +rofessionals who work for investment banks may have careers as

financial advisers, traders or salespeople. An investment banker career can be very

lucrative, but it typically comes with long hours and significant stress.

1ecause investment banks have e$ternal clients but also trade their own accounts, a

conflict of interest can occur if the advisory and trading divisions don2t maintain their

independence (called the 9#hinese /all:). "nvestment banks2 clients include



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corporations, pension funds, other financial institutions, governments and hedge

funds. i5e is an asset for investment banks. &he more connections the bank has

within the market, the more likely it is to profit by matching buyers and sellers,

especially for unique transactions. &he largest investment banks have clients around

the globe.

"nvestment banks help corporations issue new shares of stock in an initial public

offering or follow%on offering. &hey also help corporations obtain debt financing by

finding investors for corporate bonds. &he investment bank's role begins with pre%

underwriting counseling and continues after the distribution of securities in the form

of advice. &he investment bank will also e$amine the company2s financial statements

for accuracy and publish a prospectus that e$plains the offering to investors before the

securities are made available for purchase.

CHAPTER 1,1

)ASICS O% INVESTMENT )AN*IN-

The banking sector is one of the biggest contributors to anation!s

econo"#$ %ro&i'e' it is "anage' in an inno&ati&e an' %rofessiona(

en&iron"ent) In&est"ent banking is one ra%i'(# gro*ing for" of

banking)

An investment bank is a type of financial intermediary that performs a variety

of functions such as underwriting, facilitating mergers and acquisitions or brokerage

services for institutions. &he work of an investment bank begins right from the

counseling before the underwriting sessions, and stretches right till the securities are

properly handled and distributed. "nvestment banks play a very crucial role in market

transactions on behalf of, or for private and public investors, government and

corporations. &here are a number of investment banks that also provide highly

professional services in assisting their clients with industrial know%how on various

parameters.

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&he role of an investment bank as a mediator is to directly familiari5e the

nature of the investment and the entity being invested in. "n case of conventional

banking, people deposit finances in the form of cash, assets and so on with a bank.

&he bank in turn can lend to a borrower under some standard norms to utili5e in his

own way. "n the case of investment banking, there is a direct familiari5ation of both

the investor and the borrower. &his means that an individual or institutional investor

has an option to choose his type of investment or division of investment into any

given entity looking out for funds. An investment bank can also assist investment in

the financial market.

"nvestment banks provide companies with e$pert guidance and formulate

strategies on their behalf for disinvestment, and also to merge or acquire new entities.

3ood investment banking involves procedures to maintain and upgrade the quality of

services and keep a close watch on the emerging trends in the market, where their

customer's money can be invested. "t also incorporates risk management services in

order to streamline the flow of capital, check its overuse, and come up with a detailed

analysis of credit risks.

CHAPTER 1,.

%UNCTIONS O% INVESTMENT )AN*IN-

"nvestment banks have multilateral functions to perform. ome of the most

important functions of investment banking can be ot down as follows

;. "nvestment banking help public and private corporations in issuing securities

in the primary market, guarantee by standby underwriting or best efforts

selling and foreign e$change management. ther services include acting as

intermediaries in trading for clients.


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Resear"2 is the division which reviews companies and writes reports about

their prospects, often with ?buy? or ?sell? ratings. /hile the research division

may or may not generate revenue, its resources are used to assist traders in

trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. esearch also serves outside clients with

investment advice in the hopes that these clients will e$ecute suggested trade

ideas through the ales &rading division of the bank, thereby bringing in

revenue for the firm. &here is a potential conflict of interest between the

investment bank and its analysis in that published analysis can affect the

profits of the bank.

Ot2er b3sinesses t2at an investment bank ma4 be inv#ve! in& -#ba# transa"tin banking is the division which provides cash

management, custody services, lending, and securities brokerage services

to institutions. +rime brokerage with hedge funds has been an especially

profitable business. Investment management is the professional management of various

securities (shares, bonds, etc.) and other assets (e.g. real estate), to meet

specified investment goals for the benefit of the investors. "nvestors may

be institutions (insurance companies, pension funds, corporations etc.) or

private investors (both directly via investment contracts and more

commonly via collective investment schemes e.g. mutual funds). &he

investment management division of an investment bank is generally

divided into separate groups, often known as +rivate /ealth Management

and +rivate #lient ervices. Mer"2ant bankingis a private equity activity of investment banks.

