SUMMAY

The aim of this project is to gain insights into the business of investment banking, their role, function
and importance with reference to investment bank like JP Morgan. Investment bank in todays time
plays and important role in growth of economy of any country. Investment banks help corporates to
raise funds in addition to providing investment avenues to their clients. This project discuss the
theoretical background that helps to explain the behaviour, characteristics, of JP Morgan Chase & co

This project also helps to understand the working environment strategy of JP Morgan chase & Co.

and how it is better than any other bank by comparing it with different investment banks through
financial data and employee perspective etc.
 INDEX
CHP.NO. TOPIC PAGE NO.
1 INVESTMENT BANKING
1.1 INTRODUCTION
1.2 DEFINITION
1.3 EVOLUTION OF INVETMENT
BANKING
1.4 GROWTH OF INVESTMENT
BANKING
1.5 FUNCTIONS OF INVESTMENT
BANKING
1.6 TYPES OF INVESTMENT
1.7 ORGANISATION STRUCTURE
1.8 QUALITIES REQUIRED BY
INVESTMENT
1.9 INVESTMENT BANKING
REGULATION IN INDIA
1.10 GROWTH OF INVESTMENT
BAKING IN INDIA
1.11 NEED OF INVESTMENT BANKING
IN INDIA
1.12 ORGANIZATIONAL SETUP OF
INVESTMENT BANKERS IN INDIA
1.13 IPO PROCESS
1.14 DEBT SYNDICATION AND ITS
PROCESS
1.15 BUY BACK OF SHARES
1.16 MERGERS AND ACQUISITION
1.17 VENTURE CAPITAL FUNDING
 2 JP MORGAN INVESTMENT
BANKING
3 COMPARING JP MORGAN WITH
ITS COMPETITOR
4 CONCLUSION
5 NEWS PAPER
6 BIBLIOGRAPHY
&WEBLIOGRAPHY

CHAPTER 1

1.1 INTRODUCTION

Investment Banks assist corporation in raising funds in the public markets both equity and debt,
as well as provide strategic advisory services for managers, acquisition and types of
transactions. Investment banks differ from Commercial Banks which serve to directly take
deposits and make loans.

Investment banks also differ from brokerages, which in general assist in the purchase and sale
of stocks, bonds and mutual funds. However some firms operate as both brokerage and
investment banks; this includes some of the best known financial services firms in the world.

Investment banks help companies and government and their agencies to raise money by issuing
and selling securities in the primary market. Investment Banking is dedicated to fulfill the needs
trade and includes by acting as an intermediary and a financer too.

Investment Banking I a result of oriented profession, commanding high degree of skill and
dexterity in finding business solutions, assisting in investment and financial decision making
assisting in laying corporate strategies, assessing capital needs and helping in procuring the
owned as well as owned funds for achieving balanced capital structure of the corporate client.

Investment bankers with the confidence of the investors of the General public, command a high
reputation for passing on accurate, adequate and timely information which helps and facilitates
in the functioning of capital markets, money markets and international financial systems.
Investment bankers preserve their skills as personal possession for their competitive strength
in their profession.

As Investment banks offer a plethora of services to its clients. These services includes providing
valuable advice to the clients on the type of finance to be raised, issue management process,
corporate restructuring strategies, underwriting services, project feasibility and planning, etc.
They provide various pre-issue and post-issue services to the clients.

An Investment bank is an organization, may be bank, corporate body, firm or proprietary

concern that underwrites, corporate securities and advices such clients in issue like corporate
mergers, etc. involved in the ownership of commercial ventures.

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.
 1.2 DEFINITIONS

SEBI – An Investment bank is defined as a financial institution or an organization that

underwrites corporate securities and advices such clients on issue like mergers, etc. involved
be a bank, corporate body, a firm or a proprietary concern.

In the strictest definition, Investment banking helps in the raising of funds both in debt and
equity, and the division handing this in an investment bank is often called the “Investment
Banking division (IBD). However, any a few small firms solely provide this services. Almost
all investment banks are heavily involved of fixed income, foreign exchange, commodity, and
equity securities.

An Investment bankers acts as an intermediary between the issuers and the ultimate purchasers
of securities in the primary securities market. These institutions provide guidance in raising
capital, issue management services, underwrites corporate securities and provides other
advisory services.

Investment banks help companies government (or their agencies) raise money by issuing and
selling securities in the capital markets (both equity and debt).
Almost all investment banks also offer strategies advisory services for mergers, Acquisitions,
divestiture or other financial services for clients, such as the trading of derivatives, fixed
income, foreign exchange, commodity. Trading securities for cash or the promotion of
securities or referred to as “sell side.” The “buy side” constitutes the pension funds, mutual
funds, hedge funds, and investing public who consume the products and services of the sell-
side in order to maximize their return on investment. Many firms have both buy and sell side
components.

1.3 EVOLUTION OF INVESTMENT BANKING

The term “ Investment Bank ” does not have a precise definition, but is generally applied to
financial houses which, starting from trading as merchants, expanded their role to financing the
trading and commercial activities of others, especially in the international market place. For
many years, the British houses were know as investment banks reflecting their origins,
Investment banks have retained this string international flavor and often have offices in many
other countries, particularly in the major financial centers.

Investment Banking in one of the most global industries, and hence continuously challenged to
respond to new development 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
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, but
structuring and trading derivatives is highly profitable. Each OTC contract has to be uniquely
and could involve complex pay-off and risk profiles. Listed option contracts are traded through
major exchanges, and are almost as commoditized as general equity securities, products have
been commoditized.

In addition, while many products have been commoditized, an increasing amount of profit
within investment banks has come from proprietary trading, where size 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).

Vertical Integration

Another trend in Investment Banking at the dawn of the 21 st 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 lenders 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 mortgage, 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. This vertical integration was root
cause of “SUB PRIME CRISIS”.
 1.4 GROWTH OF INVESTMENT BANKS

Investment banks will typically be concerned with several business units, including Corporate
Finance (concerned with managing the finances of corporations, including mergers,
acquisitions and disposals), often called the Investment Banking Division of the firm; Research
(concerned with investigating, valuing and making recommendations to clients-both individual
investors and larger entities such as hedge funds and mutual funds-regarding shares and
corporate and government bonds); and Equities or sales and trading (concerned with buying
and selling shares both on behalf of the bank’s clients and sometimes also for the bank
itself).Management of the bank’s own capital, or Proprietary Trading, is often one of the biggest
sources of profit; for example the banks may structure their books so the they profit form a fall
of bond yields (a rise of bonds prices).

An Investment bank provides its clients expert advice, innovative solutions, outstanding
execution and comprehensive access to the world’s capital markets. Whether the clients require
investment banking, equities, fixed income or foreign exchange, investment banks have the
intelligence, markets insight and global coverage to help them to capture opportunities and
manage risk.
 1.5 FUNCTION OF INVESTMENT BANKS

An Investment banks offers a plethora of services to its clients. These services include
providing valuable advice to the clients on the type of finance to be raised, issue management
process, corporate restructuring strategies, underwriting services, project feasibility and
planning, etc. They provide various pre-issue services to the clients.

1) CORPORATE COUNSELLING

Corporate counselling denotes the advice provided by an investment banker to a

corporate unit to ensure better corporate performance in terms of image building among
investors, steady growth through good working and appreciation in wide enough to
include all activities related to investment banking such as project counselling, capital
restructuring, portfolio management and the full range of financial engineering
including venture capital, public issue management, loan syndication, working capital,
fixed deposit, lease financing, acceptance credit, etc. However, the counseling is limited
to only opinions and suggestions and any detailed analysis would from part of a specific
service.

The scope of corporate counselling is restricted to the explanation of concepts,

procedures and laws to be observed by the client company. Requirement of any action
 to be taken or compliance of statutory formalities to be made for implementation of
those suggestions would mean the demand for specific type of service.

An Investment banker provide valuable financial advisory to the client company. It

advises the company on the type of capital to be raised owned or owed thus the company
to take advantage of financial leverage and achieve its ultimate aim of providing
maximum return to the shareholders.

It advises the company to raise fund through equity issue in the primary market or
issuing debentures or the public depending on the quantum of capital required.

2) PROJECT COUNSELLING

Project counselling is a very important and lucrative investment banking service. It is

provided by most of the investment bankers. However, only a few having expertise
available in technical, marketing financial area have it to provide satisfactory services.
Project counselling covers development of an idea into a project, preparation of the
project report, estimation of the cost techno-economic appraisal of projects for capital
issue/financing, etc. The fee charged for project report preparation/ appraisal range from
0.25% to 2% of the total project cost. The fee charged depends upon:

⚫ Total size of the project.

⚫ The complexity of the project.

3) LOAN SYNDICATION

Loan syndication refers to the services rendered by an organization in arranging and

procuring credit from financial institutions, banks, other lending and investment companies
for financing the project or meeting lending capital requirements. The loan syndication
work involves identification of sources where from funds could be arranged. Approaching
these sources with requisite application and supporting documents and complying with all
formalities involved in the sanction and disbursal of loan. The fee charged by investment
bankers for undertaking loan syndication varies up to 1% of the loan amount.

4) MANAGEMENT OF CAPITAL ISSUES

The capital issues are managed by category- I investment bankers and Constitute the most
important aspect of their services. The public issue of corporate securities involves
marketing of capital issue of new and existing companies, additional issue of existing
companies including rights issues and dilution of shares by letter of offer. The public issues
are managed by involvement of various agencies, i.e. underwriters, broker’s bankers,
advertising agencies, printers, auditors, legal advisors, registrar to the issue and investment
bankers providing specialized services to make the issue a success. However, investment
bankers is the agency at the apex level who plan, co-ordinate and control the entire issue
activity and direct different agencies to contribute to the successful marketing of securities.
The procedure of managing a public issue by investment bankers is divided into two phases.

(A) Pre-issue Management

Steps required to be taken to manage pre-activity is as follows:

(1) Obtaining stock exchange approvals to memorandum and articles of association.

(2) Taking action a as per Exchange Regulatory guidelines.
(3) Finalizing the appointments of the following agencies:
(a) Co-managers/Advisers to the issue.
(b) Underwriters to the issue.
(c) Brokers to the issue.
(d) Bankers to the issue and refund Banker.
(e) Advertising agency.
(f) Printers and Registrar to the issue.
(4) Advise the company to appoint auditors, legal advisers and broad base
Board of Directors.
(5) Drafting of prospectus.
 (6) Obtaining approvals of draft prospectus from the company’s legal advisers,
underwriting financial institutions/banks.
(7) Obtaining consent from parties and agencies acting for the issue to be enclosed
with the prospectus.
(8) Approval of prospectus from Exchange regulatory.
(9) Filing of the prospectus with Registrar of Companies (ROC).
(10) Making an application for enlistment with Stock Exchange along with copy of
the prospectus.
(11) Publicity of the issue with advertisement and conferences.
(12) Open subscription list.

