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INVESTMENT BANKING Defn origin

What is Investment Banking? Investment banking is a multi-faceted practice area that involves structuring financial transactions for private and public companies into developed and emerging markets. Investment bankers identify capital opportunities, negotiate and structure deals, and execute private and public financial transactions. The essential function of an investment bank is to act as an intermediary between potential investors and those who seek capital. Investors include individuals, mutual funds, municipalities, public corporations, and private institutions. Generally, capital is raised through the issuance of equity (stock), debt (bonds), or through a merger and acquisition (buying and selling part of a company). Investment bankers perform duties ranging from the preparation of disclosure documents and marketing materials for public offerings, to analyzing potential mergers and acquisitions for boards and shareholders. Investment banks offer many different practice areas that typically fall under broader classifications such as investment banking, investment management, merchant banking, finance and operations, information technology, global research, fixed income, risk management, and equities.

Investment banking is a field of banking that aids companies in acquiring funds. In addition to the acquisition of new funds, investment banking also offers advice for a wide range of transactions a company might engage in. Investment banking is a fundraising method through which governments and companies issue and sell securities in order to raise capital. Two common methods of collecting funds from the public are by capital market (selling stock) and venture capital (a type of private equity). Investment banking involves both a sell side and a buy side. The former is related to trading and promoting securities, while the latter is regarding dealing with investors and funds Traditionally, banks either engaged in commercial banking or investment banking. In commercial banking, the institution collects deposits from clients and gives direct loans to businesses and individuals. In the United States, it was illegal for a bank to have both commercial and investment banking until 1999, when the Gramm-Leach-Bliley Act legalized it. Through investment banking, an institution generates funds in two different ways. They may draw on public funds through the capital market by selling stock in their company, and they may also seek out venture capital or private equity in exchange for a stake in their company. An investment banking firm also does a large amount of consulting. Investment bankers give companies advice on mergers and acquisitions, for example. They also track the market in order to give advice on when to make public offerings and how best to manage

the business' public assets. Some 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. The line between investment banking and other forms of banking has blurred in recent years, as deregulation allows banking institutions to take on more and more sectors. With 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. Careers in investment banking are lucrative and one of the most sought after positions in the money-market world. A career in investment banking involves extensive traveling, grueling hours and an often cut-throat lifestyle. While highly competitive and time intensive, investment banking also offers an exciting lifestyle with huge financial incentives that are a draw to many people. Investment banks commonly offer consulting and advisory services for clients. Topics of advice may cover circumstances such as mergers, acquisitions, public offerings, divestitures, and others. Advice on financial issues may also touch services such as trading of commodities, derivatives, equity securities, fixed income, and foreign currencies. . A majority of investment banks offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities. Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) was referred to as the "sell side". Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consumed the products and services of the sell-side in order to maximize their return on investment constitutes the "buy side". Many firms have buy and sell side components.
Who needs an Investment Bank? Any firm contemplating a significant transaction can benefit from the advice of an investment bank. Although large corporations often have sophisticated finance and corporate development departments, an investment bank provides objectivity, a valuable contact network, allows for efficient use of client personnel, and is vitally interested in seeing the transaction close. Most small to medium sized companies do not have a large in-house staff, and in a financial transaction may be at a disadvantage versus larger competitors. A quality investment banking firm can provide the services required to initiate and execute a major transaction, thereby empowering small to medium sized companies with financial and transaction experience without the addition of permanent overhead.

The role of the Investment Bank

Raising Capital An investment bank can assist a firm in raising funds to achieve a variety of objectives, such as to acquire another company, reduce its debt load, expand existing operations, or for specific project financing. Capital can include some combination of debt, common equity, preferred equity, and hybrid securities such as convertible debt or debt with warrants. Although many people associate raising capital with public stock offerings, a great deal of capital is actually raised through private placements with institutions, specialized investment funds, and private individuals. The investment bank will work with the client to structure the transaction to meet specific objectives while being attractive to investors. Mergers and Acquisitions Investment banks often represent firms in mergers, acquisitions, and divestitures. Example projects include the acquisition of a specific firm, the sale of a company or a subsidiary of the company, and assistance in identifying, structuring, and executing a merger or joint venture. In each case, the investment bank should provide a thorough analysis of the entity bought or sold, as well as a valuation range and recommended structure.