Cmmer"ia# banking sees article commercial bank .

Mi!!#e Oi"e&

Risk management involves analy5ing the market and credit risk that

traders are taking onto the balance sheet in conducting their daily trades,

and setting limits on the amount of capital that they are able to trade in

order to prevent 'bad' trades having a detrimental effect to a desk overall.

Another key Middle ffice role is to ensure that the above mentioned

economic risks are captured accurately, correctly and on time. "n recent

INVESTMENT BANKINGPage .

http://en.wikipedia.org/wiki/Sell-side_analysthttp://en.wikipedia.org/w/index.php?title=Global_transaction_banking&action=edit&redlink=1http://en.wikipedia.org/wiki/Prime_brokeragehttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Insurance_companieshttp://en.wikipedia.org/wiki/Pension_fundshttp://en.wikipedia.org/wiki/Corporationshttp://en.wikipedia.org/wiki/Private_investorshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Mutual_fundshttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Merchant_bankinghttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Commercial_bankinghttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Middle_officehttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Sell-side_analysthttp://en.wikipedia.org/w/index.php?title=Global_transaction_banking&action=edit&redlink=1http://en.wikipedia.org/wiki/Prime_brokeragehttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Insurance_companieshttp://en.wikipedia.org/wiki/Pension_fundshttp://en.wikipedia.org/wiki/Corporationshttp://en.wikipedia.org/wiki/Private_investorshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Mutual_fundshttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Merchant_bankinghttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Commercial_bankinghttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Middle_officehttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Credit_risk


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years the risk of errors has become known as ?operational risk ? and the

assurance Middle ffices provide now includes measures to address this

risk. Cr$rate treas3r4 is responsible for an investment bank's funding,

capital structure management, and liquidity risk monitoring. %inan"ia# "ntr# tracks and analy5es the capital flows of the firm- the

!inance division is the principal adviser to senior management on

essential areas such as controlling the firm's global risk e$posure and the

profitability and structure of the firm's various businesses. Cr$rate strateg4, along with risk, treasury, and controllers, often falls

under the finance division as well. Cm$#ian"e areas are responsible for an investment bank's daily

operations' compliance with government regulations and internal

regulations. ften also considered a back%office division.

)a"k Oi"e&

• O$eratins involve data%checking trades that have been conducted, ensuring

that they are not erroneous, and transacting the required transfers. /hile some

believe that operations provide the greatest ob security and the bleakest career

prospects of any division within an investment bank, many banks have

outsourced operations. "t is, however, a critical part of the bank.

Te"2n#g4 refers to the information technology department. @very maor

investment bank has considerable amounts of in%house software, created by

the technology team, who are also responsible for technical support.

&echnology has changed considerably in the last few years as more sales and

trading desks are using electronic trading.

INVESTMENT BANKINGPage /

http://en.wikipedia.org/wiki/Operational_riskhttp://en.wikipedia.org/wiki/Treasury_managementhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Internal_controlhttp://en.wikipedia.org/wiki/Corporate_strategyhttp://en.wikipedia.org/wiki/Compliance_(regulation)http://en.wikipedia.org/wiki/Back_officehttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Softwarehttp://en.wikipedia.org/wiki/Technical_supporthttp://en.wikipedia.org/wiki/Technical_supporthttp://en.wikipedia.org/wiki/Electronic_tradinghttp://en.wikipedia.org/wiki/Operational_riskhttp://en.wikipedia.org/wiki/Treasury_managementhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Internal_controlhttp://en.wikipedia.org/wiki/Corporate_strategyhttp://en.wikipedia.org/wiki/Compliance_(regulation)http://en.wikipedia.org/wiki/Back_officehttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Softwarehttp://en.wikipedia.org/wiki/Technical_supporthttp://en.wikipedia.org/wiki/Electronic_trading


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CHAPTER 1,/

ADVANTA-ES O% INVESTMENT )AN*IN-

An investment bank is a financial entity that assists individuals and companies in

raising capital through making investments and engaging in the stock e$change. &hey

enable business professionals and entities to find the most profitable investments, as

well as maintaining them in the long term.

