Professional Documents
Culture Documents
What Is Investment Banking PDF
What Is Investment Banking PDF
Patrick Fearon
Autumn 2012
First Session
Second Session
IB Grenoble 2012
Corporate Finance
FICC
Support Functions
Equities
Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination (DCM)
Equity Capital Markets Origination (ECM)
Finance
Compliance
Risk (Market, Credit, Operational)
Audit
Operations
IB Grenoble 2012
Wealth Management
Project Finance
Leveraged Finance
Syndicated Lending
Some of the active Corporate Lending Banks you might consider
Retail Banking
Private Banking
Institutional Asset Management
Corporate Lending
FICC
Equities
M&A
Private Equity
Audit
Governmental Banks
IB Grenoble 2012
What skills and personality traits are the banks looking for?
IB Grenoble 2012
Securities
Services
Corporate
Functions
Equities
Debt
Investment
Banking
Source: www.gs.com/careers
www.prospect.ac.uk
Trading
&
Sales
& Trading
Principal
and Principal
Investments
Investments
IB Grenoble 2012
Corporate
Functions
Source: www.careers.jpmorganchase.com
IB Grenoble 2012
Investment Banking
IB Grenoble 2012
10
IB Grenoble 2012
11
IB Grenoble 2012
12
IB Grenoble 2012
Investment Banking
Be careful,
Investment Banking means different things to
different people.
13
IB Grenoble 2012
JP Morgan
Morgan Stanley
Credit Suisse
Financial Advisory
Advice on M&A
Corporate Lending
Loan Syndication
Investment
Banking
Investment
Banking
Corporate
Institutional Sales
& Trading
Institutional
Research
14
IB Grenoble 2012
15
IB Grenoble 2012
16
IB Grenoble 2012
41.0
35.4
US$ Billions
30.4
17
26.7
20.4
IB Grenoble 2012
Investment Banking
18
IB Grenoble 2012
CLIENT
19
RELATIONSHIP
MANAGER
DIVISION
PRODUCT
DELIVERY
PRICING
Corporate
Finance
Corporate
Finance
Corporate
Finance
Equities
Corporate
Finance
Equity
Syndicate
Sales &
Trading
FICC
Corporate
Finance
FICC
Syndicate
Sales &
Trading
Corporate
Lending
Loan
Syndication
Loan
Syndication
Sales &
Trading
IB Grenoble 2012
INTO MARKET
20
IB Grenoble 2012
21
Volcker Rule prevents banks from undertaking activities that are deemed to
be speculative
And therefore,
22
Activities like Proprietary Trading fall foul of the Volcker Rule and are being
floated off into hedge funds (e.g. Goldman Sachs).
The emphasis of banks is increasingly on plain vanilla flow trading
The problem is that these high risk activities can also be high profit
With the result that Investment Banks are being pushed towards more
commoditised, low-profit activities
Moreover, flow business will increasingly move on to exchanges, which will
mean Investment Banks will have more competition in flow product activities
and, therefore, lower earnings.
IB Grenoble 2012
23
IB Grenoble 2012
24
IB Grenoble 2012
25
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm
IB Grenoble 2012
Corporate Finance
FICC
27
Support Functions
Equities
Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination
Equity Capital Markets Origination
Finance
Compliance
Risk (Market,Credit, Operational)
Audit
Operations
IB Grenoble 2012
28
M&A
Advise on
mergers and
acquisitions,
joint ventures
and other
corporate
development
actions.
Debt/Equity
Origination
Underwriting
new equity/bond
issues.
Finding target
buyers or
sellers.
Corporate Solutions
The solutions
team, may work
with any of the
other teams to
come up with
derivative add-on
products that will
permit the bank
to obtain more
margin and allow
clients to
complete risk
hedging
solutions
strategy within
one institution.
Etc.
