Investment Banking
Transcript: Investment Banking Issue new bonds to get funds to retire an older bond. To pay for an acquisition. To pay for a new project. They determines the value and riskiness of the business in order to price, underwrite, and then sell the new bonds. Banks also underwrite other securities (like stocks) through an initial public offering (IPO). Instrument Type Securities Other cash Exchange-traded derivatives They ensures that the buying public – primarily institutional investors, such as mutual funds or pension funds, commit to purchasing the issue of stocks or bonds before it actually hits the market. In this sense, investment banks are intermediaries between the issuers of securities and the investing public. In practice, several investment banks will buy the new issue of securities from the issuing company for a negotiated price and promotes the securities to investors. Sample Underwriting Scenario / lifecycle Gillette wants to raise some money for a new project. They’ll go to an investment bank like JPMorgan, which will price the new shares (remember, investment banks are experts at calculating what a business is worth). JPMorgan will then underwrite the offering, meaning it guarantees that Gillette receives share price (newly issued shares) less JPMorgan’s fees. Then, JPMorgan will use its institutional sales force to go out and get Fidelity and many other institutional investors to buy chunks of shares from the offering. JPMorgan’s traders will facilitate the buying and selling of these new shares by buying and selling Gilette shares out of their own account, thereby making a market for the Gillette. Investment Banking and 2008 Financial Crisis Collapse of the subprime mortgage market, poor underwriting practices, overly complex financial instruments, as well as deregulation, poor regulation, and in some cases a complete lack of regulation The company was not as deeply exposed to the mortgage market. Profited from other's pain: it absorbed Bear Stearns and Washington Mutual. Lost $35 million of the $276 million it had invested in Madoff-linked hedge funds. JP Morgan Chase was badly battered by the financial crisis of 2008. It received $25 billion under the federal bailout package in late 2008. In June 2009, it became one of 10 banks to repay its share of bailout funds. In October 2011, JPMorgan Chase was ranked the No. 1 bank in the country. Middlemen between a company that wants to issue new securities and a the buying people. J.P. Morgan and Company Chase Manhattan Bank, Chemical Bank Manufacturers Hanover Trust Company, Bank One Corporation, Bear Stearns and Washington Mutual What is it ?