ATHARVA INSTITUTE OF MANAGEMENT STUDIES

A PRESENTATION ON INVESTMENT BANKING
GROUP MEMBERS: NAME ROLL NO.
GAURAV KULKARNI MITHESH KUMAR GAURAV PATIL SOURABH BHAJIRAO 48 AKHLAQUE SHAIKH AKASH PURI MILAN JAIN SUMIT KASAT 19 21 11 28 54 33 14

DEFINITION
• “An investment bank is financial institution
which raises capital, trade securities and manages corporate mergers and acquisition”

IN SIMPLE
• It is a business of rising capital for

companies
• capital is required for growth and expansion

of business
• Investment bank sell securities to public

investors in order to raise this capital

ROLE
• Issuing and selling securities in primary

market
• Assist public,private corporation and

government agencies in rising fund
• Advisory services for mergers and acquisition • Intermediaries in trading for client

company

Investment bank

investors

INVESTMENT BANK
 Investment bank focus on large public and private share offering.  Investment bank participate in trade financing activity.  Investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market.

MERCHANT BANK
 Merchant bank tends to operate on small scale co. & offers creative equity financing.  Merchant bank often expand in the field of underwriting.  Merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation.

 Investment banks facilitate mergers & acquisitions through share sales and provide research and financial consulting to companies.

 Merchant bank is involved in issuing letters of credit, transferring funds intnly, trade consulting and coinvestment in projects.

TOP 10 INVESTMENT BANK GLOBALLY
1. JP Morgan Chase 2. Goldman Sachs 3. Credit Suisse 4. Morgan Stanley 5. Citigroup 6. Barclays Capital 7. Bank of America (Bank of America Merrill Lynch) 8. Lazard 9. Deutsche Bank 10. UBS

TOP INVESTMENT BANK IN INDIA
          ICICI Securities Kotak Mahindra Capital SBI Capital Bajaj Capital UTI Securities Tata Investment Corporation Limited Yes Bank Cholamandalam Investment & Finance Co. Avendus Capital Ambit Corp Finance

SELL & BUY SIDE
SELL SIDE
 Newly Issued IPOs
 New Bond Issues

 Engaging In Market Making Services
 Helping Clients Facilitate Transactions

BUY SIDE
 Pension Fund

 Mutual Fund
 Hedge Fund

 Give Maximum Return To Investor On Their
Investment

INVESTMENT BANKING ACTIVITIES

Front office

INVESTMENT BANKING
Investment Banking is the traditional aspect of

investment banks which involves helping customers
raise funds in the Capital Markets and advising on mergers and acquisitions.

Prepare a Pitch book of financial information.

SALES AND TRADING
• Primary function is buying and selling products.

• Goal of making money on each trade.
• Primary job is to call on institutional and high-net-worth

investors to suggest trading ideas.
• Structure new products that fit a specific need. • Quantitative analysis.

RESEARCH
• The division which reviews companies and writes

reports about their prospects, often with "buy" or "sell"
ratings. • Sales force in suggesting ideas to customers. • Research also serves outside clients with investment advice.

• In recent years the relationship between investment
banking and research has become highly regulated.

MIDDLE OFFICE

Risk management:• Analyzing the market and credit risk. • Setting limits on the amount of capital. • Ensure that the above mentioned economic risks are captured accurately correctly and on time (typically within 30 minutes

of trade execution).

Corporate treasury:Responsible for an investment bank's funding, capital structure management, and liquidity risk monitoring.

Financial control:• Tracks and analyzes the capital flows of the firm. • Controlling the firm's global risk exposure and profitability.

Compliance:-

Responsible for an investment bank's daily operations
compliance regulations with government regulations and internal

BACK OFFICE
Operations:-

• It involves data-checking trades that have been
conducted. • Involves managing the financial information of the bank and ensures efficient capital markets through the financial reporting function.

Technology:• Information technology department. • In-house software, technical support. • Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading.