29
IB Grenoble 2012
Client wants to know how much debt his balance sheet will bear
Analysts run the financial modelling
30
IB Grenoble 2012
Advisors
31
2010 ranking
Number of deals
Morgan Stanley
636
360
Goldman Sachs
631
355
JP Morgan
509
285
387
254
Citi
367
199
UBS
347
254
Credit Suisse
337
262
Deutsche Bank
293
216
Barclays Capital
268
155
10
Lazard
248
10
216
11
Rothschild
236
11
248
12
Nomura
164
13
187
13
BNP Paribas
143
15
127
14
Evercore Partners
142
14
65
15
Societe Generale
137
28
96
Source: http://thomsonreuters.com.
IB Grenoble 2012
Enskilda (Nordic)
Mediobanca (Italy)
Santander Global Banking (Spain)
32
PriceWaterhouseCoopers
Ernst & Young
Deloitte and Touche
IB Grenoble 2012
33
US ranking
European
ranking
Asian ranking
Goldman Sachs
647
Morgan Stanley
511
JP Morgan
482
Credit Suisse
401
395
11
Citi
383
Barclays Capital
327
16
Deutsche Bank
273
11
UBS
261
10
10
Lazard
250
13
N/A
11
Rothschild
224
12
12
Evercore
166
N/A
N/A
http://www.politico.com/static/PPM153_bb_080110.html
IB Grenoble 2012
2007
34
Source: http://bankerthomsonib.com.
2008
2009
IB Grenoble 2012
2010
2011
2012
The last full year (2011) was weak, particularly in the second
half of the year
M&A deals announced worldwide were up 7% in value in
2011 year on year, but 5% down in volume
Volume reached $2.6 trillion in 2011 ($2.4 trillion in 2010)
but first half volume amounted to $1.5 trillion; second half
was $1.1 trillion, down 24%
Emerging Markets M&A in 2011 reached $667 million
versus $806.3 billion in 2010.
The only really buoyant area was Private Equity M&A,
which was up 32% year on year.
Goldmans Net Fee Income from M&A was $1.8 billion last
year versus $2.1 billion in 2010 (over $3 billion in 2007)
35
IB Grenoble 2012
M&A was down 17% in the first 9 months of 2012 versus the same period
last year. $ 1.7 trillion versus $ 1.9 trillion for the first 9 months of 2011
Q1 2012 was the weakest quarter for M&A since the first quarter of 2009
($485 billion), but Q2 and Q3 were a lot stronger ($626 billion and $552
billion respectively), so maybe we are coming slowly out of the double
dip.
France has been particularly badly hit. New deals completed in the first 9
months of this year were 71% down in value on the first 9 months of
2011.
Emerging Markets M&A in 2012 has reached US$ 465 billion, a 7%
decrease compared to 2011. Now driving 28% of M&A worldwide
Completed advisory fees were down 22% for the first 9 months of 2012
and totalled $ 11.7 billion
http://online.thomsonreuters.com/DealsIntelligence/Content/Files/2Q10_MA_Financial_Advisory_Review.pdf
36
IB Grenoble 2012
http://online.thomsonreuters.com/DealsIntelligence
37
IB Grenoble 2012
Target
$ billion
Glencore
Xstrata Plc
48.8
FROB
23.8
Shareholders
21.7
Walgren Co
21.4
Anheuser-Busch Inbev
20.1
Electrobel
12.9
TEPCO (75.7%)
12.6
Eaton Corp
12.2
Nestle SA
Pfizer Nutrition
11.9
11.8
10
http://online.thomsonreuters.com/DealsIntelligence
38
IB Grenoble 2012
39
IB Grenoble 2012
40
IB Grenoble 2012
Private Equity
42
IB Grenoble 2012
Leverage
Quality of Management
43
The banks were prepared to lend up to 5 times the Private Equity investment
Huge return on investment
Private Equity companies are paid back before the banks
Leaves the private equity funds free to play again
What would happen if the debt markets dried up?