(B) Post-issue Management

Steps involved in post-management are :

(1) To verify and confirm that the issue is subscribed to the extent of including
development from underwriters in case of under subscription.
(2) To supervise and co-ordinate the allotment procedure of registrar to the issue as per
prescribed Stock Exchange guidelines.
(3) To ensure issue of refund order, allotment letters/ certificates within the prescribed time
limit of 10 weeks after the closure of subscription list.
(4) To report periodically to exchange regulatory about the progress in the matters related
to allotment and refunds.
(5) To ensure the listing of securities at Stock Exchange.
(6) To attend the investors grievances regarding the public issue.

The investment bankers for managing public issue can negotiate a fee subject to a ceiling. This
fee is to be shared by all lead managers, advisers, etc.

(a) 0.5% of the amount of public issues up to Rs.25 crores and

(b) investment bankers are managing the issue.
Cities are done by all categories of investment bankers except category-IV. This activity is a
good business option if due care is taken in selecting and marketing the issue so that likely
development is generated. The investment bankers are authorized to take a maximum
underwriting of 5 times its net worth at any point of time.

(7) PORTFOLIO MANAGEMENT

Portfolio management involves selection of securities and constant shifting of the portfolio
in the light of varying attractiveness of the constituents of the spectrum of securities to the
portfolio based on the characteristics of an investor. Investors normally expect high returns
but they wish to avoid risk. Therefore a scientific portfolio management is required. The
objective of portfolio management is to maximize the yield and minimize the risk along
with other objectives like stability of income, capital growth, liquidity, safety, tax
incentives, etc.

The portfolio management service can be rendered by category-I and II investment bankers.
The portfolio manager pursuant to a contract or agreement with a client advices or director
or undertakes on behalf of the client the management of investment of different types of
marketable securities or investment papers ‘like shares, debentures, bonds, etc. with a view
to ensure maximum return, by such investments by minimum risk of loss of return. Portfolio
management should aim at investing in different securities and financial instruments so as
 to earn best possible returns besides safety and security of invested funds. There are certain
guidelines laid down by the exchange regulatory. These guidelines pertain to the duties and
responsibilities of the portfolio manager for reprisal of grievances and penalties for non
compliances. With more and more companies tapping the capital markets, the investor is
more likely then non-equipped to handle the complexities of stock-trading. Portfolio
management as a concept is catching up in India.

(8) EQUIPMENT LEASING AND HIRE PURCHASE

The financial services of equipment leasing and hire-purchase are offered by most of the
investment bankers. Leasing and hire-purchase income constitute a major portion of total
income generation of present day investment banking organizations. The
rental/installments provide returns of about 20% and in addition provide a tax shield.

(9) DEALING IN SECONDARY MARKET- OPERATION

The lending investment bankers also deal in sale/purchase of securities in secondary market on
their own. This activity is followed on account of availability of expertise in finance, in general
and capital markets and equity research in particular company.

(10) MERGERS AND ACQUISITIONS (M & A)

For investment bankers mergers and acquisitions is promising to be new business. New
entrants view mergers and acquisitions more seriously. Mergers and acquisitions is an
important additional business. M&A was not in focus till recently but now all investment
bankers are planning to the largest investment bank are in the low thousands. Success in
the Investment banking business depends on the ability to provide whatever financial
services a client may require, and people employed need particular qualities of flexibility,
innovativeness and client handling skills.
 (11) RESTRUCTURING SERVICES

Investment bankers assist the management of the client company to successfully restructure
various activities, which include mergers and acquisitions, divestitures, management buyouts,
joint venture among others.

To help companies achieve the objectives of these restructuring strategies, the investment
bankers participates in different activities at various states which include understanding the
objectives behind the strategy (objective could be either to obtain financial, marketing or
production benefits), and help in searching for the right partner in the strategic decision and
financial valuation of the proposal.

(12) CAPITAL ASSISTANCE

In providing financial assistance, investment banks offer a full understanding of all facets
of the capital markets. This includes all types of debt and equity financing available from
both the domestic and international markets. An investment banks, cognizant of capital
costs, looks for the best sources of capital.

It should be understood that interest rates are not only definition of capital costs.
Restrictions on availability, prepayment terms, and operating effectiveness can often
outweigh what might appear to be inexpensive capital with low interest rates. Too often,
capital includes costs, which force an entrepreneur or a business to undertake undesirable
actions. In short- run, some actions might be necessary, but often in the long run are
detrimental.
The traditional investment banker understands these capital limitations and can structure a
transaction, which is beneficial to all sides of the table-not just the capital source.

He also know how to substitute one type of capital for another, sometimes utilizing internal
sources from asset repositioning or cash creation from improvements in working capital.
He understands fully the risk versus return elements necessary to complete the capital
procurement process.

(13) CORPORATE ADVISORY SERVICES

Investment banker’s offer customized solutions to solve the financial problems of their
clients. Advice is sought in areas off financial structuring. Merchant bankers study the
working capital practices that exist within the company and suggest alternative policies.
They also advise the company on rehabilitation and turnaround strategies, which would
help companies to recover from their current position. They also provide advice to
appropriate risk management strategies like hedging strategies.

(14) FACTORING SERVICE

Factoring involves the outright sale of account receivable. By such sale a client (the
exporter or manufacturer) transfers his/her ownership of the accounts to a factor (an
organization, firm). It is short – term debt financing. Here three parties are involved.

1. The factoring organization/ firms

2. The manufacturer/ exporter / seller
3. The importer / customer / buyer

The investment bankers may act as factor organization with a view to earning a great
amount of commission.

The factor provide the following services :

1) Financing
2) Advisory services if necessary
3) Collection of bills / Account Receivable against sales produced.
4) Maintenance of sales ledger
5) Provide further if necessary
6) Covering losses if there are any.

(15) ASSET SECURITIZATION

It is a process through which some inactive assets (mortgage assets) are converted into cash
/ active assets. It is long – term debt financing. Here assets are converted into long – term
bonds. In this approach, the investment banker for issuance of security bonds against the
assets with a matching of time and terms between mortgage property and security bonds.
Here the selection of assets is generally considered on the basis of the following :

1) Quality of assets
2) Certainty of repayment
3) Good ranking from the credit rating agency.

The process of assets securitization takes place in the following firms :

1) Originating Institutions / Firm

2) Special Purpose Vehicle (SPV)
 1.6 TYPES OF INVESTMENT BANKS

With the continued developmental activities in the country as well as liberalization of the
economy the industry and trade requires funds for its expansion which are in excess of that,
which is available from institutions. Thus there is a need to collect the funds from capital
market and investment bankers are needed to help in mobilizing the funds. This factor has
contributed to the steady growth of investment banking in the country. In order to regulate
the market and check unfair trade practices on the stock Exchange, the Government of India
in 1992 passed the Securities and Exchange Board of India (SEBI) Act. SEBI for the first
time formally defined investment banking and framed rules and regulations for investment
bankers.

SEBI classified investment bankers into four categories on the basis of capital
adequacy :
 (1) Category – I :

The capital adequacy requirement for category-I investment bankers in that net wroth
should not be less than Rs. 1-crore. The bankers should be allowed to :

a) Carry on any activity of the issue management which will in turn consists of preparation
of prospectus and other information relating to the issue, determining financial structure,
tie up of financial, financiers and final allotment and refund of the subscription.
b) Act as adviser, Consultant, manger, underwriter, portfolio manger.

(2) Category – II :

The minimum capital adequacy requirement is a net worh of Rs.50 lakhs. The category-
II investment banker is allowed to act only as an adviser, consultant, Co-manager,
underwriter and portfolio manager.

(3) Category – III :

The Investment banker should have a minimum net worth of Rs.20 lakhs to meet the capital
adequacy requirement. The permissible activities are to act as underwriter, adviser and
consultant to an issue.

(4) Category – IV :

No capital adequacy requirement has been specified for category-IV investment banker.
The Investment banker is only allowed to act as an advisor or consultant to an issue.
 Category Minimum Amount

I Rs.1 Crore
II Rs.50 Lakhs
III Rs.20 Lakhs
IV NIL

It is evident from the above that according to central Government, the role of
investment banker is restricted to activities related to capital market.

However investment banking cannot be restricted to the above descriptions and cover a
wide range of activities which are fund based non-fund based financial and investment
services encompassing both capital as well as money market activities in domestic as well
as international financial markets.

Fund based and Non Fund based Sources of Financial :

Fund based source of finance refers to those sources of finance which actually gets funds
or money in the organization e.g. secured loan, equity shares, etc.

The fund based activities undertaken by investment bankers encompass the following:

(1) Dealing in money market instruments like placement of commercial papers, fixed
deposits, treasury bills, etc.

(2) Equipment leasing / Hire Purchase.

(3) Dealing in secondary market operations.

(4) Inter-corporate placement of funds.

 (5) Venture capital/fund.

Non – fund based source of finance refers to those sources of finance which only assure the
supply of fund but does not get the fund in real terms.

E.g. letter of credit.

The non- fund based activities consist of the following:

(1) Capital issue related activities and private placement of equity.

(2) Consultancy and advisory services including corporate and project counseling.

(3) Loan / credit / Fund syndication.

(4) Portfolio management

(5) Management of mergers and amalgamations.

(6) Management of Buy-ins and Buy-outs.

(7) Financial engineering or capital restructuring.

(8) Liaison and Braking.

(9) Underwriting of equity, bonds and debentures in new issues.

(10) Mergers and acquisitions.

(11) Arranging international finances.

 1.7 ORGANIZATION STRUCTURE

An investment bank is split into the so-called Front office, Middle Office and Back
Office. The individual activities are described below :

Front Office

Investment Banking is the traditional aspect of investment banks which involves helping
customers raise fund in the Capital markets and advising on mergers and acquisitions.
Investment bankers prepare idea pitches that they bring to meetings with their clients, with
the expectation that their effort will be rewarded with mandate when the client is ready to
undertake a transaction. Once mandate, an investment bank is responsible for preparing all
materials necessary for the transaction as well as the execution of the deal, which may
bidders, or negotiating with a merger target. Others terms for the investment banking
division includes merger & acquisition (M&A) and corporate Finance.

Financial Markets is split into four key divisions: Sales, Trading, Research and Structuring.
Sales and Trading is often the most profitable area of an investment bank, responsible for
the majority of revenue of most investment banks. In the process of market making, traders
will buy and sell financial products with the goal of marketing 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, which can price and execute trades, or structure new products new that fit a
specific need.

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 trades in trading, the sales force in suggesting ideas to
customers, and investment bankers by covering their clients. In recent years the relationship
between investment banking and research has become highly regulated, reducing its
importance to the investment bank.

Structuring has been a relatively recent division 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.

