Investment Banking

 

Seminar Report on  INVESTMENT BANKING

Submitted by  Akshatha upadhyay – 1MS11MBA03

Under the coordina coordination tion of Mr.. Santhos Mr Santhosh h Kumar Kumar.S .S Assistant Professor Professor,, MSRIT

Under the guidance of  Mahala Mahalakshmi kshmi .A  Assistant Professor, Professor, MSRIT 

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Table of content Sl.no

Topic

Page no

1. 2.

Introduction Literature review

3 to 5 6

3.

History of investment bank

7 to 9

4.

Regulation of investment bank in USA and India

10 to 11

5.

Functions of investment bank

12 to 14

6.

Structure of investment bank

16 to 18

7.

Current scenario of investment  bank in the world and India.

19 to 22

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Introduction   An individual or institution which acts as an underwriter or

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agent for corporations and municipalities issuing securities. Most also  maintain broker/dealer operations,

maintain markets for previously issued securities , and offer advisory services to investors. investment banks also have a large role in

 facilitating mergers and acquisitions, private equity placements and corporate restructuring. 3

 

Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals . 

From 1933 (Glass–Steagall Act) until 1999 (Gramm– Leach–Bliley Act), the United States maintained a separation between investment banking and commercial c ommercial  banks. Other industrialized countries, including G8 countries, have historically not maintained such a separation. In recent years, some investment banking firms have diversified or merged with other financial firms to become full service financial firms.

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Literature review Name of the Author / source

Title of article

summary

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H R Machiraju

Indian financial system

fourth edition textbook 

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Internet

Investment Banking at 50,000 Feet

structure of  investment bank by John Spacey

Investopedia.com

The Rise Of The Modern Investment Bank 

Financial theory

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 News

What do do ?investment  bank

article by Laurence Knight  Business reporter reporter,, BBC News

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Goldman Sachs webpage

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what do we do

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video and activates of Goldman Sachs

 

Definition of Investment banking The dictionary of banking and finance defines investment bank as a term used in US To mean, ‘ a bank which deals with the underwriting of new

issues and advices Corporations on their financial affairs.’ 

Bloomberg provides a more consolidated definition for an investment bank, v erity of service, 'A financial Intermediary that perform a verity including aiding in sales of securities, Facilitating mergers mergers and other corporate re- organizations, acting as broker to both The individual and the institutional client and trading in its own accounts.’ 

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History of investment banking •

A historical 179224 called as ato Buttonwood Agreement Agreement was signed among 2agreement 4 New York York brokers band the brokers into an investment group. By the middle of 1800’s, professional investment banks had sprung up in the US to help government raise funds for infrastructure projects and the civil war war.. •

In the 1830’s, commercial banks started adding investment

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 banking services to their regular banking activities in the US. Investment Banking hit a milestone in the 1870’s when a syndicate of banks from Europe and US teamed up to buy $50 •

million worth of US Treasury Bonds for resale to public. 7

 

The Glass-Steagall Act, passed on June 16, 1933, and officially

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named types the Banking Act ofto 1933, the separationand of   bank according theirintroduced business(commercial investment banking), and it founded the Federal Deposit Insurance Corporation for insuring bank deposits. In the mid-20th century, large investment banks were dominated by the deal makers. Advising clients on mergers and acquisitions and public offerings was the main focus of  major Wall Street partnerships. These firms included Goldman Sachs, Morgan Stanley, Lehman Brothers, First Boston and others.

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Investment Banking in India •

Grindlays bank began Investment Banking (Merchant Banking) in India in 1967 with RBI issuing the second license to Citi in 1970. •

SBI was the first Indian public sector bank to set up its merchant banking division in 1972. In 1972, a Banking Commission report asserted the need for Merchant Banking ser ices in India by public sector banks they recommended the same structure as American investment banks (Glass-SteagallAct)

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Regulation of investment bank in USA

1. and The regulatory Securitie Securitiess Exchange Exch ange Co Commi mmission (SEC) exercises exercises adv advisory isory role of Bankers . ssion (SEC) The powers of SEC was further strengthened in 1960 by authorizing it to inspect the records and Accounts of firms engaged in the business. 2. Investment trusts were covered by the investment company company act, 1940 which sought to regulate them. Investment advisors are required to be registered under the inv investment estment advisor Act, 1940. 3. The investment and portfolio activities activities became subject to SEC supervision.