"nvestment banks not only underwrite and issue securities but they can act as agents.

Many individuals and companies acquire the services of investment banks for the

underwriting and issuance of these securities.

"nvestors seek the services of investment banks as they speciali5e in the field of

investing, providing specific services such as market marking, trading of derivatives,

fi$ed income commodities and equity securities. Additionally, these speciali5ed

banking institutions assist companies in their mergers and acquisitions- facilitating

and overlooking the entire process.

&he main services that investment banking is used for include-

;. &rading and promoting securities the cash or other securities are traded in

transactions. &his is commonly known as facilitating transactions or market

making. &hese securities are promoted by their investment bank. &his is done

through underwriting and research as it is the 9selling: side of investment

banking.


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in terms of investing in the most profitable areas in different industries. &herefore,

individuals and companies are advised to seek the services of an investment bank as

they can benefit from up%to%date and e$pert insights in investing money and raising

capital.

CHAPTER 1,5

DISADVANTA-ES O% INVESTMENT )AN*IN-

6S"ams an! %ra3!s7

#onviction of 4eutsche 1ank, 7+Morgan #hase co. and 4epfa 1ank +lc by Milan

udge for their role in overseeing fraud by their bankers in the sale ofderivatives to the

#ity of Milan raised hundreds ofquestions regarding the prevailing governancesystem

in these investment banks in the currentscenario.

"nvestor related frauds include *etter of #redit !raud,+rime 1ank ote !raud,

+yramid chemes, MarketManipulation or 9+ump and 4ump: !raud. &here are

certain techniques where an investor couldbe invited for a seminar, promising an

investment

e$pert to advice on the management of personalfunds. 1ut, the fact is these seminars

or managementinstitutions make money by charging attendance fees,selling over%

priced reports or books and sellingproperty and investments without letting you

getindependent advice. &hey often make misleading ordeceptive claims or pressure

you to buy intoinvestments that will end up with you losing yourmoney. hare

promotions and 0hot tips2, also known as 0shareramping2, are scams that usually come

in the form ofan email or a message on an internet forum. &hemessages usually

encourage the investors to buyshares in a company that they predict is about

toincrease in value. &he person offering this advice isusually the fraudulent

advisor.0#old calling2 is an une$pected or unsolicitedtelephone call offering

investments or financialadvice. &he investments they offer usually guaranteehigh

returns or encourage you to invest in overseascompanies. &he scams sound

professional and mayhave other resources to support their claims. #oldcallers often

claim to be stock%brokers or portfoliomanagers. uperannuation scams are schemes



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which offer togive you early access to your superannuation (0earlyrelease2), often

through a self%managed super fund,for a fee.

As per #1#, published by euters

;. "n !ebruary, the @# won a free5e on a wissaccount linked to suspicious trading

in >.7. >ein5 #ocall options before the ketchup maker was boughtby /arren 1uffett's

1erkshire >athaway "nc and 1ra5ilian firm =3 #apital.


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CHAPTER .

OVERVIE8 O% INVESTMENT )AN*IN- AREAS

Cr$rate %inan"e &

aises capital for businesses typically by underwriting stocks and bonds, or other

equity and fi$ed income securities, and re%selling them in the public markets or as

private placements to large investors.

Mergers 9A":3isitins &

egotiate corporate mergers and acquisitions, advise companies on assessing the

value of their businesses.

P3b#i" %inan"e &

aises capital for state and local governments, school districts, and other ta$%e$empt

entities.

S4n!i"ate &#oordinates efforts of investment banking, sales and trading to move new securities

issues to market.rgani5es underwriting and sales syndicates. +rices, sells, and

generates interest in, new securities.