Sales and Trading These services are primarily relevant only to publicly traded firms, or firms which plan to go public in the near future. Specific functions include making a market in a stock, placing new offerings, and publishing research reports. General Advisory Services: Advisory services include assignments such as strategic planning, business valuations, assisting in financial restructurings, and providing an opinion as to the fairness of a proposed transaction.

Who needs an Investment Bank?


Any firm contemplating a significant transaction can benefit from the advice of an investment bank. Although large corporations often have sophisticated finance and corporate development departments, an investment bank provides objectivity, a valuable contact network, allows for efficient use of client personnel, and is vitally interested in seeing the transaction close. Most small to medium sized companies do not have a large in-house staff, and in a financial transaction may be at a disadvantage versus larger competitors. A quality

investment banking firm can provide the services required to initiate and execute a major transaction, thereby empowering small to medium sized companies with financial and transaction experience without the addition of permanent overhead.

What to look for in an Investment Bank


Investment banking is a service business, and the client should expect top-notch service from the investment banking firm. Generally only large client firms will get this type of service from the major Wall Street investment banks; companies with less than about $100 million in revenues are better served by smaller investment banks. Some criteria to consider include: Services Offered For all functions except sales and trading, the services should go well beyond simply making introductions, or "brokering" a transaction. For example, most projects will include detailed industry and financial analysis, preparation of relevant documentation such as an offering memorandum or presentation to the Board of Directors, assistance with due diligence, negotiating the terms of the transaction, coordinating legal, accounting, and other advisors, and generally assisting in all phases of the project to ensure successful completion. Experience It extremely important to make sure that experienced, senior members of the investment banking firm will be active in the project on a day-to-day basis. Depending on the type of transaction, it may be preferable to work with an investment bank that has some background in your specific industry segment. The investment bank should have a wide network of relevant contacts, such as potential investors or companies that could be approached for acquisition. Record of Success Although no reputable investment bank will guarantee success, the firm must have a demonstrated record of closing transactions. Ability to Work Quickly Often, investment banking projects have very specific deadlines, for example when bidding on a company that is for sale. The investment bank must be willing and able to put the right people on the project and work diligently to meet critical deadlines. Fee Structure Generally, an investment bank will charge an initial retainer fee, which may be one-time or monthly, with the majority of the fee contingent upon successful completion of the

transaction. It is important to utilize a fee structure that aligns the investment bank's incentive with your own. Ongoing Support Having worked on a transaction for your company, the investment bank will be intimately familiar with your business. After the transaction, a good investment bank should become a trusted business advisor that can be called upon informally for advice and support on an ongoing basis. Because investment banks are intermediaries, and generally not providers of capital, some executives elect to execute transactions without an investment bank in order to avoid the fees. However, an experienced, quality investment bank adds significant cant value to a transaction and can pay for its fee many times over. The investment banker has a vested interest in making sure the transaction closes, that the project is completed in an efficient time frame, and with terms that provide maximum value to the client. At the same time, the client is able to focus on running the business, rather than on the day-to-day details of the transaction, knowing that the transaction is being handled by individuals with experience in executing similar projects TRADING

ABN Amro Commerzbank (Dresdner Kleinwort)

HSBC (HSBC Global Banking and Markets) ING Group

Natixis Nomura Securities Co., Ltd. (Nomura Securities Co.)