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 ‘bed’ trades having a detrimental effort to 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 “optional risk” and the assurance Middle Office provide now include
measures to address this risk. When this assurance is not place, market and credit risk
analysis can unreliable and open to deliberate manipulation.

BACK OFFICE

Operations involves data-checking trades that have been conducted, ensuring that they are
not erroneous, and transacting the required transfers. Whilst it provides the greatest job
security of the divisions within an investment bank, it is a critical part of the bank that
involves managing the financial information of the bank and ensures efficient capital
markets through the financial reporting function. The staff in these are often highly
qualified and need to understand in depth the deals and transaction that occur across all the
division of the bank.

1.8 QUALITIES REQUIRED BY AN INVESTMENT BANK

(1) Research :
An Investment bank must have quality data available as per the needs of Client
Company in order to provide advisory services. It must have update information about
market on-goings. The data collected should be authentic and from reliable sources.
(2) Analysis :

The data available should be analyzed to make decisions. Data analysis is an

important tool in decision making. Accurate data analysis will help provide advisory service
to the client to take advantage of the current market situation.

(3) Pro-active approach :

It is important to analyze and interpret market trends in order take advantage of

a particular situation.

(4) Aggressive action :

 Investment bankers are always looking for new business opportunities. On
locating a business opportunity and after obtaining the assignment from the clients, an
investment banker has to be prompt in grasping from the client’s problems and to provide
a better choice amongst alternative solutions. A good investment banker in one who does
not allow his clients to think anything outside except what has been advised and thus
holding the client’s interest for the present as well as for the future.

(5) Co-operation:

Co-operation coupled with persuasiveness must flow as natural traits in the

investment banker in order to win over the trust of their clients just like a doctor or a lawyer
who retains their clients permanently. A good investment banker has to share the thoughts
of his clients with sympathetic gestures and offer suggestions without any greed or favours.

(6) Contacts :

An Investment banking business mainly depends upon the sociable nature and wider
contacts. The scope of contract of an investment banker covers:

a) His own organization,

b) Central and state Government Offices,
c) Banks,
d) Financial Institutions,
e) Promoters/Directors/Owners/Chief Executive of the public and private
enterprises,
f) Printers,
g) Advertising Agencies,
h) Broker and Stock Exchange Dealers,
i) Advocates and Solicitors,
j) Members of the press, etc.

Investment bankers have to widen the contacts and continue to maintain them by
meeting people in person, in special gatherings and through writing to them.

(7) Attitude towards problem solving:

A good quality of an investment banker is to be skilled in human relations

particularly in the interpersonal and intra-personal behavior. An investment banker should
have a positive approach to understand the difficulties, adverse circumstances and the
viewpoints of others. Effective communication and proper feedback are the pre-requisites
for creating a positive attitude towards problems solving which could be gained partly
through the learning process and partly as an inborn personality trait.

(8) Inquisitiveness for acquiring new skills, information and knowledge :

Investment bankers survive by providing the information required by their

needy client. Therefore they must keep themselves updated with the latest information in
the area of the service product ehich they market.

1.9 INVESTMENT BANKING REGULATION IN INDIA

Investment banking in the country has come to be primarily associated with the capital
markets. With the de-regulation of the Indian economy since 1991, there are several new
sectors open to private investment which have consequently created an opportunity for
private financing.

The need for this banking was not met, by either commercial banks or the financial
institutions and hence there was a huge gap which needed to be filled. This gap could be
met through capital markets or a range of finance products and hence a good scope existed
for the various services offered by an investment 1992 heralded an era free market pricing
of equity shares. Investment bankers in particular have been assigned a greater
responsibility in the fixation of issue price and premium, if any. In the CCI regime
investment bankers had restricted role to play in that regard. Their role was confined mainly
 to getting clearances from the CCI and ensuring the success of capital issues through their
marketing efforts.

There were also no disclosure norms. Investment bankers were seldom held accountable
for the correctness of the information disclosed in the prospectus and letter of offer. But
with the issuance of comprehensive guidelines for free market pricing, code of conduct for
investment Bankers, etc. by SEBI the role of investment bankers has considerably
increased.

An outstanding development in history of Indian capital market was opening up in 1992 by

allowing financial institutions to invest in the primary and secondary markets and also
permitting Indian companies to directly tap foreign capital markets through foreign currency
issues. This resulted in increased total inflow of foreign capital through these routes. Though,
at the initial stage, the Indian investment bankers have played only supportive role as almost
all of the foreign currency issue have been lead managed by foreign investment bankers, but in
future they may play a major role by their increasing participation as managers/lead managers.

Foreign Direct Investment (FDI) as also investment by NRIs have risen considerable due to
number of incentive offered to them. They need the services of investment bankers to advise
them for their investment in India. Further, increasing investments in joint Ventures abroad by
Indian Corporations also require expert services of investment bankers. For the first time in
India the concept of debt market has set to work through NSE and OTCEL. Experts feel that
of the estimated capital issue a good portion may be raised through debt instruments. The
development of debt market will offer tremendous opportunity to investment bankers.

Recently, Indian capital market has also witnessed innovations in the financial instruments such
as non-convertible debenture with detachable warrants, cumulative convertible preference
shares, zero coupon bonds deep discount bonds, triple option bonds, floating rate bonds,
secured premium notes, auction rates bonds, etc. This has further” extended the role of
investment bankers as market markers for these instruments. Securities and Exchange Board
Of India (SEBI) has laid certain guidelines to ensure fair business practices in the Indian
markets.
 The following are the SEBI guidelines for investment bankers –

(1) Authorization :
Any person or body proposing to engage in the business of investment banking would need
authorized by the Securities and Exchange Board of India (SEBI) in their prescribed format.
This will also apply to those presently engaged in investment banking activity, including as
mangers, consultants, or advisers to issue of management, which inter-alias will consist of
preparation of prospectus.

(2) Authorized activities :

a) Issue & other information relating to the issues, determining final other
information relating to the issue, determining financing structure, tie-up of
financiers & final allotment & for refund of subscription
b) Corporate advisory services relating to the issue
c) Underwriting
d) Portfolio management services
e) Managers, consultant or adviser in the issue

Authorization Criteria :

All investment bankers are expected to perfume with high standards of integrity & fairness in
all their dealings. A code of conduct for investment bankers will be prescribed by SEBI . Within
this context, SEBI’s authorization criteria would take into account mainly the following –

a) Professional competence
b) Personnel, their adequacy & quality, & other infrastructure
c) Capital adequacy
d) Past track record, experience, general reputation & fairness in all their transaction

(3) Terms of authorization :

a) All investment bankers, including the existing ones, must obtained the
authorization from SEBI within three months from the issue of these guidelines.
SEBI may extend this period at its discretion by a maximum of three more months.
b) All investment bankers must have a minimum net worth of RS 1 crore.
 c) The authorization will be for a initial period of 3 years
d) SEBI may collect from the investment bankers an initial authorization fee, an
annual fee & a renewal fee
e) All issue must be managed by at least one authorized banker functioning as the
sole or lead manager. Ordinarily not more than two investment bankers should be
associated as lead managers, advisers or consultant to a public issue
f) The specific responsibilities of each lead manager must be submitted to SEBI prior
to the issue
g) While directors, promoters & every person who authorizes the issue of prospectus
shall bear full responsibility for the contents of the prospectus, investment the
contents of prospectus & reasonableness of the views expressed therein
h) Lead managers/investment bankers would be responsible for ensuring timely
refunds and allotment of securities to the investors.
i) The investment banker shall make available to SEBI such information, documents,
returns as may be prescribed & called for.
j) SEBI shall prepare & prescribed a code of conduct for investment bankers which
they should adhere to.
k) The involvement of this investment bankers in an issue should continue at least
till the completion of essential follow-up steps, which must include the listing of
the instrument, dispatch of certificates
l) SEBI may suspend/cancel the authorization of investment bankers for a suitable
duration in case of violations of the guidelines.

REGULATION WITH RESPECT TO THE CODE OF CONDUCT

An Investment banker will be deemed to be guilty of misconduct or unprofessional

conduct if he violates intentionally or otherwise any of the following provisions of the Code
of Conduct: -

(1) An Investment banker in the conduct of his business shall observe high standards of
integrity and fairness in all his dealing with his client and other investment bankers.
(2) An Investment banker shall render at all times high standards of service, exercise due
diligence, ensure proper care and exercise independent professional judgments.
(3) He shall wherever necessary, disclose to the client possible sources of conflict of duties
and interests , while providing unbiased services.
(4) A investment banker shall not make any statement or become privy to any act, practice
unfair competition, which is likely to be harmful.
a. To the interests of other investment bankers or
b. Is likely to place such other investment bankers in a disadvantageous position
in relation to the investment banker, while competing for or executing any
assignment.
(5) An Investment banker shall not make any exaggerated statement, whether oral or
written, to the client either about the qualification or the capability to render certain
services or his achievements in regard to services rendered to other clients.

(6) An Investment banker shall always endeavor to:

a. Render the best possible advice to the client having regards to the clients needs
and the environment and his own professional skills;
b. Ensure that all professional dealings are effective in a prompt, efficient and cost
effective manner.

(7) An Investment banker shall not:

a. Divulge to other clients, press or any other party any confidential information
about his client, which has come to his knowledge; and
b. Deal in securities of any client company without making disclosure to the Board
as required under the regulations and also to the Board of Directors of the
company.

(8) An investment banker shall endeavor to ensure that:

a. The investors are provide with true and adequate information without making
any misguiding or exaggerated claims and are made aware of attendant risks
before any investment decision is taken by them
b. Copies of prospectus, memorandum and related literature are made available to
the investors;
c. Adequate steps are taken for fair allotment of securities and refund of
application money without delay; and
d. Complaints from investors are adequately dealt with.
(9) An Investment banker shall not generally and particularly in respect of issue of any
securities be party to:
a. Creation of false market;
b. Price rigging or manipulation;
c. Passing of price sensitive information to brokers, members of the stock
exchanges and other players in the capital market or take any other action which
is unethical or unfair to the investors.

(10) An Investment banker shall abide by provisions of the Act, Rules and
Regulations, Notifications, Guidelines, etc. which may be applicable and relevant to the
activates carried on by the investment banker.