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Regulation of investment bank in India

Pure investment banks whichare dogoverned not have primarily presence in lending or banking business bythe the capital market regulator (SEBI). However, Universal banks and  NBFC (non banking financial companies) investment ba banks nks are regulated in their core business of banking or lendingprimarily and so farbyasthe theRBI investment banking segment is concerned, they are also regulated by SEBI Apart from the above specific regulations relating to investment banking, investment banks are also governed by other laws applicable to all other businesses such as  –  tax law, contract law, property law, local state laws, arbitration law and the other general laws that are applicable in India. 11

 

Functions of Investment Banking  The investment banking division (IBD) is generally divided into; •Industry coverage and •Product coverage groups. Industry coverage groups focus on a specific industry, such

as healthcare, industrials, ind ustrials, or technology, and maintain relationships with corporations within the industry to bring in  business for a bank.

Product coverage groupsleveraged focus on financial products, such as mergers and acquisitions, finance, public finance, asset finance and leasing, structured finance, restructuring, equity,, and high-grade d equity debt ebt and generally work and collaborate with industry groups on the more intricate and specialized needs of a client. 12

 

Investment banks carry out multilateral functions. Some of the most important functions of investment banking are as a s follows: Investment banking helps public and private corporations in issuance of securities in the primary market. They also act as intermediaries in trading for clients.

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Investment banking provides financial advice to investors and helps them by assisting in purchasing and trading securities as well as managing financial assets

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Liability management, The Liability Management team advises on and executes public and private debt transactions including tenders, exchange offers, and consents.

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 Structured Finance; they helps clients securitize assets,    businesses and risks associated with acquisition financing and balance sheet management. •

Mergers and acquisitions advice

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Example of Goldman Sachs; Johnson & Johnson, on its planned acquisition of Synthesis

($20.8bn), 2011 E.ON,, on the sale of its U.S. business to PPL ($8bn), 2010 E.ON •

Underwriting

The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 14

 

SPIN-OFFS AND RESTRUCT RESTRUCTURINGS URINGS

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Example; Fiat, on the spin-off of its capital goods activities into Fiat Industrial ($18bn), 2011 Motorola, on its split into two companies and the spin-off of  Motorola Mobility ($10bn), 2010

Small firms which provide services of investment banking are called boutiques. They mainly specialize in bond trading, providing technical analysis or program trading as well as advising for mergers and acquisitions

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Structure of investment bank 

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Current Scenario

Two collapses of the stock market ,the tech bubble and the sub-prime crisis have taken their toll on the investment  banking industry. industry. Landmark companies including Bear Stearns, Lehman Brothers and Merrill Lynch have been destroyed in the sub prime crisis. Goldman Sachs and Morgan Stanley have moved from pure play investment banks to become commercial banks after the repealing of the Glass-Steagall Act. But still, investment banking remains a key element of our  capital markets. Goldman Sachs, UBS, Credit Suisse are the major players in the global investment banking industry

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Leading investment banks in the world

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Investment bank scenario in India

Investment banking will grow over ten-fold: Investment banking will be among the fastest growing segments in the banking industry rising from 4 percent to 7 percent of the entire corporate  banking revenue pool. larger corporate customers expect to demand higher support for i nternational expansion and mergers and acquisitions over next decade The revenue pool will shift from traditional tr aditional corporate  banking to investment and advisory. advisory. Banks with international presencesbanking and to benefit.

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Leading investment bank in India

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Future scope for investment banks

After the world faced a major economic recession in the second half of 2008, many scholars and think tanks were skeptical about the restoration of the economy. economy. However, as the market has its own share of ups and downs, the positive aspects and financial strength of investment banks cannot be neglected. The future of investment  banking might comprise the following: •More Stringent Laws and Restrictions •Emphasis on Equity Derivatives and Currency trading •Fewer big banks and more small boutiques •Lesser Dependence on Short-Term Funding 

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Conclusion

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Investment Banking could be termed as a relatively American American phenomenon. • Indian Investment Investment Banking Banking industry has still a long way to go before it catches up with its global peers. • The sub-prime crisis of 2008 has been a hammer blow for 

 pure play investment banks.

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Learning experience

The various functions carried out by investment banks. Which includes advisory service , mergers and acquisition, etc. Various them. investment banks in India and the top notch bank among The scope for career in investment bank and the various functions that can be carried out. Difference between commercial bank and investment bank.

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