Origination
Group
Usually a senior
who liaises with the
Corporate Finance
departments
44
Evaluation
Group
Funding
Group
IB Grenoble 2012
Research
Back-up to the
Evaluation and
Funding Groups
GS Partners V
8.5
Cinven IV
8.6
Thomas H Lee
Warburg Pincus
Apollo Management
10.1
11
Permira IV
14.7
Texas Pacific
15
Carlyle
15
Blackstone V
15.6
KKR
16.6
KKR
18
GS Partners VI
19
Blackstone VI
21
0.0
5.0
10.0
15.0
20.0
25.0
45
IB Grenoble 2012
46
47
IB Grenoble 2012
Corporate Finance
FICC
48
Support Functions
Equities
Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination
Equity Capital Markets Origination
Finance
Compliance
Risk (Market,Credit, Operational)
Audit
Operations
IB Grenoble 2012
49
Sales
Trading
Structuring
Research
IB Grenoble 2012
Credit
Products
Flow Products
(Credit Default
Swaps, Corporate
Bonds, Distressed
or High Yield bonds
- Junk)
Structured products
(rates linked notes,
complex derivatives
reverse floaters,
IR spread options
barrier options,
PRDC)
Commodities
Currency
Products
Metals
Flow Products
(Forex spot, Forex
swap, forwards,
Forex Options
Agricultural
Products
Structured products
(Forex linked notes)
Energy (Natural
Gas, Oil, Electricity)
Securitized Products
(Asset Backed
Securities, Mortgage
Backed Securities)
Structured Products
(CDO Collateralised Debt
Obligations, CLO
Collateralised Loan
Obligations)
Emerging Markets
from BRIC, LATAM,
MENA, APAC
50
IB Grenoble 2012
Origination/
Syndication
Underwriting and
Placement of new
bond issues.
Client Execution
Proprietary Trading
Researches pricing
on previous new
issues
Arbitrage (relative
value trading, cash
and carry,statistical
arbitrage.)
51
Trading
Market Making
Portfolio Risk
Management
Structuring
Propose solutions to
clients for complex
investment or
liability
management.
- Tax effective
products
- Structuring
derivative products
across all FICC
asset classes.
- Complex derivative
pricing.
IB Grenoble 2012
Sales
Usually divided into
product focus
(flow/structured
across all FICC
products). Flow
product sales are
usually divided into
asset class groups
(commodities,
credit, rates, but
structured products
could be sold out of
one team).
Then further divided
into Client focus:
Corporate
clients/Institutional
clients (insurance, a
m, pf)
Research
Research prepared
for clients
Gives ideas to
Sales & Clients
(increasingly
focused on Clients
and working more
closely with the
sales trading desks
to give Clients
ideas) as long as
not in violation of
chinese wall.
In-house quants
model research for
valuation and
trading of complex
derivatives.
Market
share
#
of issues
2010
Ranking
Barclays Capital
249.0
8.2
627
Deutsche Bank
242.5
8.0
903
JP Morgan
232.7
7.7
737
BNP Paribas
169.3
5.6
515
Citi
169.2
5.6
511
HSBC
168.8
5.6
568
164.7
5.4
589
UBS
139.7
4.6
424
Goldman Sachs
136.0
4.5
388
11
Morgan Stanley
119.0
3.9
413
12
Industry total
52
Proceeds
US$ billion
Source: http://banker.thomsonib.com/
3,027
4,788
IB Grenoble 2012
US$ billion
53
Source: http://banker.thomsonib.com/
IB Grenoble 2012
54
55
September 1st
2012
Copper
$2,825
$7,670
Aluminium
$1,412
$1,962
Gold
$878
$1,737
$45
$114.25
IB Grenoble 2012
56
IB Grenoble 2012
FX
Rates
Credit
The main trend is flow or lightly structured products
NOT complex structured products.
57
IB Grenoble 2012
http://www.euromoneyfix.com/Article.aspx?ArticleID=2191629&PageID=3594%20%20for%20fx%20info
58
IB Grenoble 2012
Junior would put together spreadsheets that run risk reports and book trades. Do a lot
of spread sheet programming to better capture trading data, including risk parameters.