Banco Santander (Santander Global Banking & Markets) Bank of America (Banc of America Securities) BB&T (BB&T Capital Markets) BNP Paribas Bank of Montreal (BMO Capital Markets) Barclays (Barclays Capital) BBH (Brown Brothers Harriman) Calyon CIBC (CIBC World Markets) Citigroup Credit Suisse Daiwa Securities Deutsche Bank Eurohypo Fortis Bank Goldman Sachs

JPMorgan Chase (JPMorgan Securities, Inc.) Jefferies & Co. K1 Investment Bank (Nexus Dragon Co. Malaysia) Kaupthing Bank KBC Bank (KBC Financial Products) KeyCorp (KeyBanc Capital Markets) Kotak Mahindra Bank (Kotak Mahindra Investment Banking) Landsbanki Lloyds TSB Group Plc (Wholesale and International Banking) Macquarie Group Mizuho Financial Group (Mizuho Corporate Bank) Monte dei Paschi di Siena (MPS Finance) Morgan Stanley National Australia Bank (nabCapital)

Rabobank Royal Bank of Scotland Group (RBS Global Banking & Markets) Royal Bank of Canada (RBC Capital Markets) Scotiabank (Scotia Capital) Socit Gnrale (SG CIB) Source Capital Group Standard Bank Standard Chartered Bank State Street Global Advisors Stifel Nicolaus SunTrust (Robinson Humphrey) Toronto-Dominion Bank (TD Securities) UBS AG Unicredit (UBM) USAA Wells Fargo (Wells Fargo Securities

. Features,, scope, and advantages Services of IB


FEATURES OF INVESTMENT BANKING The Investment Banking Group focuses on identifying, financing and advising emerging growth companies as they expand and develop into tomorrows market leaders. Roth is a leader in providing emerging growth companies with ready access to the capital markets and a wide variety of financial advisory services. By focusing exclusively on emerging growth companies, Roth has developed an unparalleled understanding of these companies, their entrepreneurial managers and their highly specialized financing needs. The Investment Banking Group features: 30 professionals with significant transaction and industry expertise.

A full spectrum of investment banking services including IPOs, Follow-ons / Registered Directs,PIPEs , M&A Advisory and Debt Capital Markets. An exceptional client focus that is characterized by long term relationships and a history of advising clients on multiple transactions. Deep domain expertise in technology, healthcare, financial services and consumer products Comprehensive aftermarket and a powerful distribution channel with the premier small-and microcap institutional investors .

ADVANTAGES TO USING AN INVESTMENT BANK They have financial savvy of the public and private markets versus the typical entrepreneur. Usually provide pricing, timing, and distribution ideas for the offering. The investment banker takes the risk of distributing the securities. After the contract is signed, the banker is on the line for these issues. Most investment bankers who underwrite also make a market in the security, therefore, supporting the stock in the marketplace. Certain investment bankers raise the prestige of a company and can generate short-term financing just by their affiliation.

CUSTOMER SERVICES OF INVESTMENT BANK They adapt to your method They share your sense of urgency. As specialists they work with you to create a clear understanding of your needs. They work in concert with your decision-making process. They respect your need for a successful and timely transaction. They keep you informed When appropriate, they provide more data about a decision to be made. They keep you accurately informed to help you manage the risks associated with all financial decisions, whether it be a debt or equity portfolio or a private transaction. In instances where specific in-depth industry or fractional knowledge is required, they call on professionals to help us pinpoint problems, important issues and opportunities. They seek your authorization before acting The policies and tactics they propose will be described clearly in a proposal for your approval.

They represent you with discretion

They maintain a policy of confidentiality on all the information about your enterprise with the exception of subjects you authorize us to discuss in pursuit of your objectives. The best time to call us is before making a financial decision. In this case they offer an independent analysis of your situation and provide valuable advice and alternatives. Whatever you are contemplating they stand ready to gather and organize the appropriate data and work with you to evaluate the effective alternatives identified. On your behalf they organize tasks and simplify complex issues. After they have gathered information and analyzed your situation, They position and package a portfolio of financial opportunities. With a decision to seek financial consultation they help establish the net present value of the subject investment and determine a value range for negotiation and decision. Given your situation they will perform independent analyses to provide a vehicle for evaluating alternatives.