1.10 GROWTH OF INVESTMENT BANKING IN INDIA

Investment banking activates in India originated in 1969 with the investment banking
division set up by the Grind lay’s Bank, the largest foreign bank in the country, at that time.
The main service offered to the corporate enterprises by the investment bank included
management of public issues and financial consultancy. Other foreign banks like Citibank,
Chartered Bank also assumed the investment banking activity in India. State Bank of India
started investment banking in 1973 followed by ICICI in 1974. Both emerged as leaders in
investment banking with significant business during the period of 1974-1985 in comparison
to foreign banks. Mid-seventies witnessed a growth of investment bank organizations in
the country with various commercial banks, financial institutions, broker firms entering into
the field of investment banking.
 The growth in investment banking business during the early seventies was due to
Foreign Exchange Regulation Act, 1973 (FERA) where in a large number of foreign
companies operating in India were required to dilute their foreign holding in order to
continue business in the country. This resulted in expansion of capital markets providing
enough in India economy opened new doors for investment banking business to enter in the
diversified area of activities, but at the same time this has brought competition in the
investment banking sector. This sector has traditionally been dominated by financial
institution, banks and their subsidiaries.

Now, various private sector investment bankers have emerged and some of them are
having international reputations.

1.11 NEED OF INVESTMENT BANKING IN INDIA

Important reasons for the growth of investment Banks in India has been development
activities throughout the country, exerting excess demand on the sources of funds for ever
expanding industries and trade, thus leaving a widening gap un-bridged between the supply
and demand of investible funds. All India Financial Institution had experienced constraint of
resources to meet ever increasing demands for funds from the corporate sector enterprises. In
such circumstances corporate sectors had the only alternative to avail of the capital market
service for meeting their long term financial requirements through capital issue of equity shares
and debenture.

Growing demand for finds put pressure on capital market that enthused commercial
bank, share brokers and financial consultancy firms to enter into the field of investment banking
and share the growing capital market. As a result, all the commercial banks in nationalized and
public sector as well as in private sector including foreign banks in India have opened their
investment banking and are competing in this field.

Need for investment banking is felt in the wake of huge public savings lying untapped.
Investment bankers can play highly significant role in mobilizing funds of savers to investible
channels assuring promising returns on investment and thus can assist in meeting the widening
demand for investible funds for economic activity. With growth private and public sectors
would be able to raise required amount of funds annually from the capital market to meet the
growing requirement for funds for establishment for funds for establishing new enterprises
undertaking expansion, modernization, diversification of the existing enterprises. This
reinforces the need for a vigorous role to be played by investment banking.

In view of multitude of enactments rules and regulations, guidelines and offshoot press
release instructions brought out by the government from time to time imposing statutory
obligations upon the corporate sectors to comply with all those requirements prescribed therein
the need of a skilled agency existed which could provide counseling in these matters in a
package from. Investment bankers with their skills updated units and advise them on such
requirements to be enactments viz. Companies Act, Income tax Act, Foreign Exchange
Management Act, and Securities Contracts (Regulation) Act, SEBI Act and various corporate
laws and regulations.

Investment Bank advise the investors of the incentives available in the from of tax
relief’s, other statutory relaxations, good return on investment and capital appreciation in such
investment to motivation them to invest their savings in securities of the corporate sector. Thus
investment banks help industries and trade to raise funds and the investors to invest their saved
money in sound and healthy concerns with confidence, safety and expectations for higher
yields. Finance is the backbone of business activities._ Investment Banks make available
finance for business enterprises acting as intermediaries between them raising demand for
funds and the supplies of funds besides rendering various other services.

The following are some of the reasons why specialist investment banks have a crucial role to
play in India :

(a) Growing industrial and increase of technologically advanced industries.

(b) Need for encouragement of small and medium industrialists, who require specialist
services.
(c) Growing complexity in rules and procedures of the government.
(d) Need to develop backward areas and states which require different criteria.
(e) Exploring the possibility of joint venture abroad and foreign markets.
(f) Promoting the role of new issue marketing mobilizing savings from the public.

Steps for Setting up Investment Banks :

 (1) Formation of the business organization.
(2) Adoption of a viable business plan.
(3) Seeking SEBI registration as an investment banker.
(4) Essentials for commencement of business.

1.12 ORGANISATION SET UP OF INVESTMENT BANKERS IN INDIA :

In India, a common organizational st up of investment bankers to operate is in the from

of division of India foreign banks and financial institution, subsidiary companies established
by bankers like SBI, Canara Bank, Punjab National Bank, Bank of India, etc. Some firms are
also organized by financial and technical consultants and professionals. Securities and
Exchange Board of India has dividend the investment bankers into four categories based on
their capital adequacy. Each category is authorized to perform certain functions. From the point
of organizational set up, India’s Investment banking organizations can be categorized into four
groups on the basis of their linkage with parent activity. They are :

(a) Institutional Base :

Here Investment banks function as an independent wing or as subsidiary of various private,

Central Governments, and State Government financial institutions. Most of the financial
institutions in India are in public sector and therefore such set up plays a role on the lines of
governmental priorities and policies.

(b) Banker Base :

These investment bankers function as division/subsidiary of banking organization. The parent

banks are either nationalized commercial banks, private sector banks or the foreign banks
operating in India.

These organization have brought professionalism in investment banking sector and they help
their parent organization to make a presence in capital market.

(c) Broker Base :

In the recent past, there has been an inflow of qualified and professionally skilled brokers in
various Stock Exchange of India. These brokers undertake investment banking related
operations also like providing investment and portfolio management services.

(d) Private Base :

These investment banking firms are originated in private sector. These organization are the
outcome of opportunities and scope in investment banking business and they are providing skill
oriented specialized services to their independently or through some collaboration with their
Indian counterparts. Private sector investment banking firms have come up either as sole
proprietorship, partnership, private limited or public limited companies. Many of these firms
were in existence for quite some times before they added a new activity in the from of
investment banking services by opening few division on lines of commercial banks and All
India Financial Institutions.

IMPORTANT ACTIVICTIES UNDERTAKEN

An Investment bank through its various services provided, help customers reap benefits
of hiring their services. An investment bank provides apt and services to the clients.

The services provided by these organization range from raising capital from the market,
corporate restructuring to instrument designing or pricing (debt or equity). Financial
engineering issue management, designing and publishing the issue prospectus, marketing &
advertising, Loan syndication, etc. are other specialized service provided by the institutions.

It is different for a company to manage these activities independently without the advice
of such specialized organizations. At the same time it mat not prove to be cost effective to carry
out such services by the company itself.
Specialized Services :

Investment banks provide specialized services to their client. It is the professional

approach in decision making that help their client to reap benefits of hiring the services of such
companies.

Advisory Services :

Investment banks provide valuable advisory services to their clients on various areas.
They have the expertise to advise client in decision making and make profits thereof.

To understand the importance of Investment banks, it is necessary to have a look at the services
provided by them to the Corporates. These services as of now of Investment bankers in India
are primarily restricted to Finance Procurement.

Therefore in this section we propose to throw light on the following most important
activities undertaken by an Investment Banker.

1. IPO Process

2. Debt Syndication

3. Buy Back Of Share

4. Mergers & Acquisition

5. Venture Capital Funding

Before we move on the activities undertaken, it is essential to understand a few basic

terminologies, which make understanding the above cases easier:

SEBI : Securities & Exchange Board Of India

MANDATE LETTER : This is a document issued by the client company to an investment

banker. This letter contains a confirmation from the client company to the Investment Bank as
regards their appointment and also the details of the Services, terms and conditions, etc.
required to be fulfilled by investment hint Banks are contained.

1.13 IPO PROCESS

 In Modern times IPO is considered as a major source for raising equity finance by the
companies. The Public Offerings are of 2 types. The process of an IPO is in one way or the
other similar to the process of an FTO.

The process of IPO.

Fixed Price Issue : A fixed price issue is where the issuing price of the share id fixed in advance
before the opening date of the issue.

Book Build Issue : In this type of issue, the issue of the share is stated in terms of a range /
price band. The final issuing price can be anything in between this range. E.g. A Price Band of
Rs.100 to 110.

STEP 1

The first step includes all activities prior to the IPO. The process followed in this step
are as follows:

Offer : An Investment Bank is approached by a company, offering it to become the Lead

Manger to the Issue.

Acceptance : After the offer by the Client Company, the Investment Bank before accepting the
offer conducts a Due Diligence of the client. They look at the past record of this company and
decide whether to take up the IPO or not.

Mandate Letter : Once the Investment Bank agrees to act as the Lead Manger to the Issue,
they are issued a Mandate Letter by the Client. This is the official permission by the company
to the merchant bank to act as the Lead Manager.

IPO Team & Various Appointments : In this case the Investment Banker and the Client
Company constitutes a dedicated IPO Team. This team works together towards the execution
is made of the company. This presentation contains a past performance of the company.

Now various agencies such as Banks, Registrars, PR agency, Syndicate members, Legal
Advisory team, etc. are invited for a meeting and shown the presentation. Here also an offer is
made to various agencies to partner in the IPO for the completion of different activities. It is
also possible that all the agencies may be directly appointed by the company or the Investment
Banker, as the case may be.

Preparation of DRHP : Draft red herring prospectus has to be filed with the SEBI, before the
official announcement of the IPO. This is the most important document of the entire IPO
process, as the permission for an IPO depends on this document. It is very lengthy process and
has to be drafted very carefully. It has different sections. The various agencies appointed above
are asked to prepare their relevant sections of DRHP, which is then compiled.

Here apt attention should be paid to the financials of the company. Every bit of
information mentioned in the DRHP should be true to the fullest extent; otherwise it may attract
heavy penalty. The contents of DRHP should be signed by the relevant agencies.

The Investment Banker has to not only assisted in compiling information, but also has
to prepare the sections of the DRHP falling under his scope of activity such as the financial,
the valuation of shares, etc.

Completion of Preliminary Formalities: This is the crucial aspects of an IPO. Here the
Investment Banks assume of an advisory role. They advise the company as regards the capital
structure to be met for the listing requirements of the stock exchanges, modify and amend
articles through proper resolution to meet the legal requirement of the company law board, etc.

Other advisory services provided by the Investment banks are as under :

a) Conduct and service on legal and financial due – diligence advised by the legal council.
b) Discussion with the auditor for the final reporting requirement to SEBI.
c) Drafting and finalization of the DRHP for filling with SEBI.
d) Initiate the process of connectivity with depositories in co-ordination with
Registrations. NSDL, CSDL.
e) Finalize communication strategy, corporate advertisement strategy and issue
advertisement strategy.

The last step in this section is filing the DRHP with SEBI, application for listing of shares with
the stock exchange.

STEP 2

Before we move on to the step of pre- issue marketing, it is necessary to understand the
types of investors. Shown above are the different categories of investors targeted by the
company for subscription of the issue.

Pre-issue Marketing Comprises the Following activities :

 (a) Preparation of a detailed research report on the company and the industry. This report
is always based n the past performance of the company and does not include future
projection.
(b) Circulation of this report to the Institutional Investors.
(c) Hold a meeting with the institutional investors. In this meeting they are spoken to and
convinced to buy the shares of the company. Also their advise is taken on various issues
such as the valuation of shares, etc.

MARKETING PRIOR TO FILING DRHP WITH THE SEBI

In this step the company primarily targets the Qffi’s. This is due to the following reasons
:

(a) They purchase shares in bulk.