Instit3tina# Sa#es &

ell securities and investment recommendations, investment management capabilities,

and services to large investors typically referred to as 9institutional investors.:

Retai# Sa#es &

ell stocks, bonds, mutual funds and other investments to the general public and small

businesses. +rovide investment advice and financial planning services.

Tra!ing &

pecialists are market makers on the floor of a stock e$change required to buy and

sell to maintain fair and orderly markets in the securities they are assigned by the



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e$change. !loor &raders e$ecute buy and sell orders for clients of the firms and

individuals that they work for as agents.

Resear"2 &

@quity esearchers review companies and write reports about their prospects, often

with ?buy? or ?sell? ratings. /hile the research division generates no revenue, its

resources are used to assist traders in trading, the sales force in suggesting ideas to

customers, and investment bankers by covering their clients.

Over+t2e+C3nter Tra!ing 6OTC7 &

traders buy and sell stocks, bonds and other securities over electronic trading

systems and by telephone as agents for customers or as principals for their own firms.



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#>A+&@ =

INVESTMENT )AN*S

An investment bank is a type of financial institution that helps individuals, businesses,

and government institutions to obtain capital by both underwriting and functioning as

the client2s broker in the issuance of securities. &his type of bank may also benefit

companies engaged in business mergers and asset purchases such as the acquisition of

businesses, buildings, private estates and land parcels. "nvestment banks also provide

supplementary services such as market making, equity securities and trading of

derivatives as well as currencies, fi$ed income instruments, and commodities. More

importantly, investment banks do not facilitate deposits as opposed to commercial and

retail banks. &here are many instances however, where investment banks are part of

other maor financial institutions, like a chief commercial bank.

CHAPTER 0,1

TYPES O% INVESTMENT )AN*S

"G@&M@& 1AC

@** "4@ 18D "4@

&here are two maor types of investment banks based on their function. &his might be

more relevantly referred to as branches of operation in investment banking. &he first

is the ;se## si!e


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services. #ommon entities on the buy side include insurance companies, hedge funds,

unit trusts, mutual funds and private equity funds.

"nvestment banks are further divided by their private and public functions. &his

creates a boundary, preventing information crossing between the two sectors. &his

gives rise to two distinct types of investment banks which includes- boutique or

private investment banks and full%service or bulge bracket investment banks.

+rivate or boutique investment banks are concerned with private and confidential

information and transactions that might not be revealed to the public. &hey are usually

smaller banking entities that speciali5e in one or more areas of investment products.

thers in this sector focus their services on one type or one specific group of industries. &hese private entities carry out a variety of functions. ome may act as

investment advisors while others speciali5e in the trade of certain assets and

commodities. &here are also those that offer services to specific social groups and

industries. @$amples of private investment banks include- Almeida #apital, Atlantic%

+acific #apital, 7.+. Morgan #a5enove, &riago, #hina "nternational #apital

#orporation and #"&"# ecurities.

&he more public, full%service or bulge bracket investment banks enlist a wider variety

of market activities that include research, underwriting, mergers and acquisitions,

trading, merchant banking, investment management and securities trading services.

&hese bulge bracket banks are enormous investment institutions that cover all or most

industries. &hey serve a wide variety of client types and offer most if not all possible

types of investment banking services in their portfolio. Maor institutions that fall

under this umbrella today are 1ank of America Merrill *ynch, 1arclays #apital,

#itigroup, 7+Morgan #hase and Morgan tanley.

INVESTMENT BANKINGPage 1,


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of the company. 1ankers do this by finding takeover candidates, leading sales of stock

and bonds or suggesting new investment techniques. &he ability of the banker to

understand the thinking of a corporate client is key to his or her success.

A"2ieving Strategi" Ob=e"tives &

"nvestment bankers meet regularly with management to discuss what obectives the

company is strategically focusing on. &he banker also needs to provide an outside

view of what competitor companies are doing and what, if any, strategic

complications this provides. 1ankers must provide solutions for achieving obectives

and have the financial strength to lead bond and stock offerings on behalf of the

company.