59
juniors work with the senior structurers often working on term-sheets and complex
pricing simulation to better understand the products.
Junior members work with senior members putting term sheets and marketing
presentations together and trying to understand the products. May have some
administration email follow up with clients regarding an order.
Analysts might do some financial modelling and put the pitch presentation together.
IB Grenoble 2012
60
IB Grenoble 2012
Corporate Finance
FICC
61
Support Functions
Equities
Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination
Equity Capital Markets Origination
Finance
Compliance
Risk (Market,Credit, Operational)
Audit
Operations
IB Grenoble 2012
62
Deals in shares, of course, but also convertibles which are treated as Equity,
not Debt
New issuance drives the market
a. Previous issuers raising additional Equity (Secondary Offerings)
- to replace debt
- to restructure stretched balance sheet
- to finance acquisitions
b. First time issuers: IPOs (Initial Public Offerings)
- worth $164 billion in 2011 globally versus Total Equity Issuance of $617
billion (27% of total)
- can be from emerging markets seeking an international investor base
(India, Eastern Europe, China etc) and equity with which to make acquisitions
- frequently part of a governments privatisation programme (e.g. EDF,
Air France, ENEL)
- IPOs were up 131% in 2010, driven by Chinese issuance, but
decreased by 40% last year.
IB Grenoble 2012
$ billion
IB Grenoble 2012
19.2
19.1
18.5
18.1
16.6
17.4
16.0
15.8
12.5
11.1
10.7
10.6
Date
October 2010
October 2006
October 2010
October 1998
March 2008
October 1999
May 2012
November 2010
November 1996
June 2006
March 2006
April 2000
Patrick Fearon 2012
Source: FT
64
IB Grenoble 2012
Syndication/
Origination
Underwriting and
Placement of new
issues.
Prices new issues
Researches pricing
on previous new
issues
Works with
Derivatives team for
risk hedging
purposes
Trading
Market Making
(single stock
option/index option
trading)
Proprietary Trading
(cash equity,single
stock option/index
option trading,
long/short etc.)
Arbitrage (merger
arbitrage, basket
trading,statistical
arbitrage and high
frequency trading.)
Sales
Structuring
Executes sales
orders for clients
Electronic Trading
Platforms could
include; execution
services,
algorithmic trading,
direct market
access (DMA
services)
Cash Equity
Sales/research
sales: Interprets
Analysts
recommendations
and sells ideas to
institutional clients.
Propose solutions to
clients for complex
investments and
capital preservation.
Derivatives sales
usually covering
institutional clients
and selling risk
hedging solutions,
or capital
guaranteed
investment
products.
Portfolio Risk
Management
Stock lending
65
IB Grenoble 2012
- Tax effective
products
- Structuring
derivative products
including hybrids (ex
equity inflation
product).
- Complex derivative
pricing.
- Sectorial basket
structuring
bespoke index
products.
66
Source: http://banker.thomsonib.com/
IB Grenoble 2012
67
11
HSBC
12
UniCredit
13
Nomura
14
ING
15
Socit Gnrale
16
VTB Capital
17
SEB Enskilda
18
19
Mediobanca
20
http://online.thomsonreuters.com/DealsIntelligence/Content/Files/2Q10_Equity_Capital_Markets_Review.pdf
IB Grenoble 2012
Flow
Single stock
Block trades
Single Stock
options
Index options
ETFs
(Exchange
traded funds)
Structured
Equity linked
EMTN
(European
Medium Term
Note)
Complex
Equity
Derivatives
(eg. reverse
convertibles).
Convertible
bonds
68
IB Grenoble 2012
US$ billion
69
Source: http://banker.thomsonib.com/
IB Grenoble 2012
http://online.thomsonreuters.com/DealsIntelligence/Content/Files/2Q10_Equity_Capital_Markets_Review.pdf
70
IB Grenoble 2012
13%
Financial
http://online.thomsonreuters.com/DealsIntelligence/Content/Files/2Q10_Equity_Capital_Markets_Review.pdf
71
IB Grenoble 2012
72
Juniors would help senior traders, and might start just with setting
up pricing spreadsheets or risk spread sheets to get them familiar
with the products.
