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Investment Banking

Transcript: Research Investment Banking Advisory Asset Management Sales & Trading 6%-10%

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 ?

Investment Banking

Transcript: Associate - First Year: $150K - $350K Associate - Third Year: $250K - $500K Education Requires: Masters in Business Administration and experience. Skills Pros vs. Cons Investment Banking Vice Presidents: $350K - $1.5MM Strong analytical, interpersonal skills, and mathematical skills + : Amazing Salary, Fantastic life expectancy, Fabulous lifestyle etc... - : Too much work... Future Opportunities Discuss and analyze new opportunities. Analyst - First Year: $70k - $150k Analyst - Third Year: $120K - $350K Own Investment Fund Own Investments Directors/Partners:$500K - $20MM+ # of people in this career? Salary USA-2012- 12,000 Daily Routines

Investment Banking

Transcript: eClerx Commercial Bank Central Bank What? A national bank that provides financial and banking services for its country's government and commercial banking system, as well as implementing the government's monetary policy and issuing currency. Central banks also usually oversee the commercial banking system of their respective countries. Investment Banking A financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. Commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to individual members of the public (retail banking). Some commercial banks, such as Citibank and JPMorgan Chase, also have investment banking divisions, while others, such as Ally, operate strictly on the commercial side of the business. Sachin Makad

Investment Banking

Transcript: Portfolio Management Commercial Bank vs. Investment Bank The products buyers are interested in are standard There are a large number of buyers The industry's product is necessary for buyers Buyers cannot provide this service themselves Limited substitutes 807,000 employees in Investment Banking industry Starting salary $100,000-$150,000 after bonuses Financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market capitalization Barriers to Entry must be looked at to analyze the threat of potential competitor 1. Economies of Scale 2. Brand Loyalty 3. Absolute Cost Advantage 4. Customer Switching Costs 5. Government Regulation There are two types of banks: Commercial Banks & Investment Banks "Underwriting is an act, usually performed by a third party such as an investment bank, of raising capital from investors by selling them securities on behalf of organizations such as corporations, nonprofits, and government agencies." Bargaining Power of Suppliers J.P. Morgan/1907 Panic Lehman Brothers So, what does that mean? Similarly related to investment banking Differences between the two 'definitions' Career paths between the two Diverse audiences Work hours Fields of investment opportunities Morgan Stanley JP Morgan Bank of America Merrill Lynch Goldman Sachs & Co Deutsche Bank AG Credit Suisse UBS Barclays Video Example Facts and Figures Golden Era, Market leaders at the time Credited for saving the country for the 1907 Panic Six-Week Stretch Bankruptcy J.P. Morgan stepped in placing a large sum of money back into the banks Closeness of Substitutes Financial intermediaries for securities, such as stocks, bonds, and other investment devices An institution that provides underwriting services for all types of corporate entities An institution that provides consulting services for major financial events such as mergers and consolidations 2. Best Efforts Investment Banks do not purchase any securities A promise is made to use their "Best Effort" in selling the securities to investors There is much less risk for the Investment Bank in this deal Financial industry for more than 150 years General merchandising business and transformed to a commodities broker that bought and sold cotton for the planters Coffee Exchange and the Petroleum Exchange Railroad Construction 1887 member of the New York Stock Exchange Underwriting in the early 1900s Airlines and Motion Pictures Private Placement Oil and Gas Bankruptcy Investment Banking Current Market Conditions Defined Industry Analysis of Investment Banks Inflation of the 1970s Commercial Banking Banking Crisis of the 80s and 90s Related in the sense of buying and selling assets, and experiencing similar market trends Analysis of industry's past economic trends, as well as the environment The industry's buyers experience full liability after exchange takes place Trends in unemployment rate have big effect on economic activity What is a Bank? The Great Depression Limited number of substitutes High switching costs Investment banking has a strong competitive advantage Customers less likely to switch E-Trade Securities Brokerage 1. Bought Deal All securities are acquired by the Investment Bank Investment Bank hold all the risk in sale Profit is made from the bought-sale spread Depends on size of firm, and what type of assets or services they are providing IPO's are very risky and are harder to analyze than securities that have been in the market for a while Today bargaining power is less extensive due to technology advancements, reducing the underwriting services once needed Online trading has dampened the bargaining power now that exchanges can be done at the click of a button Pension Funds Intensity of Rivalry Among Established Companies in the Industry Risk of Entry by Potential Competitors Fragmented Industry High barriers of entry Established companies Fees Stock market dropped 40% 18 Month Period Nobody wanted stocks at the time Weak Economy Unemployment High Interest Rates Bargaining Power of Buyers Top 9 Investment Banks History Defn: “This industry comprises establishments primarily engaged in underwriting, originating, and/or maintaining markets for issues of securities. Investment bankers act as principals in firm commitment transactions or act as agents in best effort and standby commitments." (U.S. Census Bureau) National banking system goes under Roughly 40% of banks Glass-Steagall Act Federal Reserve What is Investment Banking? Underwriting Heavily Correlated Principals Intermediary Overlap Example Defn: pooled-contributions from pension plans set up by employers, unions, or other organizations to provide for the employees' or members' retirement benefits Earnings are commonly tax deferred or tax exempt Companies typically hire investment firms to manage pension funds. These are huge investment blocks in the stock market. In-house funds do exist Industry Analysis of 5 Related Industries Many Commercial Banks

