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Project Investment Banking
Project Investment Banking
brokerage firm takes a commission for assisting in the purchase and sale of stocks,
bonds, and mutual funds. A broker-dealer executes similar functions, but it also
trades for its own account. An investment bank actually is a broker-dealer that
provides corporations with financial services, such as assistance with initial public
offerings, merger and acquisitions advice, and strategic planning.
Introduction:
Investment banking is a particular form of banking which finances capital
requirements of an enterprise. Investment banking assists as it performs IPOs,
private placement and bond offerings, acts as broker and carries through mergers
and acquisitions. 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.
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.
between the two fraternal twins has become flimsy with loans and securities
becoming almost substitutable ways of raising funds.
➢ Small firms providing services of investment banking are called boutiques.
These mainly specialize in bond trading, advising for mergers and
acquisitions, providing technical analysis or program trading.
Basics of Investment Banking:
The banking sector is one of the biggest contributors to a nation's
economy, provided it is managed in an innovative and professional environment.
Investment banking is one rapidly growing form of banking.
provide highly professional services in assisting their clients with industrial know-
how on various parameters.
with a bank. The bank in turn can lend to a borrower under some standard norms to
utilize in his own way. In the case of investment banking, there is a direct
familiarization of both the investor and the borrower. This means that an individual
or institutional investor has an option to choose his type of investment or division
of investment into any given entity looking out for funds. An investment bank can
also assist investment in the financial market.
The investment banking market was increasing leaps and bounds, until
the present recession struck. Banks all over the world are trying to recoup the
losses. The US is the biggest market for investment banks, followed by Europe,
Middle East, Africa and Asia. The global hubs of investment banking are a few
economically sound centers like London New York and Tokyo. However,
investment banking is not restricted in its scope to a few regions of the world. It
caters to a global community which makes it highly sensitive to global ups and
downs, along with innovative fluctuations.
Investment Banks:
An investment bank is a financial institution that assists corporations and
governments in raising capital by underwriting and acting as the agent in the
issuance of securities. An investment bank also assists companies involved in
mergers and acquisitions, divestitures, etc. Further it provides ancillary services
such as market making and the trading of derivatives, fixed income instruments,
foreign exchange, commodity, and equity securities.
Unlike commercial banks and retail banks, investment banks do not take
deposits. 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.
Investment banks help companies and governments and their agencies to
raise money by issuing and selling securities in the primary market. They assist
public and
private corporations in raising funds in the capital markets (both equity and debt).
brokerages, which in general assist in the purchase and sale of stocks bonds, and
mutual funds. However some firms operate as both brokerages and investment
banks; this includes some of the best known financial services firms in the world.
Definition:
An individual or institution, which acts as an underwriter
or agent for corporations and municipalities issuing securities.
Most also maintain broker/dealer operations, maintain
markets for
which generates funds in two different ways. The first manner in which it works is by drawing
public funds via the capital market by way of selling stock in their company. The other
way in which it operates is to seek for venture capital or
private equity, as a substitute for a stake in their company.
At the macro level, investment banking is related with the primary function
of assisting the capital market in its function of capital intermediation, i.e., the
movement of financial resources from those who have them (the investors), to
those who need to make use of them for producing GDP (the issuers). Over the
decades, investment banks have always suited the needs of the finance community
and thus become one of the most vibrant and exciting segment of financial
services.
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 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.
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:
Record of Success:
Fee Structure:
Ongoing Support:
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.
groups (also called sector groups or domains). The three most well known product groups are
mergers and acquisitions (M&A), leveraged finance (lev fin) and restructuring. Bankers in product
groups have product knowledge and tend to execute transactions (respectively, M&A transactions,
leveraged buyouts (LBO’s) and restructuring transactions/bankruptcies).
Bankers in industry groups cover specific industries and tend to do more marketing activity
(pitching) Industry bankers tend also to have more of the relationships with companies’ senior
management than do product bankers (though some senior product bankers have excellent
relationships as well). Examples of
common industry groups include FIG (Financial Institutions Group), Healthcare, Consumer/Retail
Industrials, Energy and Utilities, Natural Resources TMT (Telecom, Media and Technology),
Gaming and Lodging and Real Estate. Often subgroups exist within the broader group. For
example, a Healthcare group may
be segregated into biotechnology, medical devices, managed care, pharma, etc.
Though not covering a specific industry, one other group that falls under the category of
“industry” groups is Financial Sponsors. Bankers in a Financial Sponsors group cover
(have relationships with and market their services to) private equity firms.
The Typical
Hierarchy/Ladder within
an Investment Bank?
Just about all investment banks have the same strict hierarchy or
ladder of professionals. From junior to senior, the typical hierarchy is (1) Analyst,
(2) Associate, (3) Vice President, (4) Senior Vice President/Director and (5)
Managing Director. Some banks deviate from this hierarchy a bit, for example
having the Senior Vice President and Director be separate positions. Other
banks, especially non-U.S. banks, have the same hierarchy but with somewhat
different names for each position (Associate Director for Associate Director for
Vice President and Executive Director for SVP). One exception for U.S. banks
is that Bear Stearns calls the Senior Vice President/Director position a
Managing Director, and calls Managing Directors, Senior Managing Directors.
However, regardless of the names, the general job functions of each relative
position tend to
Associates are typically either folks directly out of top MBA programs or
Analysts that have been promoted. Typically, bankers will be at the Associate
level for three and a half years before they are promoted to Vice President.
Associates are also categorized into class years In addition to overseeing
the Analyst’s work the Associate will often help write the text for the
presentations as well as do much of the modeling work
Depending on the person (and sometimes the bank), the Director or SVP
may either act more like a Managing Director or more like the VP. Sometimes, the
Director/SVP’s role will depend also on the specific situation and/or other deal
team members. Ultimately, for Director/SVPs to be promoted to Managing
Director, they will have to demonstrate that they can form client relationships
and have the ability to market and to bring in new business.