IB Grenoble 2012
73
IB Grenoble 2012
Corporate Finance
FICC
74
Support Functions
Equities
Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination
Equity Capital Markets Origination
Finance
Compliance
Risk (Market,Credit, Operational)
Audit
Operations
IB Grenoble 2012
Support Functions
Finance
Consists of 3
main risks;
Reporting into
the CFO
includes;
Compliance
consists of;
Credit Risk
Product
Control
Regulatory
risk/
relationships,
Operational
Risk
Financial
Control
Asset class
specialists
Management
Reporting
Trade
surveillance
Treasury
Training,
Tax
Policy
Strategy
AML and
KYC.
Market Risk.
76
Compliance
http://www.goldmansachs.com/careers
IB Grenoble 2012
Audit
Provides
independent
opinions on
the firms
control
environment
Operations
Securities
Operations
Clearing
Operations
Derivatives
Operations
Project
Management
77
Allows interaction with senior leaders from whom you can gain
perspective.
Lack of high quality senior leader pipe line makes good career
possibilities for the future.
YES!
78
Credit Risk
Market Risk
Finance
79
Audit
Work with senior risk managers to analyze ratings and counterparty risk associated with perspective or existing clients.
IB Grenoble 2012
Corporate Finance
FICC
80
Support Functions
Equities
Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination
Equity Capital Markets Origination
Finance
Compliance
Risk (Market,Credit, Operational)
Audit
Operations
IB Grenoble 2012
82
IB Grenoble 2012
Product Delivery
Product
Research
Corporate
Finance
Relationship Manager
Corporate Financier
Analyst/ Researcher
Corporate
Lending
Relationship Manager
Corporate Banker
Credit Analyst
Loan Syndication
Relationship Manager
Loan Syndication
Officer
Researcher
Asset Salesman
Asset Trader
Debt
Relationship Manager
- Structured Products
- Syndicate
Research Analyst
Debt Salesman
Debt Trader
Equity
Relationship Manager
- Structured Products
- Syndicate
Research Analyst
Equity Salesman
Equity Trader
Asset Management
Asset Manager
Research
Private Banking
Relationship Manager
Research Analyst
Private Equity
Institutional
Sales
Trading
- Asset Manager
83
Specialist Product
People
Evaluation Team
Analyst/ Researcher
IB Grenoble 2012
84
Energetic
Enthusiastic
Team player
Willing to work all hours
Ability to work under pressure
Numerate
Articulate
Innovative
A problem solver
Seeks new ideas
Driven
High performer
IB Grenoble 2012
Relationship Manager
85
Generalist
Extrovert
A people person
Good at marketing
Good listening skills
Enjoys negotiation
Needs stimulation of varied
deals (may get bored easily)
Creative
IB Grenoble 2012
Corporate Financier
86
Asset Manager
IB Grenoble 2012
Researcher
87
Quantitative Analyst
IB Grenoble 2012
Exceptionally numerate
Capable of being a PhD
Excellent at modelling
Has new ways of looking at
problems
Creative
Likes taking a solution to the
next rung
Sales
88
Trading
Outgoing
Clients trust him/her
Receptive to new ideas
Good at packaging ideas for
client
Will fight the trader to get the
best price for client
Value aware
Will look after the same clients
year after year
Enjoys new product
IB Grenoble 2012
You dont need me to tell you that its a very difficult marketplace
this year
The recruiters tell us that they intend to recruit in the same
numbers as last year
Investment Banks will still need Analysts and Associates.
In the second lecture we will look at the strategy and stepping
stones you might adopt
But dont ignore internships and go broad in your choice of
employer
And above all, ensure that you are prepared for the interviews
you are offered
Good luck will come if you are PREPARED!
89
IB Grenoble 2012