D3e !i#igen"e &

"f a company has made a bid for another company an outside third party such as the

investment banker will need to supply an opinion regarding the careful study and

decision making that went into acquiring the company. &his is called a due diligence

report. &he due diligence report is a necessary document and requires that the

investment banker ask probing questions and ascertain that the company did

everything in its power to uncover problems that might arise later.

%airness O$inins &

Another document necessary for the purchase of one company by another is the

fairness opinion. &he fairness opinion is written by the investment banker and

provides detailed determinations, often using several investment metrics, to

demonstrate that the company did not overpay for the acquired company. !airness

opinions allow management to show that substantial effort was used to get the best

price possible for investors. An investment banker may be sued by shareholders if it is

later learned that his opinion was incorrect.

Managing Debt Oerings &

"nvestment bankers suggest ways to finance or refinance financial obligations. "n a

period of low interest rates a banker may demonstrate cost savings by redeeming

INVESTMENT BANKINGPage 1.


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outstanding debt at higher interest rates and substituting a new, lower interest cost

issue. &he banker earns fees for the underwriting while guiding the company's efforts

to choose the proper si5e and maturity of the offering as well as handling negotiations

with the debt rating agencies.

Managing St"k Oerings &

"nvestment bankers are responsible for bringing new companies to the public markets

for the first time (also called an "+ or initial public offering), raising capital for

privately held companies, or improving the capital strength of e$isting public

companies by redeeming debt with additional stock offerings. &aking a company

public is a difficult task as the stock offering may not be received well if it isoverpriced or will rise greatly in value if it is under%priced.

Ot2er )3sinesses

-#ba# transa"tin banking is the division which provides cash management,

custody services, lending, and securities brokerage services to institutions. +rime

brokerage with hedge funds has been an especially profitable business, as well as

risky, as seen in the ?run on the bank ? with 1ear tearns in


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CHAPTER 0,/

'IST O% TOP 1> INVESTMENT )AN*S

&he top ;B "nvestment 1anks in "ndia offers large number of financial advisory

services by tracking the economic trends, besides providing financial assistance to

corporate and retail customers. ome of them are

1, Aven!3s Ca$ita#&

An investment bank providing mergers and acquisitions, fi$ed returns,

controlled finance, calculated advisory facilities and +rivate @quity

yndication to its customers ranging from investors to corporates. &he bank

has a powerful research competence which it utili5es to close business deals in

hostile circumstances. "t presently concentrates on sectors where "ndian firms

have strategic e$pansion advantage namely >ealthcare, +harmaceuticals, "&

ervices, #onsumer goods, manufacturing, etc.

., )a=a= Ca$ita#

&he 1aa #apital 3roup is one of the renowned "nvestment consultant and!inancial +lanning firms in "ndia. "t is certified under the #ategory " of

Merchant 1ankers by @1". 1aa #apital provides custom%made !iscal

+lanning facilities and investment consultation to the investors, organi5ational

investors, corporate, high income patrons and on%esident "ndians ("s).

1eing one of the biggest distributors of economic goods, 1aa provides an

e$tensive range of investment schemes such as general insurance, life

insurance, mutual funds, etc to both public and private institutions.

0, C2#aman!a#am Investment 9 %inan"e Cm$an4

A combined fiscal service provider of three firms namely #holamandalam

41 !inance *imited (#4!*), 41 #holamandalam 4istribution *imited

and 41 #holamandalam ecurities *imited, #holamandalam 41 operates

in ;J international markets. 41 provides an e$tensive range of facilities to

small and medium si5ed enterprise, corporate, customers and comprehensive

banking activities across Middle @ast and Asia.



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commercial activities constitute mainly of endowing in long%standing

investments in equity of the firms in various sectors. &he chief source of return

for the firm entails income on investment trading and income accrued on

dividend.

B, Yes )ank

&his "nvestment 1anking association is engaged in the classification,

arrangement and implementation of deals for their clients in varied sectors and

nations. ome of the archetypal transactions incorporate divestitures, private

equity syndication, mergers acquisitions and "+ consultation.

1>, UTI Se"3rities 't!