(b) In a book building issue, they are the ones who buy at the highest price.
(c) Also there is stability and lesser speculation if shares are purchased by Qffi’s as they
do not speculate with the market changes.

STEP 3

Prior to the commencement of this step the following activities have been completed.

(a) DRHP field with SEBI and comments and feedback have been received.
(b) Reply to the comments provided through the red herring prospectus.
(c) Permission obtained from SEBI for commencement with the Issue.

ISSUE MARKETING :

This is relatively the most important step, which might ensure the success or failure of
the issue. In this step the entire issue is marketed to the various investors. The following are
the major activities :

a) Statutory Advertisements are given in the news papers.

b) Marketing done through TV Commercial and hoardings.
 c) Meeting with the Brokers, analysts and the press. This is by far one of the most
important meeting in this stage. It is a confidence building move by the
company, in which the above 3 parties are made presentation about the
company.
d) The Investment Bankers also organize Road Shows. Under them the
Promoters of the company and the company and the representatives go to meet
various agencies, institutional bidders, appear on TV and speak about the
issue.

STEP 4 :

Before the start of this step, the Issue has been opened, subscribed to and also closed.
During the issue, the Investment Banks have no major work. The only activity that they
undertake during that period is supervision as to the collection of subscription money and make
sure everything is being carried out smoothly.

They oversee the accounting aspects of the issue. In case the issue is subscribed or over
subscribed, they proceed with the following steps. However in case the issue is
undersubscribed, then underwriting agreements are enforced and shares are allotted to
underwriters, and after that the following activities are carried out :

POST – ISSUE OBLICATIONS :

(a) Issue –price advertisement: Under this the merchant bankers announce the final issue
price. This is the price at which the shares allotted to the investors.
(b) Prepare a consolidated report applications received, publicize the performance of the
issue and decided the basis of allotment depending upon the response from the
formalities.
(c) Updating the prospectus for the prices, issue size, the basis of allotment and other
statutory formalities.
(d) File the updated prospectus and the underwriting agreement with SEBI.
(e) Submit the 3 day report to SEBI.
(f) Announce dates of allotment of shares, transfer of money from the Escrow account to
the public issue account.
(g) Allotment of shares to the general public in co-ordination with the registrar, Stock
Exchange and the public Representatives.
 (h) Announcement of Allotment o shares, basis of allotment of shares and the expected date
of delivery of shares in the DEMAT A/c. and transfer of money or dispatch of refund
order as the case may be to the public.
(i) Obtain listing permission and Listing of shares on the stock Exchanges.
(j) Transfer of shares in the DEMAT A/c. Passing of ECS for refund in co-ordination with
bankers and dispatch of refund orders if any.
(k) Filing of the VS day report with SEBI.
(l) Obtain trading permission from SEBI and the Stock Exchange.
(m)During the entire IPO process, investment Banks have to comply with many Rules and
Regulations.

1.14 DEBT SYNDICATION

Before we move on understanding the process of debt syndication let us understand

what debt syndication is all about?

In modern time business many companies require financial resources to carry out their
expansion / development activity, etc. there can be 2 ways of finance, Debt & Equity. Above
we saw one of the methods of raising equity capital. Now we shall have a look at a method of
raising borrowed funds / Debt Capital.

Debt in company’s capital structure has its advantages as well as disadvantages. The
main reason for the companies to prefer to use debt as a source of finance is due to its easy
availability and low procurement cost.
 When the requirement of funds is small / the amount to be raised via debt is small, than
it is possible to take the entire amount form one bank. However when the requirement of loan
is huge. Which cannot be financed by one bank, than there is need for one or more banks join
together and collectively provide the required loan. The second phenomenon is called debt
syndication and this will be the crux of discussion in this case study.

Debt syndication in not an easy activity. It is very lengthy and a time consuming
activity. The entire activity from the start to end takes 2 months of time. The compliance of the
legal formalities is what makes the entire procedure lengthy.

DEBT SYNDICATION PROCESS:

STEP 1: BUSINESS OPPORTUNITY IDENTIFICATION

Under this step, the business opportunity is identified. This business opportunity may
arise when the Investment Bank approaches the client company or the client company
approaches the Investment Bank. In majority of the cases, latter happens. The Client company
approaches the Investment Bank with an offer letter / proposal to raise a loan for them.

STEP 2: DUE DILIGENCE

After the receipt of the letter, before confirmation the Investment bank carries out
internal due diligence from its end. Here the task of the Investment Bank becomes relatively
simple if the client is an Already existing one. However in the case of a new client, proper
credit rating needs to be done. For this purpose various credit rating agencies are approached,
information is found out from other sources. After the analysis of this information, if the
company is found be worthy, then the offer is accepted.

The entire due diligence process is carried out by the credit rating committee of JM
Financial, which is a Board Level Committee.

STEP 3: MANDATE LETTER

 This is a confirmation letter by the company as regard the appointment of the
Investment Bank. In this letter the company also mention the amount of loan required, the
desirable interest rate, fees of the Merchant Banks, etc. the entire procedure up to the receipt of
Mandate Letter Takes 2-3 Working days.

Please take note that it is not necessary that Investment Banks has to be a soul
Investment banks to the syndication. There can also be co- Investment Bank to the syndication
process. However this does not make any different to the process of syndication

STEP 4:

After the receipt of the appointment Letter / Mandate, the following are the activities
undertaken by the Merchant Bank:

(a) The bank based on the requirement of the company decide the kind of loan to be
raised. In India there are 2 loan Markets. Rated and non rated Markets. Rated
markets is the bond market, whereas the non-rated market is the Banks Loan
Market.

The former is not very popular in the country. Bank loan market is the one which is
widely used the various companies. One of the biggest reasons as to why companies
prefer non- rated market, is due to the case of availability of loan at lower rate of interest
compared to the rated market. Also the rules and regulations in the non-rated market
are far less compared to the rated market. This is the reasons why the client company
as well as the Investment Banks, both prefer the non- rated market.

(b) After deciding the type of market, the investment bank now proceeds to find out
whether the Balance sheet and the financial statements can support the amount of
loan required by the company. Here the investment bank undertakes a detailed study
of the past performance of the company and compares it with the present
performance. The financial statements of the company are the most important tool
used to find out this information.
(c) After determining the quantum of loan that can be supported by the company as per
its statement of accounts, the Merchant banks proceed to find out the possible banks
that would be interested in funding the requirements.
 For this purpose they may approach the banks which the client companies may specify
in case of no specification, they approach the banks that have a direct dealing with them.
The banks are given various details about the nature of company, amount of loan,
expected rate of interest, etc.

(d) After the banks have been approached, the work of investment banks is more or less
complete. Now onwards they would merely act as communicating links between
the lending bank and the client company.
I. The books take approximately 40-45 days to give their acceptance of the loan. During this
time in co-ordination with the Merchant bank, the lending bank words out the Credit
worthiness of the company. Various statistics of the financial performance of the company.
This gathered about financial performance of the company. This information is deeply
studied and various ratios are found out, sensitivity testes are conducted, etc. also one of
the most important aspect is the valuation of the borrowing company, assessment of the
repayment capacity based on the revenues, etc.

II. All this while the Investment Bank is in constant co-ordination with the lending bank and
the borrowing company. They make available to the lender all the information required by
it and try their best make sure that the loan is granted.

III. After the bank is satisfied that the company is worthy of the loan, the bank proceeds with
the legal formalities. It is made sure that the entire loan is secured by collaterals, guaranteed
and everything company through the merchant bank.

IV. The company gets the documents scrutinized form its end, with the help of solicitors, etc.
if the terms and conditions of the banks such as interest rates, repayment period are
acceptable, than the company givers its conformation.

V. Thereafter forms are filled, papers are signed and the loan is finally disbursed.

VI. After the completion of all the formalities, the Investment bank is paid the fees. This is a
percentage of the total loan disbursed.

Investment generally undertakes debt syndication for Tier II companies, because these
are the companies who are not blessed with the procedures, formalities and contacts to get loans
raised.
 Generally the tier I companies prefer to undertake debt syndication or raising of
borrowed capital by the internal departments which consists of personnel specializing in this
field.

1.15 BUY BACK OF SHARES

Before we move on to see the buy back process and services of Investment banks in the
buy back process, let first understand what buy back of shares means?

Buy back is a phenomenon under which the company’s purchase back the shares it has
previously sold to the public. In order to fund this activity the company makes use of the free-
serves and the surplus with itself.

There are a lot of rules and regulation enacted by SEBI to make sure that there are no
manipulation in the buy back process and investor’s rights are protected. Therefore a lot of
responsibility is assigned to an investment bank in initiating the entire buy back process.

Let us move on to see the role of a Merchant Bank in the Buy Back process:

STEP 1: BUSINESS OPPORTUNITY INDENTIFICATION

This step is the same as in the previous case study where the capital client company
approaches the Investment bank asking for assistance and advice in completing the buy back
process.

STEP 2: WORKING OUT FINANCIALS

Here the Investment bank after receipt of the Mandate starts its work. It determines the
exact amount of shares the company can buy back from the public. Decides the rates at which
they can bought back and check whether the financial statements of the company and various
SEBI rules regarding the buy Back permit Buy Back, otherwise the company is likely to attract
heavy penalty.

STEP 3: PREPARING OFFER LETTER

 Once all the financial are worked out and the buy back price decided, The Investment
bank proceed with drafting the letter of offer. Before the drafting can be started, the company
and the investment Bankers have to get a resolution passed by the Board and Shareholders in
an EGM. Thereafter decided the buy back date buy back period. After completing all these
formalities, they can start with the drafting of LOF.

STEP 4: FILING OF LOF WITH SEBI

Once the LOF is drafted, it has to be field with the SEBI within the prescribed time
period after the passing of the resolution in the EGM and the Board Meeting.

STEP 5: MODIFICATIONS IN LOF

Once the LOF is filed with the SEBI, it gives its comments and modification on the
same. Within twenty-one days from the date of submission of the draft letter of offer, SEBI
specifies modifications, if any, in the draft letter of offer. The investment banker and the
company shall carry out such modifications before the letter of offer is dispatched to the
shareholders.

STEP 6: DESPATCH OF LOF

After the official nod is received from SEBI, the company and Merchant Banks proceed
to dispatch the OLF to the shareholders.

STEP 7: STATUTORY ADVERTISEMENT

After dispatching the LOF to the shareholders, the company and the Merchant Banks
do to the statutory advertisement to provide information to the shareholder about the buy back.

STEP 8: OFFER PROCEDURE

The offer for buy back shall remain open to the members for a period not less than
fifteen days and not exceeding thirty days. The date of the opening of the offer shall not be
earlier than seven days or letter than thirty days after the specified date. The letter of offer shall
be sent to shareholders so as to reach them before the opening of the offer.