Investment Banking

Transcript: Investment Banking Security An organization that originates loans for both businesses and consumers May draw funding from banks and various other money market resources. Much like a bank, it acts as a lending entity by extending credit. Bank vs. Finance Company May extend credit to individuals for various consumer purchases, as well as to corporations for commercial use May be affiliated with a manufacturing firm or a holding company Finance Companies (a.k.a. mutual funds) blah blah blah In handling loans When offering loans, these institutions may require collateral to secure the loans. In the case of a loan for an automobile, they will usually require the vehicle’s title as collateral until the loan is paid back in full. For a business loan, the financial company may use equipment of the business as collateral. When looking for a financial company to deal with, take into consideration that a consumer finance company often charges a higher rate of interest than a bank or credit union. Credit unions often offer their members the best rates, but some bank rates are competitive. It’s best to shop around and gather information from several sources before deciding on which financial company is best for you. Some companies offer loans that are not secured by collateral. Close-End Open-End The difference between a bank and a finance company is that a finance company does not accept deposits from the public.

Investment banking

Transcript: Differentaite from commercial bank determine terms and conditions Bond Investment Banking insured to protect customers accounts money management allocate resources and regulate price higher risk tolerance make loans to the public using the money held on deposit Commercial banks Debt Financing What is Ibank? help the corporation or other entity to raise fund by issing equity or bond What they do? for individuals and businesses highly regulated by a number of federal authorities loosely regulated by the Securities and Exchange Commission (SEC), allowing them much more leeway in their strategic decision-making. private placement Examples of Ibank issures of securties Narrowest Definantion Ng Fung Chu 52227714 Investment Bank also the cost give financial advice buyer and seller of securities Cousulting and give fairness opinion give valuation of M&A of corporations Global investment research and ginving strategic advice manage deposit accounts equity financing Shares facilitate the buying and selling of stocks, bonds and other investments, as well as helping companies to go public with initial public offerings (IPO) much less tolerant of risk (cc) photo by theaucitron on Flickr Derivatives ubderwriting and raising of capital in primary market (cc) photo by theaucitron on Flickr market maker in equity securities and options

investment banking

Transcript: Google sold shares to the public for the first time in what was one of Silicon Valley’s most discussed, dissected and debated initial public offerings of stock. Its debut on the Nasdaq market on Aug. 19, 2004, came after numerous twists and turns, including a Playboy magazine interview with the company’s founders that drew the attention of the Securities and Exchange Commission — apparently they read it for the articles — and a last-minute drop in the initial offer price. When the offering finally happened, it turned an estimated 1,000 Google employees into millionaires, at least on paper. Since then, many more millionaires have been minted inside the Googleplex, the Web search company’s headquarters in Mountain View, Calif. There are also a few billionaires, like Google’s founders, Sergey Brin and Larry Page. Regulatory filings show they each own Google shares with a market value of more than $12 billion, based on Google’s stock price in midmorning trade on Wednesday Google decided to use a uniform-price auction to do its IPO in 2004. the Google IPO was bought deal, where the underwriter buys the securities from the seller/issues and then resells them to investors. but it was a special case of a bought deal. a bid recieved by any underwriter involved no obligation or commitment of any kind by the bidder until the underwriters sent a notice of acceptance announcing that the bid was successful. Google’s success can make it hard to remember that in 2004, many in Silicon Valley were bearish about its market debut. There was skepticism about how the offering was being handled and whether the Web search company was overhyped and overvalued. As for Yahoo and Microsoft, they recently joined forces in hopes of closing the gap with Google, which still dominates Internet search. Google's Objectives: INITIAL PUBLIC OFFERING avoid leaving money on the table. Sergey Brin "Our goal is to have an efficient market price- a rational price set by informed buyers and sellers- for our shares at the IPO and afterward... Our goal is to achieve a relatively stable price in the dats following the IPO and that buyers and sellers recieve a fair price at the IPO." obtain better pricing favorable individual and avoid taking care of only the bif investors. Larry Page avoid flipping sidetrack wall street The company founders stated their goal clearly in the prospectus

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