@ndorsed as a self%regulating professional body in ;KKL, 8&" ecurities *td., is

one of the renowned investment bank of "ndia. After the termination of 8nit

&rust of "ndia (8&") Act, the total share fund of 8&"@* is now controlled by

superintendent of particular enterprise of 8&". &he firm has been offering all

sorts of investment associated activities which incorporates investment banking

and corporate consultation facilities.



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CHAPTER /

INVESTMENT )AN*ER

Cn"e$t Investment )ankers

An individual who works in a financial institution that is in the business primarily of

raising capital for companies, governments and other entities, or who works in a large

bank's division that is involved with these activities. "nvestment bankers may also

provide other services to their clients such as mergers and acquisition advice, or

advice on specific transactions, such as a spin%off or reorgani5ation. "n smaller

organi5ations that do not have a specific investment banking arm, corporate finance

staff may fulfill the duties of investment bankers.

"nvestment bankers are financial middlemen in security offering process. &hey

purchase securities from companies and governments and resell them to the general

public. &hus, investment bankers bring together suppliers and users of long%term

funds in a capital market and there by play a key role in security offering process. "t is

to be noted that investment bankers are neither investors nor bankers. &hey do not

invest their own funds permanently nor accept and guard the savings of others, as

commercial banks do.

%3n"tins Investment )ankers

&he traditional function of the investment bankers has been to act as middlemen inchanneling individual's savings and funds into the purchase of business securities. 1ut

now a days, they also provide advice and help in distribution of securities. &hus,

investment bankers perform four basic functions as follows

1, Un!erriting

/hen underwriting a security issue, an investment banker guarantees the issuer that it

will receive a specific amount from the issue. "n this process, investment banker buys

the security at a lower price and then sells them at a higher price i.e. offer price to



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Ski(( an' Ta(ent euire"ents

"nvestment banks want employees with a combination of strong analytical and

interpersonal skills. ome obs lean more towards one skill set than another (e.g.

brokers need to be mainly sales people). A typical ob of an equities analyst requires both analytic and interpersonal skills. &he skills involved include

*e4 Ski## Area Re:3irement

Pe$#e ski##s& >igh

Sa#es ski##s& Medium

Cmm3ni"atin ski##s& >igh

Ana#4ti"a# ski##s& >igh

Abi#it4 t s4nt2esie& >igh

Creative abi#it4& >igh

Initiative& Medium

8rk 23rs& PB%;


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areas such as stochastic calculus and differential equations), then take some advanced

finance courses in options pricing or bond valuation and apply to a research

department on /all treet.

A""3nting Ski##s Va#3ab#e

&he ability to analy5e accounting numbers critically is important in most analyst

positions. "f you have ambitions too ?bail out? someday and become a corporate

financial analyst you might also want to consider the #MA (#ertified Management

Accountant) designation.

Tra!ers are M3#ti+Ta#ente!

"t's hard to define what makes a good trader. A good understanding of the market,

quick reactions, analytical skills and the ability to bluff help.

Teamrk Cr3"ia#

A crucial success factor in investment banking is teamwork. 1eing able to pull

together persons with large egos to get a presentation together for a client is a

challenge and is likely to be rewarded highly.

S"ientists an! 'a4ers 8ante!

&here's definitely an interest in people with backgrounds in science and law. cientist

types can work on everything from derivatives algorithms to biotech banking.

*awyers can help design new securities, sell leasing business and use their analytical

prowess to talk to clients. &his said, you have to sell yourself. "t often doesn't hurt to

go back and get an M1A from a top school, and then try to repurpose your career intoinvestment banking.

Cnta"ts are Ever4t2ing

&he key to breaking into investment banking is a good network of contacts. Dou may

already be blessed with such a network, but if you don't have one, you can start to

develop one by going on informational interviews, attending industry conferences,

finding alumni from your school in the business etc. ur contact lists may be helpfulin this process. Ceep in mind that your network might not really ?pay off? for some

INVESTMENT BANKINGPage 2,

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time. "f you are young and haven't gone for an M1A degree, try to get into the best

possible school and then go for quantitative and analytical coursework.