As the senior level banker, the role of the Managing Director (”MD”) is
mostly one of client development. The MD will likely be the one with the senior
level company relationships and is typically responsible for spearheading
marketing efforts. On a live transaction, the MD often plays only a minor role,
getting involved when difficulties arise in the deal and during high level
negotiations.
Investment Bankers:
Investment bankers are regarded as those persons who generally give
consultation to their valued clients in order to sort out any of their high level issues
that may have taken place in their financial organization.
An investment bank is split into the so-called front office, middle office, and
back office. While large full-service investment banks offer all of the lines of
businesses, both sell side and buy side, smaller sell side investment firms such as
boutique investment banks and small broker-dealers will focus on investment
banking and sales/trading/research, respectively.
Investment banks offer services to both corporations issuing securities and
investors buying securities. For corporations investment bankers offer information
on when and how to place their securities in the market. The corporations do not
have to spend on resources with which it is not equipped. To the investor, the
responsible investment banker offers protection against unsafe securities. The
offering of a few bad issues can cause serious loss to its reputation, and hence loss
of business. Therefore, investment bankers play a very important role in issuing
new security offerings.
CoreInvestmentBanking
Activities:
Front Office:
> Investment banking is the traditional aspect of the investment banks which also involves
helping customers raise funds in the capital markets and giving advice on M&A's aka mergers an
d acquisitions. Investment banking may involve subscribing investors to a security issuance,
coordinating with
bidders, or negotiating with a merger target. Another term for the investment
banking division is corporate finance, and its advisory group is often termed mergers and
acquisitions (M&A). 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.
>
Sales and trading: On behalf of the bank and its clients, the primary
function of a large investment bank is buying and selling products. 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 oinstitutional
and high-net-worth investors to suggest trading ideas and take orders. Strategists advise 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 structures
create new products.
➢ Research is the division which reviews companies and writes reports about
their prospects, often with "buy" or "sell" ratings. While the research
division may or may not generate 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. Research also serves outside
clients with investment advice in the hopes that these clients will execute
suggested trade ideas through the Sales & Trading division of the bank,
thereby bringing in revenue for the firm. 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.
Middle Office:
Back Office:
•
Operations involve data-checking trades that have been conducted, ensuring
that they are not erroneous, and transacting the required transfers. While
some believe that operations provide the greatest job security and the
•
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
Trading and performing general advisory services Smaller investment banks may
specialize in two or three of these categories.
1. 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
manypeople associate raising capital with public stock offerings, a great deal of
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.
Corporate Finance:
The bread and butter of a traditional investment bank, corporate finance
generally performs two different functions: 1) mergers and acquisitions advisory,
and 2) underwriting. On the mergers and acquisitions (M&A) advising side of
corporate finance, bankers assist in negotiating and structuring a merger between
two companies. If, for example, a company wants to buy another firm, then an
investment bank will help finalize the purchase price structure the deal and
generally ensure a smooth transaction. The underwriting function within corporate
finance involves shepherding the process of raising capital for a company. In the
investment banking world, capital can be raised by selling stocks or bonds (and
some more exotic securities) to investors.
Syndicate
The hub of the investment banking wheel, the syndicate group is a vital link
between salespeople and corporate finance. Syndicate exists to facilitate the
placing of securities in a public offering, a knockdown, drag-out affair between
and among buyers of offerings and the investment banks managing the process. In
a corporate or municipal debt deal, syndicate also determines the allocation of
bonds. The most comprehensive and convenient job board for finance
professionals. Target your search by area of finance, function and experience level,
and find the job openings that you want. No surfing required.
Multinational Investment
Banking:
➢ A multinational investment banker has banking teams which are led by senior
partners who have influence in their clients all over the world, experience and
associations with many of the most important market players, regulators and
top
industry bodies. All listen to their firms' clients and comprehend.
➢ The outcome is the generation of the center of attention on the issues that
really matter.
➢ These approaches provide the firm clients with a well established service in
their markets.
➢ These give them access to specialized assistance which is characterized by
obligation to national markets, and a perceptive of the commercial and
cultural differences between countries.
Policies of Firm:
The firms have different policies to overview the following aspects:
➢ Growth:
The prime attention in the investment banking industry has always been
on top-line growth, rather than decreasing cost and efficiency. Focus on people and
cost control in the current has a very positive phase that suggests that investment
1 Avendus Capital:
2 Bajaj Capital
The Bajaj Capital Group is one of the renowned Investment consultant and Financial Planning
firms in India. It is certified under the Category I of Merchant Bankers by SEBI. Bajaj Capital
provides custom-made Fiscal Planning facilities and investment consultation to the investors,
organizational investors, corporates, high income patrons and Non-Resident Indians (NRIs).
Company
5 IDFC
9 Yes Bank
Companies in India
Top 10 Investment Companies in India attract foreign direct
investment
through tie ups with financial firms, investment markets, technical
partnerships and favored allocations. The Indian investment market is
renowned for its massive workforce and diverse sectors that generates
better opportunities for both expansion and earning competence.
Role of Investment
Banking Companies in
India:
Investment banking companies generally help their clients to
access
capital through equity, debt and other kinds of investment products.
These firms also trade in equities and derivative products and also
help companies with merger and acquisition deals.
Challenges:
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
TheFuture of Investment
Banking Services in
India:
Investment banking India has always been very crucial for
the smooth flow of market transactions between various investors,
companies, firms and the government. These banks will have a role to
play even in the future, irrespective of the economic conditions in the
country.
Conclusion:
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.
Bibliography:
Books Referred:
Internet Websites:
www.google.com
www.wikipedia.org