In case the number of shares offered by the share holders is more than the total number
of shares to be bought back by the company, the acceptances per share holder shall be equal to
the acceptances tendered by the share holders dividend by the total acceptances received and
multiplied by the total number of shares to be bought back.
 The company shall complete the verifications of the offers received within fifteen days
of the closure of the offer and the shares lodged shall be deemed to be accepted unless a
communication of rejection is made within fifteen days from the closure of the offer.

STEP 9: MAINTAING ESCROW ACCOUNT

An Escrow account is the mechanism put in by SEBI to protect the shareholders and
hive them security. The company shall by way of security for performance of its obligations,
on or before the opening of the offer, deposit in an escrow account a sum equivalent to the total
buy back amount.

The escrow account shall consist of :

(a) Cash deposited with a scheduled commercial bank or;

(b) Bank guarantee in favor of the merchant banker; or
(c) Deposit of acceptable securities with appropriate margin, with the merchant banker, or
(d) A combination of above mentioned three points.

The SEBI in the interest of the shareholders may in case of non-fulfillment of obligations
under the regulations by the company, forfeit the escrow account either in full or in part. The
amount forfeited may be distributed pro rata amongst the share holders who accepted the offer
and balance, if any shall be utilized for investor protection.

STEP 10: PAYMENT TO SHAREHOLDERS

The company shall immediately after the date of closure of the offer open a special
account with a bankers and deposit therein, such sum as would, together with the amount lying
in the escrow account make-up the entire sum due and payable as consideration for buyback
and for this purpose, may transfer the funds from the escrow account.

The company shall within seven days of time make payment of consideration in cash
those shareholders whose offer has been accepted or return the share certificates to the security
holders.

STEP 11: EXTINGUISHMENTS OF CERTIFICATE

 The company shall extinguish and physically destroy the security certificates so bought
back in the presence of a Registrar or the investment banker, and the statutory auditor within
seven days from the date of acceptance of the securities.

The securities offered for buyback if already dematerialized shall be extinguished and
destroyed in the manner specified under securities and exchange board of India (Depositories
and Participants) Regulations, 1996 and the bye laws framed three under.

The company shall furnish a certificate to the SEBI duly verified by

a) The registrar and whenever there is no registrar through the merchant banker;
b) Two whole-time Directors including the Managing Director and;
c) The statutory auditor of the company, and compliance within seven days of
extinguishment and destruction of the certificates.

The particulars of the share certificates extinguished and destroyed shall be furnished to
the stock exchange where the shares of the company are listed, within seven days of
extinguishments and destruction of the certificates.

The company shall maintain a record of the share certificates, which have been can
celled and destroyed.

1.16 MERGERS AND ACQUISITIONS

Mergers and Acquisitions, commonly referred to as M & A, are 2 separate and distinct
activities. Many people confuse them to be synonymous, however they are distinct from 1
another.

Merger happens when 2 companies come join together and from a separate entity.
This could be a company with a new brand name, new business, etc.

Acquisition happen when one company has been taken over by another company. This
means that the acquiring company after the takeover controls the management of the acquired
company, whereas this is not the case in mergers.
 In case of mergers and acquisition, investment bankers may act from the sell side or the
buy side. The investment bankers collect data on various companies, which are looking for
mergers. They also identify potential targets of takeover / acquisition, which could benefit their
client.

The main role of an investment banker in an M & A is to make sure that his client is
not cheated. The investment banker through various analyses finds out the minimum amount
that his client should get. Thus an investment banker tries to protect the interest of his client
from the other party.

In brief the M & A process can be as follows:

Step 1: Business Opportunity Identification

Step 2: Receipt of Appointment Mandate.

Step 3: identify the potential targets for merger or acquisition as the case may be.

Step 4: Due Diligence of the 2nd party.

Step 5: Proposal on behalf of the client for merger or acquisition as the case may be.

Step 6: Receipt of confirmation from the 2nd party for regards merger or acquisition.

Step 7: Valuation of the client company as well as the 2nd company.

Step 8: Drafting the agreement

Step 9: meeting of the client with the second company.

Step 10: Negotiation between both the parties and try to reach a conclusion.

Step 11: Make changes in the agreement, prepare final agreement and get it signed.

Step 12: Assist in the formation of a new entry in case of merger and assist in the process of
investment in the case of acquisition.

This is how an investment banker helps in the M & A process. Due to shortage of time,
only the above mentioned information could be gathered for M & A.
 1.17 VENTURE CAPITAL FUNDING

It is popularly believed that venture capitalists fund only established players and proven
products. There is a lot of cynicism amongst many about all type that private equity and venture
capital is getting in India of late.

The national venture capital association defines venture capital as: “Money provided
by professionals who invest alongside management in young, rapidly growing companies that
have the potential to develop into significant economic contributors.”

Investment bankers provide not only financial, but also, managerial (technical,
marketing and HR), support to achieve success. This support is lent in many forms by private
funding and incubation organizations such as venture capitalists.

Clients looking for setting up a venture capital fund take help and advice of the
investment banker on the various issue from selecting a business proposal to legal framework,
rule and regulations.

What investment bankers look for while funding a business

The following paragraphs broadly the various steps of the evaluation process.

Initial Screening

Investment bankers are in the business of making more the then average returns for their
clients interested in venture capital funding and only the proposals which can match or exceed
the VCs expectation will get an attention from them. Thus initial screening is a step in which
the venture capitalist reaches an initial decision to investigate the investment (or not)

The initial screen is a cursory glance at the business plan determine whether or not the
proposal fits within the client’s areas of expertise. Investment bankers carry out initial
screening of all projects on the basis of some broad criteria.

For example, the screening process may limit projects to areas with which the venture
capitalist is familiar in terms of product, technology or market scope. The size of investment,
stage of financing and geographical location could be as the broad screening criteria.

Detailed Business Plan

 If the plan manages to clear the initial screening round then the investment bankers call
for the detailed business plan from the entrepreneur. This business plan is the main tool with
the help of which client would make up his mind. Thus the entrepreneur should present clarity
of thinking about the business in the plan as the “Surprises can be great for parties, but
potentially could be fatal for businesses.”

Due Diligence

In the next and the help most important phase, due diligence is conducted by the client
with help from investment bankers to verify the accuracy of the statements made by the
entrepreneur. The two main types of due diligence conducted are business and legal.

The legal due diligence involves verification of the documents by the lawyers of the
VC. These documents include Memorandum and Articles of the Association, important
contracts, patents, copyrights, et cetera.

Business due diligence involves looking at the quality of people, quality of business
and the quality of investment. Quality of people is one of the most important criteria. There is
unanimity among theorists that venture capitalists prefer a grade A team with a grade B idea to
a grade B team with a grade A idea. However, how the quality of team is evaluated is a source
of controversy.

Many feel that the integrity of the team members is the most important criterion. Past
research shows that trustworthiness, enthusiasm and expertise of the entrepreneur are the most
important factors considered by the VCs. It has also been that about 50-60 per cent of the
projects which are seriously considered for financing but are ultimately rejected is due to the
factors related to the entrepreneur.

The other major consideration is quality of business. Some investment bankers,

specially the early stage ones, may not give a lot of importance to details; however, the idea
must necessarily and clearly signify a distinct and unique competitive advantage. Generally,
market potential and attractiveness are an integral part of a marketing plan.

Though visibility and transparency in a business may not necessarily inverse its attractiveness,
it is more of a necessity. One of the most important considerations for investment bankers while
judging an investment proposal is clarity of the exit mode and the expected return from the
project, which is quality of the investment. This is because the VC is ultimately a fund and they
(like mutual fund mangers) need to manage their portfolio to get maximum return.

CHAPTER II

REFRENCE TO JP MORGAN CHASE & CO

1. Introduction :
JP Morgan Chase & Co. is an American multinational investment bank and financial
services holding company headquartered in New York City. JP Morgan Chase is ranked
by S&P Global as the largest bank in the United States and the sixth largest bank in the
world by total assets, with total assets of US$3.67 trillion. It is also the world's most
valuable bank by market capitalization. It is one of the oldest financial institutions in
 the United States. With a history dating back over 200 years, here's where they stand
today:

❖ They are a leading global financial services firm with assets of $3.67 trillion.

❖ They have a presence in over 100 markets.

❖ They have over 293,723 employees.

❖ They serve millions of consumers, small businesses and many of the world's most
prominent corporate, institutional and government clients.

❖ They are the leader in investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction processing and asset
management.

2. Company Profile :

JP Morgan Chase & Co. is a financial holding company, which provides financial and
investment banking services. It offers a range of investment banking products and services
in all capital markets, including advising on corporate strategy and structure; capital raising
in equity and debt markets; sophisticated risk management; market making in cash
securities and derivative instruments; and prime brokerage and research. It operates its
business through the following segments: Consumer and Community Banking; Corporate
and Investment Bank; Commercial Banking; and Asset and Wealth Management. The
Consumer and Community Banking segment serves consumers and businesses through
personal service at bank branches and through automated teller machine, online, mobile,
and telephone banking. The Corporate and Investment Bank segment offers a suite of
investment banking, market-making, prime brokerage, andtreasury and securities products
and services to a global client base of corporations, investors, financial institutions,
government and municipal entities. The Commercial Banking segment delivers services to
U.S. and its multinational clients, including corporations, municipalities, financial
institutions, and non profit entities. It also provides financing to real estate investors and
owners as well as financial solutions, including lending, treasury services, investment
banking, and asset management. The Asset and Wealth Management segment provides
asset and wealth management services. It offers investment management across all major
asset services, including equities, fixed income, alternatives, and money market funds. The
company was founded in 1968 and is headquartered in New York, NY.

3. Company Background :
Name JP Morgan Chase & CO.
Industries Served Banking, Financial Services
Geography Area Served Worldwide
Headquarters New York City, New York, United States
Current CEO Jamie Dimon
Revenue US$154.792 billion (2022)
Gross Profit US$ 128.695billion (2022)
Employees 293,723 (2022)
Main Competitors Morgan stanley, ,goldman sachs Citigroup

4. Mission of the Company :

JP Morgan Chase’s mission statement is: “At JP Morgan Chase, we want to be the
best financial services company in the world. Because of our great heritage and
excellent platform, we believe this is within our reach.” The straightforward mission
statement indicates how excellence is at the heart of everything moves inside the
company, from offering higher quality services to higher returns on the investment for
their clients.

5. Vision of the Company :

The vision of JPMorgan Chase is underlined by its core principles: “Exceptionalclient

service, operational excellence, commitment to integrity, fairness, andresponsibility. A
great and winning culture.” These are the key four elements that are over time that have
allowed JPMorgan Chase to grow by providing extraordinary results to its clients,
striving for excellence, and remaining responsible and acting with integrity and honor
as well as retaining talent that enabled growth.