-etting T2ings Dne is Im$rtant

tarting off in an investment bank, you are usually responsible for getting proects

done well and on%time, whether it be writing reports, running spreadsheets, trading,

doing research or coding programs. *ater, once you get involved with clients and

ideas for generating revenue, you will be rewarded greatly if you can bring in

business. At higher levels (usually 4irector, Managing 4irector and up) you are

e$posed to much greater risk. At this level, people are often fired for non%

performance, whereas at lower levels you may not be scrutini5ed as closely.

F3a#ii"atin

A Masters in 1usiness Administration with < years of post%graduate study is essential

to grow up in this particular area.

7obs in entry%level for analyst programs are obtainable to those graduate

undergoes who require e$perience in investment banking profession. Analysts are essential in making proposals in finance and travel in order to sit

with the clients during meetings and sessions where senior bankers discuss

ideas to potential customers. After this comes the requirement of M1A degree holder investment banker.

CHAPTER 5

INVESTMENT )AN*IN- SCENARIO IN INDIA

"nvestment banking "ndia has always been very crucial for the smooth flow of

market transactions between various investors, companies, firms and the government.

&hese banks will have a role to play even in the future, irrespective of the economic

conditions in the country.

INVESTMENT BANKINGPage 2-


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"nvestment banking industry in "ndia is transitioning through a different stage. "n

"ndia, there are about fifteen multinational "%banks,fifteen to twenty large home grown

"%banks,about five%hundred "%banks that have a team ofaround five to five%hundred

members andappro$imately thousand "%banks with one or twopartners running the

entire show. &his laststratum is now known as the boutiqueinvestment banks- which

have shown a suddenupsurge in the recent past. 1outique "nvestment bankstypically

handle sub%Q


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fad and will lose its sheenwhen the big boys bounce back, once theeconomy starts

improving and the mammoth "nvestment bankswill find it lucrative to enter the fray.

"ndustry believes that the changes in the "%banking space are part of the slowdown.

Also, boutique banks have limitations in the "+ domain, where they will not be able

to handle the distribution, while they can manage the valuations.

>owever, co% e$istence of investment bankingadvisory with a supermarket approach

byoffering broking and asset management services is passe. 1ut it is needless to say

that big balance sheet investment banks (essentially for funding needs of clients) and

boutiques (real advice to clients) will co% e$ist. >owever, players in themiddle,

running super markets in "ndia are likelyto shut down.

CHAPTER ?

NE8 TRENDS AND CONCERNS IN INVESTMENT )AN*IN-

"nvestment banking industry is growing very fast followed by these companies. After

what happened in @urope and in a scenario where the world economy is sluggish, low

scope of growth, many of investment banking clients which are mainly the big

companies under pressure (since their main obective is to grow their business and

somehow make acquisitions which are transformative) are backing out. "n this

scenario, investment banker plays an important role. #ompanies like 3oldman achs,

being the main player of the industry helps them in their biggest concern- that is fund

management. &he companies today find fund management to be very critical.

"nitially it was only in the #!2s domain to manage the funds but it is more of a

strategic decision now, to be made for the company for which investment bankers are

paid big money. early, HBN funding in 8 companies comes from the capital

market as opposed to banking institutions. "n @urope, the trend is reversed. &oday, if

you look at 3ermany, for e$ample, only ;BN of funding comes from capital market

and KBN from banks. /hile banks have added enough of capital, their balance sheets

are under pressure to shrink. As si5e is shrinking, a significant amount offunding

made to these corporates have to be pushed to the capital markets. &aking all these

things into consideration, scope of the future investment banking trend canbe captured

INVESTMENT BANKINGPage 2/


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with following points Amid the alphabet soup of regulatory requirementsthat

investment banks must deal with, Accenture sees five key trends that will shape

theindustry for


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CHAPTER @

CONC'USION

"nvestment banking helps to boost the economy of the commercial sections of the

society in other words they create more opportunity for both the employed and

unemployed ones to raise capital and make profit.

&hey also help boost the financial security of a country from possible financial drop

down. @very economy that wants to have a growing financial status must require the

services of investment banking.



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