mn50412 investment banking
Skip this Video
Download Presentation
MN50412 Investment Banking

Loading in 2 Seconds...

play fullscreen
1 / 32

MN50412 Investment Banking - PowerPoint PPT Presentation

  • Uploaded on

MN50412 Investment Banking. General information Lecturer: Dr Richard Fairchild Office: Wessex House 8.52 Email: [email protected] Lecture time: Thursdays 9.15 – 11.15 am Office hours: Tuesday 14.15pm- 15.15pm. What is investment banking?. The banking function.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'MN50412 Investment Banking' - josephine

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

General information

Lecturer: Dr Richard Fairchild

Office: Wessex House 8.52

Email: [email protected]

Lecture time: Thursdays 9.15 – 11.15 am

Office hours: Tuesday 14.15pm- 15.15pm

the banking function
The banking function

The banking function can be decomposed into:

  • Central banking:
    • Monetary policy (interest rates, money supply)
    • In the UK: Bank of England
  • Commercial banking:
    • Lending to the public (businesses, individuals, banks)
    • Receiving deposits from businesses and individuals
    • In the UK: HSBC, RBS, Barclays, HBOS
  • Investment banking
investment banking activities
Investment banking activities

Investment banking activities include:

  • Mergers and acquisitions (+ divestitures)
    • Advise potential buyers on which companies to target
    • Help sellers screen potential buyers
    • Suggestions about what price to offer/accept
    • Negotiation support
    • Structuring the deal ( pay in cash vs. pay in stock)
Debt underwriting
    • IB help companies and governments raise money by issuing corporate or government bonds
    • Underwriting: IB act as intermediate between the issuer and investors (individuals, banks, mutual funds, hedge funds, sovereign funds etc.)
      • Act as primary dealers for the government
      • Have a certification role for companies that want to issue bonds
  • Proprietary trading: Trading with the bank own money
Equity underwriting

- Evaluate the issuer

- Determine the offering price

- Buy the shares from the issuer

- Find investors and sell the shares

- Initial public offering (IPOs)

  • Asset management
    • Managing short-term cash flows of corporate clients
    • Management of long-term bonds and equity portfolios of investors
      • Institutional investors: insurance companies, pensions funds etc.
      • Private investors
Asset securitization
      • Issuance of securities using a pool a similar assets as collateral
      • Mortgage-backed securities, asset-backed securities
  • Private equity: refers to shares in companies that are not publicly traded

- Venture capital

- LBOs: using borrowed money for a substantial portion of the purchase price of the buyout company

- IB can raise funds for private equity funds or manage these funds themselves

investment banks
Investment banks
  • Investment banks are financial institutions that engage primarily in IB activities
  • Investment banks engage in public and private market

transactions with corporations, governments and institutional


  • Main differences with commercial banks:

- IB have a marginal role in deposits and loan activities.

- IB usually take short-term positions, i.e. few days (except in the non-core business of venture capital). Commercial banks take longer term positions.

Investment banks are intermediary between those needing funds and those having them:
    • Need funds: Corporations, government
    • Have funds: Corporations, investment vehicles such as mutual funds, pension funds etc.
  • How do they make money?
    • Fees (underwriting, M&A, asset management)
    • Trading revenues
  • Main IB up to early 2008: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns
Commercial banks

Institutions whose current operations consist mostly in granting loans and receiving deposits from businesses and customers

Universal banks

Banks that combine commercial and investment banking

Example: UBS, Citibank, Bank of America

content of the course1
Content of the course
  • Introduction
  • Equity underwriting
    • Why go public?
    • The IPO process
    • Syndicates in IPOs
    • Market shares in IPOs
    • Underwriting spread in IPOs
    • Underpricing of IPOs
    • Long-run performance of IPOs
Debt underwriting
    • Pricing of bonds
    • Yield curve
    • Corporate vs. government bonds
    • Callable bonds, convertible bonds
  • Derivatives products
    • Futures
    • Options
Mergers and acquisitions
    • M&A valuation
    • Determinants of market shares
    • Who gains from mergers?
    • Financing: cash vs. stock
    • Why use IB? Investment banks vs. commercial banks
  • Role of IB in the financial and economic crisis
  • Asset management:

- Active vs. passive management

- Performance measurement

investment banking in the us
Investment banking in the US

The modern concept of “Investment Bank” was created by the Glass-Steagall act (Banking Act of 1933). Following the 1929 stock market crash, large banks went bankrupt.

Glass-Steagall separated commercial banks, investment banks, and insurance companies.

In 1999 the Glass-Steagall Act was waived (Graham-Leach-Bliley Act).

investment banking in the uk
Investment banking in the UK

In the past, separation between:

Brokers: Rout the orders of customers to the stock exchange, give advices on investments. They cannot take positions in the stocks that act as brokers for.

Jobbers: Market makers that could trade only with the brokers, not with the general public.

Merchant banks: Commercial banks that offer corporate finance services (M&A advisory, underwriting etc.). Did not own the brokers.

In 1986: Big bang:

Abolition of fixed commission to increase competition

Dual capacity: Jobbers, brokers and merchant banks can integrate

1990s the failure of uk investment banks
1990s: The failure of UK investment banks


The US had deregulated fees in 1975

Business became much more complex, more difficult to manage

Lack of managerial experience

Clash of cultures brokers/jobbers/merchant banks

Markets became volatile after the 1987 crash

Results became volatile and UK banks made substantial losses

1995 saw many UK banks fail amid losses

Reasons for US success since the 1990s

Large financial and management resources, meaning that they were less exposed

Huge profits in the US market allowed cross-subsidisation in Europe

Economies of scale for underwriting activities