Organizational structure of an investment bank


Main activities and units
An investment bank is split into the so-called front office, middle office, and back office. Front office

Investment banking is the traditional aspect of the investment banks which also involves helping customers raise funds in the capital markets and advise on mergers and acquisitions. Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Other terms for the investment banking division include mergers and acquisitions (M&A) and corporate finance. 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, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, equity,

and high-grade debt and generally work and collaborate with industry groups in the more intricate and specialized needs of a client.

Sales and trading: On behalf of the bank and its clients, the primary function of the bank is buying and selling products. Banks undertake risk through proprietary trading, done by a special set of traders who do not interface with clients and through "principal risk", risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. In market making, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need. Structuring has been a relatively recent activity as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities. The necessity for numerical ability in sales and trading has created jobs for physics and math Ph.D.s who act as quantitative analysts. Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While 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. There is a potential conflict of interest between the investment bank and its analysis in that published analysis can affect the profits of the bank. Therefore in recent years the relationship between investment banking and research has become highly regulated requiring a Chinese wall between public and private functions. Custody and agency services is the division which provide cash management, lending, and securities brokerage services to institutions. The prime brokerage business 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. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes eg. mutual funds). The investment management division of an investment bank is generally divided into separate groups, often known as Private Wealth Management and Private Client Services. Merchant banking is a private equity activity of investment banks.[2] Current examples include Goldman Sachs Capital Partners and JPMorgan's One Equity

Partners. (Originally, "merchant bank" was the British English term for an investment bank.) [edit] Middle office

Risk management involves analyzing 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 Office role is to ensure that the above mentioned economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation. Finance areas are responsible for an investment bank's capital management and risk monitoring. By tracking and analyzing the capital flows of the firm, the Finance division is the principal adviser to senior management on essential areas such as controlling the firm's global risk exposure and the profitability and structure of the firm's various businesses. In the United States and United Kingdom, a Financial Controller is a senior position, often reporting to the Chief Financial Officer. Strategy is the division which advises external as well as internal clients on the strategies that can be adopted in various markets. Ranging from derivatives to specific industries, strategists place companies and industries in a quantitative framework with full consideration of the macroeconomic scene. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structurers create new products. Compliance areas are responsible for an investment bank's daily operations' compliance with government regulations and internal regulations. Often also considered a back-office division.

[edit] Back office

Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. While some[who?] believe that operations provides the greatest job security and the bleakest career prospects of any division within an investment bank, many banks have outsourced operations. It is, however, a critical part of the bank. Due to increased competition in finance related careers, college degrees are now mandatory at most Tier 1

investment banks.[citation needed] A finance degree has proved significant in understanding the depth of the deals and transactions that occur across all the divisions of the bank.

Technology refers to the information technology department. Every major investment bank has considerable amounts of in-house software, created by the technology team, who are also responsible for technical support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading. Some trades are initiated by complex algorithms for hedging purposes.

Size of industry
Global investment banking revenue increased for the fifth year running in 2008, to $84.3 billion.[3] This was up 21% on the previous year and more than double the level in 2003.
fee income from Asia increased by 98%. This compares with a 55% increase in Europe, and a 46% increase in the US, during this period.

Despite a record year for fee income, many investment banks have experienced large losses related to their exposure to U.S. sub-prime securities investments. The United States was the primary source of investment banking income in 2007, with 53% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 32% of the total, slightly up on its 30% share a decade ago.[citation needed]Asian countries generated the remaining 15%. Over the past decade, fee income from the US increased by 80%.[citation needed] This compares with a 217% increase in Europe and 250% increase in Asia during this period.[citation needed] The industry is heavily concentrated in a small number of major financial centres, including New York City, London and Tokyo. Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, it is only known that many have theorized that all investment banking products and services would be commoditized. New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins. For example, trading bonds and equities for customers is now a commodity business[citation needed] , but structuring and trading derivatives retains higher margins in good times - and the risk of large losses in difficult market conditions, such as the credit crunch that began in 2007. Each over-the-counter contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the CBOE, and are almost as commoditized as general equity securities.