6. Management Team:

Names Position

James Dimon Chairman and Chief Executive Officer

Ashley Bacon Chief Risk Officer

Lori A. Beer Chief Information Officer

Mary Callahan Erodes Asset & Wealth Management CEO

Marianne Lake Consumer Lending CEO

Robin Leopold Head of Human Resources

Douglas B. Petno Commercial Banking CEO

Jeremy Barnum Chief Financial Officer

Daniel E. Pinto Co-CEO and Co-Chief Operating Officer

Corporate & Investment Bank CEO

Jennifer Piepszak Co-CEO of Consumer and Community Banking

7. SWOT Analysis :

SWOT analysis is a strategic planning tool that can be used by JP Morgan Chase & Co.
managers to do a situational analysis of the company. It is an important technique to
analyze the present strengths (S), weakness (W), opportunities (O), threats (T). JP
Morgan Chase & Co. is facing its current business environment. This company is one
of the leading companies in the financial and banking industry. Jp Morgan Chase is
maintaining its current dominant position by carefully analyzing and reviewing the
SWOT analysis.
STRENGTHS:
● Leading player in the global
financial services
● Strong liquidity and capital
● Diversified revenue stream
OPPORTUNITIES:
● Positive outlook for asset
management
● Growing credit card market
● Expand geographically
WEAKNESS:
● Increasing expenses
● Over dependence on certain
markets
● Fluctuating market
THREATS:
● Regulatory challenges
● A threat of financial crisis
8. PESTLE Analysis :
We are using PESTLE analysis as a strategic tool to analyze the macro environment
of JP Morgan Chase & Co.

POLITICAL FACTORS ● Political stability and importance of

Money Center Banks sector in the
country's economy.
● Risk of military invasion
● Level of corruption - especially levels
of regulation in Financial sector.
● Bureaucracy and interference in Money
Center Banks industry by government.
● Legal framework for contract
enforcement

ECONOMIC FACTORS ● Type of economic system in countries

of operation – what type of economic
system there is and how stable it is.
● Government intervention in the free
market and related Financial
● Exchange rates & stability of host
country currency.
● Efficiency of financial markets – Does
JPMorgan Chase & Co. needs to raise
capital in local market?
● Infrastructure quality in Money Center
Banks industry

SOCIAL FACTORS ● Demographics and skill level of the

population
● Class structure, hierarchy and power
structure in the society.
● Education level as well as education
standard in the JPMorgan Chase & Co.
’s industry
● Culture (gender roles, social
conventions etc.)
● Entrepreneurial spirit and broader
nature of the society. Some societies
encourage entrepreneurship while some
don’t.
● Attitudes (health, environmental
consciousness, etc.)

TECHNOLOGICAL ● Recent technological developments by

FACTORS JPMorgan Chase & Co. competitors
● Technology's impact on product
 offering
● Impact on cost structure in Money
Center Banks industry
● Impact on value chain structure in
Financial sector
● Rate of technological diffusion

ENVIRONMENTAL ● Weather
FACTORS ● Climate change
● Laws regulating environment pollution
● Air and water pollution regulations in
Money Center Banks industry
● Recycling
● Waste management in Financial sector

LEGAL FACTORS ● Anti-trust law in Money Center Banks

industry and overall in the country.
● Discrimination law
● Copyright, patents / Intellectual
property law
● Consumer protection and e-commerce
● Employment law
● Health and safety law
● Data Protection

9. Marketing Strategy :

Product:

JP Morgan Chase provides investment banking and financial services to customers,

small businesses as well as some of the biggest corporate and government clients. The
businesses that use the JP Morgan Chase brand: Institutional Asset Management,
Investment Banking, Investment Management, Markets & Investor Services, Treasury
Services, Private Banking, Wealth Management & Brokerage. These services by JP
Morgan are provided to investors, financial institutions, corporations, municipal entities
and government. In the capital market the bank provides services such as advise on
corporate structure and strategy. It helps corporates in raising capital in debt and equity
markets. JP Morgan Chase also facilitates as loan origination and
syndication which is the process of getting different lenders to finance the loan.
Treasury Services include transaction services which compromise of cash management
and liquidity solutions and products for trade finance. The Markets & Investor Services
segment include services such as cash securities and derivative instruments. JP Morgan
Chase also offers research and prime brokerage and risk management solutions.
Securities Services business which comes under Markets & Investor Services includes
fund accounting, administration and custody. Securities and lending products sold to
public and private investment funds, insurance companies and asset managers.
Consumer Businesses under the Chase brand: Credit Cards, Small Business, Home
Loans and Home Equity Line of Credit, Auto Finance, Education Finance, Retirement
& Investing, Personal Bank Accounts, Merchant Services etc.

Price:

JP Morgan Chase provide different kinds of services for which they charge different
prices. JP Morgan Chase follows competitive pricing and Interest rates are quite low.
The bank charges a brokerage percentage on the various services it provides, therefore
for large businesses make larger profits for the bank. In the credit card segment JP
Morgan Chase cut prices to remain competitive, major competitors being Citigroup Inc,
Paypal Inc and Square Inc.

Place:

Most of the operations take place via its offices in New York City. JP Morgan has
located its Asia-Pacific headquarter based in Hong Kong and Chase, in Chicago. JP
Morgan and Chase have located operational centres at Phoenix, California, Los
Angeles, Tampa, New York and Texas. The Corporate bank has spread its operations
to one hundred countries and offers corporate solutions. Its headquarters is at London
with regional headquarters at New York, Hong Kong and Sao Paulo. The additional
operational centre is at Phoenix, Newark, Tampa, Rochester and Fort Worth.
Card-service sector has its headquarters based in Wilmington with its offices in Elgin,
Springfield, Cebu and Mumbai. Its technology operations are situated at Manila,Cebu,
Bangalore, Mumbai, New Delhi, Hyderabad, Sao Paulo and Jerusalem. Personal
services are provided at bank branches and through automatic teller machines (ATMs).
The bank has 5,300 branches and around 15,500 ATMs. JP Morgan Chase also has
other channels such as online, mobile and telephone banking.

Promotion:

JP Morgan Chase has a very strong brand name and most clients come to this bank
because of its long standing reputation. Main marketing at JP Morgan Chase is done
through client relation. The bank has very good relations with its clients. The company
tries to take care of all financial needs of the client. The bank has “Chase at Work”
program in which employees visit clients and give personalised services improving the
relationship. The company also has referral programs in which clients are rewarded for
getting referrals. JP Morgan Chase is using social media for its promotion. Online ads
are used and the company site also acts as a promotional channel in which various
services are advertised. The company also has a Facebook page.

10. Financial Planning (December 31, 2022) :

Income Statement

Particulars Amount ( In MILLIONS )

Non interest revenue $ 14355

Net interest income $ 20192

Total net revenue $ 34547

Total non interest expense $ 19022

Net Income $ 11008

 Cash Flow Statement

Particulars Amount ( In Millions )

Net cash provided by/(used in) operating $ 101222

activities

Net cash provided by/(used in) investing $ (51530)

activities

Net cash provided by financing $ (142344)

activities

Balance Sheet

Assets ( In Millions ) Liabilities & equity ( In Millions )

Total current asset $ 1602026 Total current $ 3082706

liabilities

Total fixed assets $ 3665743 Total liabilities $ 3373411

Goodwill $ 51662 Total common $ 4105

shareholders
equity

Other assets $ 182884 Total equity $ 292332

Total assets $ 3665743 Total liabilities & $ 3665743

equity
11. Challenges :

During the past several years, they have faced a series of legal and regulatory issues.
These include mortgage foreclosure processes, mortgage-backed securities matters,
Anti-Money Laundering Act compliance and foreign exchange matters.

12. Recommendation :

JP Morgan Chase has faced some issues as mentioned above, some of these issues arose
from their own mistakes. The first step is to acknowledge their mistakes and move
forward. The first step in moving forward is to take full control of their actions and to
recomite to to their high company standard that they set for themselves.
 CHAPTER III

COMPARISON JP MORGAN WITH ITS COMPETITORS

JPMorgan Chase vs. Goldman Sachs: An Overview

JPMorgan Chase (JPM) and Goldman Sachs (GS) are two of the largest and most
respected investment banks. Both have seen rising stock performance over the past several
years, benefiting largely from low-interest rates and Federal Reserve policies. Below, we'll
take a look at where both companies are headed and the likelihood of positive momentum
with interest rates expected to rise even further.

During the period covering 2017-2021, the stock prices of JPMorgan and Goldman Sachs tell
a similar story. JPMorgan shares are up 148% over the last five years as of November 2021,
while Goldman Sachs’ is up 131%, versus the S&P 500 return of 125% over the same time
period.

KEY TAKEAWAYS

• JPMorgan Chase (JPM) has outperformed Goldman Sachs (GS) slightly over the last
five years in terms of stock price.
• JPM does pay a higher dividend yield at 2.2%, versus the 1.4% paid by GS.
• Market cap-wise, JPM is over 3.5 times the size of GS.
JPMorgan Chase
Key JPM Data

Market Cap $497 billion

52-week Range $101-$173

P/E Ratio 10.6

Return on Equity 17.85%

Dividend Yield 2.2%

Numbers as of November 2021

63
In JPMorgan’s third-quarter 2021 results, the company had a net income of $11.7 billion on
revenue of $29.7 billion with a net interest income of $13.2 billion. This is compared to the
$9.4 billion in net income generated during the third quarter of 2020.1

JPMorgan generated most of its 2020 revenues from asset management and market-making.
Its asset management business generated $18.2 billion of the total $65 billion generated for
the entire year. Meanwhile, market-making brought in $18 billion.2

Goldman Sachs
Key GS Data

Market Cap $138 billion

52-Week Range $200-$426

P/E Ratio 6.8

Return on Equity 22.2%

Dividend Yield 1.4%

Numbers as of November 2021

In the third quarter of 2021, Goldman Sachs reported net revenue of $13.6 billion, versus
$10.8 billion in the third quarter of 2020, and a net income of $5.4 billion, versus $3.4 billion
in the previous year's third quarter. It reported a net interest income of $1.6 billion in the third
quarter of 2021, versus $1.1 billion in the third quarter of 2020.3

Goldman Sachs' highest revenue-generating business in 2020 was marketing making,

accounting for $15.5 billion of its $39.8 billion in revenue for that year. The second and third
were investment banking and investment management at $9.1 billion and $6.9 billion,
respectively.2

Special Considerations
Both banks generate a sizable portion of revenues from market-making. However, Goldman
Sachs is more dependent on such business. JPMorgan's revenue streams are a bit more
diversified. Both have a sizable investment banking business, which brought in $9 billion in
revenue in 2020 for each company. Then JPMorgan has a suite of lending-related businesses
that generate nearly $14 billion in revenue—which includes consumer lending, credit cards,
and mortgages.