INVESTMENT BANK IN INDIA
 J P MORGAN began Investment Banking in India in 1993.  This bank primarily provided services which included loan syndication, equity raising and other advisory services.  Currently, without holding a certificate of registration granted by the Securities and Exchange Board of India, no person can act as a Investment Bank.

The categories for which merchant banking registration may be granted by SEBI:
 Category I : to carry on the activity of issue management and to act as adviser, consultant, manager, underwriter, portfolio manager  Category II :to act as adviser, consultant, comanager, underwriter, portfolio manager.  Category III :to act as underwriter, adviser or consultant to an issue  Category IV :to act only as adviser or consultant to an issue.

TOP 10 INVESTMENT BANKS OPERATING IN INDIA
1. JP Morgan 2. UBS AG 3. Goldman Sach 4. Deutsche Bank 5. HSBC 6. Morgan Stanley 7. ICICI Securities 8. Kotak Mahindra 9. SBI Capital Markets 10. Ambit Corp Finance

• J.P. Morgan has a long and successful legacy of investment banking in India. J.P. Morgan was a founding shareholder of one of India's largest financial institutions and also established the country's first international investment bank in 1993 as a joint venture between J.P. Morgan and a leading Indian financial institution. • During the balance of payments crisis in 1991, J.P. Morgan played a key role in advising the Reserve Bank of India on liquidity management and facilitated measures to avoid debt rescheduling. J.P. Morgan is currently one of the leading investment banks in India and has a market leading position across the spectrum of services it offers.

Recent Trends in Investment Banking
• Service small as well as large customers • International transactions • Over industries investment banks changing the merchant trend, growth and potential growth

• Outsourcing and Offshoring
• Investment banking operation process reengineering • Scale through integrated delivery operation,

technology and infrastructure

Cont...
• Implications of FASB Financial Instruments Accounting Standard Update • Auditors Likely to Expand Scrutiny of Fair Value Estimates • Fair Value Measurement • Cost of Capital • Debt Exchange Offers: A Refinancing Alternative in Challenging Markets • The Credit Crisis

Cont…
• Underwater Option Exchanges: Meeting Employee, Shareholder and Company Concerns • Global IPO • Launching green investment bank to fund renewable

energy power plants
• Take over code :-boost M & A • Japan M & A in India seen 40% up

Mergers & Acquisitions
• JP Morgan :- IPO - Essar Energy ($1b); NTPC ($1.8b); Power Grid ($1b) and Convertible Bonds – Vedanta Resources ($833m); Tata Motor’s ($345m); HDIL ($250m) • UBS :- 2007 – 2009, 28 deals in equity capital raising in excess of $11b • Goldman Sachs :- $9b deals • Deutsche bank :- $3b deals

Key Changes in take over code
1 2
• Higher threshold for ‘Open Offer’ trigger – 15% to 25% • Creeping Acquisition up to 75% • Increase in ‘Open Offer’ Size from 20% to 26 • Voluntary Offer – New Thought

3
4
5

• Value based classification of ‘Indirect Acquisitions’
• Other Stipulations

6

34

Why investment bank fails?
• In the past there are many instances where the investment bank had failed. • The most notable Banks that failed were
ACQUISITION DATE APRIL 1 2008 SEPTEMBER 14 2008 SEPTEMBER 17 2008 ACQUIRED COMPANY BEAR STEARNS MERRIL LYNCH LEHMAN BROTHERS ACQUIRER COMPANY JP MORGAN AND CHASE BANK OF AMERICA BARCLAYS PLC VALUE $2.2 BILLION $44 BILLION $1.3 BILLION

Reasons of failure for investment banks are
• • • • High leverage ratio Low capital reserve ratio Non Diversified currency base High exposure to derivatives and complex structured financial products • Non diversified business model • Operation in single market

High Leverage ratio
• In finance, leverage is a general term for any technique to multiply gains and losses.

• Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.