In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients). The fastest growing segment of the investment banking industry are private investments into public companies (PIPEs, otherwise known as Regulation D or Regulation S). Such transactions are privately negotiated between companies and accredited investors. These PIPE transactions are non-rule 144A transactions. Large bulge bracket brokerage firms and smaller boutique firms compete in this sector. Special purpose acquisition companies (SPACs) or blank check corporations have been created from this industry.[citations needed]

[edit] Vertical integration


In the U.S., the Glass-Steagall Act, initially created in the wake of the Stock Market Crash of 1929, prohibited banks from both accepting deposits and underwriting securities which led to segregation of investment banks from commercial banks. Glass-Steagall was effectively repealed for many large financial institutions by the Gramm-Leach-Bliley Act in 1999. Another development in recent years has been the vertical integration of debt securitization.[citation needed] Previously, investment banks had assisted lenders in raising more lending funds and having the ability to offer longer term fixed interest rates by converting the lenders' outstanding loans into bonds. For example, a mortgage lender would make a house loan, and then use the investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization. However, lenders have begun to securitize loans themselves, especially in the areas of mortgage loans. Because of this, and because of the fear that this will continue, many investment banks have focused on becoming lenders themselves,[4] making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many investment banks lend at loss leader interest rates[citation needed] in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers.[citation needed] Securitized house loans may have exacerbated the subprime mortgage crisis beginning in 2007, by making risky loans less apparent to investors.

Possible conflicts of interest


Potential conflicts of interest may arise between different parts of a bank, creating the potential for financial movements that could be market manipulation. Authorities that regulate investment banking (the FSA in the United Kingdom and the SEC in the United States) require that banks impose a Chinese wall which prohibits communication between investment banking on one side and equity research and trading on the other.

Some of the conflicts of interest that can be found in investment banking are listed here:

Historically, equity research firms were founded and owned by investment banks. One common practice is for equity analysts to initiate coverage on a company in order to develop relationships that lead to highly profitable investment banking business. In the 1990s, many equity researchers allegedly traded positive stock ratings directly for investment banking business. On the flip side of the coin: companies would threaten to divert investment banking business to competitors unless their stock was rated favorably. Politicians acted to pass laws to criminalize such acts. Increased pressure from regulators and a series of lawsuits, settlements, and prosecutions curbed this business to a large extent following the 2001 stock market tumble.[citation needed] Many investment banks also own retail brokerages. Also during the 1990s, some retail brokerages sold consumers securities which did not meet their stated risk profile. This behavior may have led to investment banking business or even sales of surplus shares during a public offering to keep public perception of the stock favorable. Since investment banks engage heavily in trading for their own account, there is always the temptation or possibility that they might engage in some form of front running. Front running is the illegal practice of a stock broker executing orders on a security for their own account before filling orders previously submitted by their customers, thereby benefiting from any changes in prices induced by those orders.

Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value [1] while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, the short term decisions can be grouped under the heading "Working capital management". This subject deals with the

short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers). The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment banker is to evaluate company's financial needs and raise the appropriate type of capital that best fits those needs

WAY OF INVESTMENT BANKING(EFFECTIVE) builds strong relationships with its customers to fulfil their investment-banking and assetmanagement needs. Such relationships have to be based on : Trust Which assures customers that their assets are safe. Discretion Which ensures complete confidentiality Reliability Through prompt and effective responses to customer needs and Performance By consistently delivering the expected commercial results. The Hinduja Group operates an independent global investment banking capability. The Investment Banking Division is broad based and has dedicated professional teams located in London, New York, Geneva and Mumbai. This division has developed first hand commercial expertise in several key industry sectors around the world through the Hinduja groups own businesses coupled with an excellent understanding of global capital markets. With respect to institutional and individual investors, our performance in managing their assets is crucial to our success. The Asset Management business employs an open architecture system to deliver the full range of Theyalth management solutions for our clients. This enables us to run a customised investment platform that has the capability to offer asset allocation, risk analysis and selection of the best performing funds available, all backed up with personalised and quality service. Overall, what distinguishes the Hinduja Groups investment banking activities are: Quality of advice A clear understanding of clients needs Access to many capital sources Timely and efficient execution