64
Goldman does have the better return on equity, but JPMorgan has over three times the amount
of assets as Goldman and generates over three times the amount of net income. Overall, the
two compete in the investment banking market, but JPMorgan dominates the asset
management and lending side.

Overall, both JP Morgan and Morgan Stanley are highly respected firms in the financial
services industry, and the choice between the two ultimately depends on the specific needs and
preferences of the individual or organization.

JP Morgan and Morgan Stanley are two of the largest and most well-known investment banks

in the world. While they share some similarities in terms of the services they offer and the

clients they serve, there are also some notable differences between the two firms.

Services: JP Morgan offers a range of financial services, including investment banking, asset
management, private banking, commercial banking, and treasury and securities services.

Clients: Both firms serve a wide range of clients, including corporations, governments,
institutional investors, and high net worth individuals. However, JP Morgan has a larger
presence in the commercial banking sector, which gives it an advantage in serving corporate
clients. Morgan Stanley, on the other hand, has a stronger focus on wealth management and
and institutional securities.

Clients: Both firms serve a wide range of clients, including corporations, governments,
institutional investors, and high net worth individuals. However, JP Morgan has a larger
presence in the commercial banking sector, which gives it an advantage in serving corporate
clients. Morgan Stanley, on the other hand, has a stronger focus on wealth management and
serves a large number of high net worth individuals.

Revenues: In terms of revenue, JP Morgan is the larger of the two firms, with 2021 revenues

of $136.2 billion. Morgan Stanley, on the other hand, reported 2021 revenues of $59.5 billion

Culture: Both firms are known for their highly competitive and performance-driven cultures.
However, JP Morgan has a reputation for being more focused on short-term profits, while

Morgan Stanley is known for its long-term strategic focus.

65
 COMPARISION BETWEEN JP MORGAN AND CITIGROUP

JP Morgan and Citigroup are two of the largest and most influential financial

institutions in the world. Both companies offer a wide range of financial services and
have a global presence. Here is a comparative study between JP Morgan and Citigroup:

1. Size: JP Morgan is the larger of the two companies with a market capitalization of

approximately $478 billion as of April 2023, while Citigroup has a market capitalization

of around $160 billion.

2. Revenue: JP Morgan generates higher revenue than Citigroup. In 2021, JP Morgan

reported revenue of $135.3 billion, while Citigroup reported revenue of $72.3 billion.
3. Profitability: JP Morgan is more profitable than Citigroup. In 2021, JP Morgan reported

a net income of $40.4 billion, while Citigroup reported a net income of $13.7 billion.
4. Business Segments: Both companies have diversified business segments, but JP

Morgan's investment banking and wealth management businesses are more

prominent, while Citigroup has a stronger presence in consumer banking and credit

card services.
5. Global Presence: Both companies have a significant global presence, but JP Morgan

has a stronger presence in North America and Europe, while Citigroup has a stronger

presence in Asia and Latin America.

6. Regulatory Issues: Both companies have faced regulatory issues in the past. Citigroup

has been fined for violating anti-money laundering laws, while JP Morgan has been
fined for its involvement in the subprime mortgage crisis.

7. Stock Performance: JP Morgan's stock has outperformed Citigroup's stock over the

past five years.

66
REVIEW BY THE EMPLOYEE

The most important difference between JPMorgan and other investment banks is that they
managed to merge commercial banking and investment banking in a way that made sense.
Other companies either failed to do this (Citigroup) or didn't try (Goldman-Sachs and Morgan-
Stanley). This meant that you had cultural influences of commercial banking, such as focus on
risk, big infrastructure systems, moderation of the "get rich quick" mentality, and a heavily
emphasis on process. JPMorgan is also much larger than GS and Morgan-Stanley, which meant
more process and more bureaucracy. This can be a bad thing, but when it works, it can be a
good thing.

The other difference is that because JPMorgan Chase was never a standalone bank the way that
Goldman-Sachs was, you have wildly different corporate cultures mixing, which can be both
good and bad. Something that Goldman-Sachs does is that it tends to recruit a certain type of
personality, and once you get in the firm tries to mold you into that personality type. Because
JPMorgan is a merger of different companies, you get wildly different personal types and
corporate cultures mixing.

For example, there was one senior executive that had risen through the ranks of Morgan
Guaranty and Trust. He was a white shoe, establishment, prep school type of guy. There was
another senior executive that had been part of Bear-Stearns, think school of hard knocks, hard
talking broker type of guy. They were both really good, but they were very different.

Finally, one big difference is that no one knows how well the JPMorgan will work after Jamie
Dimon. Morgan-Stanley and Goldman-Sachs have very long histories and they have very
organized mechanisms for succession. Despite the name and corporate history, JPMorgan in
its current form, was created by Jamie Dimon in the 1990's, and no one knows how well it's
going to hold together once he leaves, and there is no organized succession process that I can
see.

67
 CHAPTER 1V

CONCLUSION

1. Goldman Sachs: Goldman Sachs and JP Morgan are both considered to be among the top
investment banks globally. While JP Morgan has a broader range of services, including
commercial banking, asset management, and wealth management, Goldman Sachs is more
focused on investment banking, securities trading, and wealth management. Additionally,
Goldman Sachs has a reputation for being more aggressive in its risk-taking, while JP Morgan
is more conservative.
2. Morgan Stanley: Similar to Goldman Sachs, Morgan Stanley is primarily focused on
investment banking, securities trading, and wealth management. However, Morgan Stanley has
a larger presence in the wealth management space than Goldman Sachs, and it is also more
active in areas such as equity research and fixed income trading. JP Morgan, on the other hand,
has a broader range of services, including commercial banking and asset management.
3. In conclusion, while both JP Morgan and Citigroup are major players in the financial industry, JP
Morgan has a larger market capitalization, higher revenue and profitability, and a stronger
presence in investment banking and wealth management. However, Citigroup has a strong

presence in consumer banking and credit card services, particularly in emerging markets.

Overall, while JP Morgan is generally considered to be among the top investment banks
globally, each bank has its unique strengths and weaknesses. Factors such as the bank's focus,
global presence, risk appetite, and regulatory environment can all impact its performance and
reputation.

CHAPTER-V

68
 NEWS

NEWS REGARDING JP MORGAN

J.P. MORGAN TO ACQUIRE AUMNI, A LEADING PROVIDER OF INVESTMENT
ANALYTICS SOFTWARE FOR VENTURE AND PRIVATE MARKET INVESTORS
Acquisition to bolster firm’s suite of private market solutions
Mar 22, 2023

New York, March 22, 2023 – J.P. Morgan (NYSE: JPM) announced today that it has entered
into a definitive agreement to acquire Aumni, a leading provider of investment analytics
software to the venture capital industry. Financial terms of the transaction were not disclosed
and closing is expected in the first half of 2023.

Founded in 2018, Aumni’s proprietary data analytics engine structures, tracks and analyzes
essential legal and economic terms underpinning growth-stage private market transactions,
placing critical portfolio investment terms within users’ easy reach. With a diverse client base
of over 300 institutions ranging from emerging and established venture managers to leading,
multinational asset managers, Aumni has evaluated more than $600 billion in invested capital
across more than 17,000 private companies.

The strategic acquisition of Aumni solidifies J.P. Morgan’s commitment to building the leading
private markets platform for companies, their employees and investors, as well as its
confidence in the resilience of the venture-backed ecosystem. Aumni also complements the
recent launch of Capital Connect by J.P. Morgan and the acquisition of Global Shares.
Through continued investment in Aumni, and its other private market assets, J.P. Morgan is
positioned to deliver an industry-leading suite of innovative solutions to the private markets.

“We’re thrilled to see this collaboration come to fruition as J.P. Morgan first invested in Aumni
in 2021 and quickly realized shared synergies of providing more transparency to the private
markets,” said Michael Elanjian, Head of Digital Investment Banking, Head of Digital Private
Markets, J.P. Morgan. “Aumni’s market-leading data structuring and portfolio monitoring
solutions, combined with the capital raising and cap table management services of Capital
Connect and Global Shares, further enhances the ecosystem of digital solutions that
J.P. Morgan is building for companies and investors in both growth and later-stage private
markets.”

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“We are excited to partner with J.P. Morgan, expediting the realization of our vision to bring
more structure, transparency and liquidity to the historically opaque private markets. Together,
we can create a best-in-class suite of services for private market participants, enhancing the
experience for all current and future clients,” said Tony Lewis, CEO, Aumni.

Aumni remains committed to enhancing services to their clients, and will continue to be
headquartered in Salt Lake City, Utah.

How a massive options trade by a JP Morgan fund can move

markets
1 min read . Updated: 31 Mar 2023, 02:37 AM IST Saqib Iqbal Ahmed, reutersThe fund, which
had about $14.71 billion in assets as of March 29, aims to let investors benefit from equity market
gains while limiting their exposure to declines (Photo: Bloomberg)

A nearly $15 billion JP Morgan fund is expected to reset its options positions on Friday, potentially
adding to equity volatility at the end of a strong quarter for U.S. stocks.
A nearly $15 billion JP Morgan fund is expected to reset its options positions on
Friday, potentially adding to equity volatility at the end of a strong quarter for U.S.
stocks.
Analysts have in the past pointed to the JPMorgan Hedged Equity Fund’s quarterly
reset roiling markets, and see it as a source of potential volatility during Friday's
session.

CHAPTER VI
BIBLIOGRAPHY & WEBLIOGRAPHY

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1. "History of Our Firm". JPMorganChase.com

2.“BusinessPrinciples”
https://www.jpmorganchase.com/corporate/About-JPMC/ab-business-principles.htm

3. “JPMorganChase&Co”-CNNBusiness
https://money.cnn.com/quote/profile/profile.html?symb=JP

4. “JP Morgan Chase Mission Statement and Vision

Analysis”https://www.astrogrowth.com/blog/jp-morgan-chase-mission-
statement/

5. https://en.wikipedia.org/wiki/JPMorgan_Chase

6. "JP Morgan Chase Earnings Release Financial Supplement Fourth

Quarter2019"(PDF). .jpmorganchase.com

7."Operating Committee"

https://www.jpmorganchase.com/corporate/About-JPMC/operating-committee.htm

8. "SWOT ANALYSIS OF JP MORGAN"

https://www.marketing91.com/swot-analysis-jp-

morgan/9." PESTEL ANALYSIS OF JP MORGAN"

http://fernfortuniversity.com/term-papers/pestel/nyse4/1046-jpmorgan-chase---co-.ph
p
10. "JP Morgan Chase Marketing Mix"
https://www.mbaskool.com/marketing-mix/services/16730-jp-morgan-chase.html
11. https://www.jpmorgan.com

12. https://www.livemint.com

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