OBSERVATION: Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, many have theorized that all investment banking products and services would be commoditized. New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins. Vertical Integration Another trend in Investment Banking at the dawn of the 21st century has been the vertical integration of debt securitization. Previously, investment banks had assisted lenders in raising more lending funds and having the ability to offer longer term fixed interest rates by converting the lenders' outstanding loans into bonds. For example, a mortgage lender would make a house loan, and then use the investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization. However, lenders have begun to securitize loans themselves, especially in the areas of mortgage loans. Because of this, and

because of the fear that this will continue, many Investment Banks have focused on becoming lenders themselves, making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many Investment Banks lend at loss leader interest rates in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers .

INVESTORS PIN HOPE ON GROWTH IN INDIA


All eyes are on the East. With most of the world mired in recession, many investors are looking longingly toward Asia, the only region that the International Monetary Fund says will continue to grow economically in 2009, "led by China and India." China will likely see real GDP growth of 6.5 percent, and Indias economy will expand by 4.5 percent, the IMF predicts. Although those figures are down sharply in comparison with the countries recent booms China enjoyed real GDP growth in excess of 10 percent per year from 2004 through 2007 before slowing to 9.1 percent last year, while growth in India topped 8 percent in 2006 and 2007 before slipping to 7.3 percent in 2008 they stand in stark contrast to the 1.3 percent worldwide contraction the IMF expects this year. . "Where there is growth, investors love to return to equities and Asia is very well stocked with opportunities." Investors that have seen their portfolios ravaged by losses in stock markets around the world are understandably skittish about risking more money at such a volatile time, even though recent sell-offs have left equities more attractively priced than they have been in years. Investors need on-the-ground, in-the-trenches analysts to help them traverse the tumultuous economic landscape, and when it comes to coverage of Asian equities. Economic growth in Asia in general, and China and India in particular, will be aided by two factors: historically insular financial systems and large domestic markets with strong growth potential. "Compared to their Western peers, Asian governments and consumers have saved more and financial institutions have lost less which therefore is beneficial for recovery.

. "China, India, Korea and Taiwan are the nations at the forefront" Investors seem to agree. Chinas benchmark Shanghai composite index surged 30.3 percent in the first quarter, besting every other stock market in the world. The Standard & Poors 500 index, by comparison, fell 11.7 percent in the same period. Another reason for Indias resilience is the low market-penetration levels for many basic goods and services. Theres plenty of room for strong intrinsic growth, Krishnan says: "This is best manifested in the continued buoyancy in new subscriber additions as telecommunications companies roll out services in rural India and the

early revival in demand for housing and small cars, in response to recent price cuts by developers and manufacturers." One of Krishnans top stock picks at the moment is ITC, formerly known as Imperial Tobacco Co. of India. He likes its strong pricing power and growth in cigarette sales despite adverse regulatory actions, including laws limiting the sale of tobacco products. ITCs share price rose 7.7 percent in the first quarter, far ahead of the 0.6 percent gain by Indias benchmark Bombay Stock Exchange sensitive index. Finally, the Indian governments economic stimulus measures which at 200 billion rupees ($4.12 billion) are much smaller than those of many nations have largely targeted the countrys rural multitudes, which make up 70 percent of its 1.1 billion population. "While it is true that India, with a fiscal deficit in excess of 10 percent [of GDP], is constrained in providing an aggressive fiscal stimulus at this point, it should be recognized that a good part of the fiscal deterioration has arisen from the loose fiscal policy of the past 18 to 24 months, which is undoubtedly having a positive impact on consumer spending," Krishnan observes. He cites such government initiatives as increased farm subsidies, pressure on banks to ease borrowing restrictions for farmers and debt waivers for small farmers. Rural folk are actually in good shape and spending. Thats great news for investors, but the rekindling of interest in Asia comes at a time when many of the big global banks, reeling from massive credit-related losses, have laid off analysts and scaled back coverage as part of companywide cost-cutting efforts.