• If leverage ratio is 30:1 it means that
– You can borrow 30 times the assets you have. – For example for every $10 you can borrow $300 and total new capital is $310 – If the rate of interest on borrowing is 5% and earning is 6%. The total profit that can be gained is $3.60 ($18.60-$15.0 interest) on every $10. which is 36% returns. – But if there is 5% loss in investment, after paying interest you have $279.5 + you still owe $300 to lender, to pay back loan you have to borrow $21.5 and you have lost initial $10 capital.

Low capital reserve ratio
• The capital ratio is the percentage of a bank's capital to its risk-weighted assets. • Lower ratio means less investment bank capital. • Capital reserve ratio should be high to avoid failure.

Non Diversified currency base
• Diversified currency base helps in hedging forex risks. Enhances liquidity and security.

• The more diversified the currency base less is the forex risk.

• Derivatives products inherently carries high risks, products include
– Property (mortgage) derivatives – Economic derivatives – Freight derivatives – Inflation derivatives – Weather derivatives – Insurance derivatives – Emissions derivatives

High exposure to derivatives and complex structured financial products

Operations in single markets
• If a investment bank operates in a single market or region then there is greater economic risk.

• For example If a bank is limited to business in the U.S. or Europre for example, it is at greater risk at suffering a loss from an economic downturn.

Kotak Mahindra Bank

2010

 LEADING INVESTMENT BANKING
 2.4 BILLION DOLLAR REVENUE(11893 CRORE RS) IN 2011  16.6% MARKET SHARE IN INVESTMENT BANKING IN INDIA BY BLOOMBERG IN 2010(31.2 bn dollar)  BEST INVESTMENT BANKING AND EQUITY HOUSE IN INDIA BY ASIA MONEY

SERVICES OF KOTAK INVESTMENT BANK
• EQUITY AND DEBT CAPITAL FUND • MERGER AND ACQUISITIONS ADVISORY • RESTRUCTURING AND RECAPITALIZATION • INFRASTRUCTURE ADVISORY

• PRIVATE EQUITY ADVISORY

• ChetanSavla, executive director and co-head of equity product group at Kotak Investment Bank, said that firms such as his have the ability to service capital needs of small and large companies alike. “There was a time when we were doing five to seven transactions in a year and now we tend to close one transaction every week,” he added.

Journey so far…
Restructuring Ford & Goldman JVs BANK Life Insurance Stock Old Mutual JV Mutua Broking Ford l Fund Credit Goldma JVs n Sachs JVs

IP O Investment Auto Banking Finance

Trade Finance 2006 2001 2003 1985198 1990 1991 1992 1995 1996 1998 In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by Ford Credit International (FCI) and FCI acquired the stake in Ford Credit Kotak Mahindra 6 (FCKM) held by Kotak Group.
In May 2006, Kotak Group bought 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities

Leadership in the Indian Market
∞ Winner in 33 categories in the Asiamoney Private Banking Poll 2006,2008,2009,2010,2011 including the Best Private Bank award in Southern Asia ∞ Best Investment Bank in India 2003, 2004, 2006,2009,2010 ∞ Best Bond Fund House 2006 ∞ Kotak Bond Regular Plan was ranked the best debt fund over 3 years 2006

ACHIEVEMENT AWARDS

2003 2001

∞ 'Kotak Bond Regular Plan' was ranked ICRA-MFR1 and was the recipient of the Silver Award
∞ In the Annual Euromoney Private Banking Survey Poll for 2006,2011 for India, Kotak Mahindra Bank was ranked no. 1 in six categories ∞ Topped the Bloomberg India M&A Financial Advisory League table (India announced deals) for the calendar year 2005 ∞ Topped the India Advisory Partners Indata League table for the calendar year 2005

Award for Excellence

Leadership in the Indian Market
∞ # 1 Book runner/ Lead Manager in terms of value of Indian equity offerings (PRIME Database) 2006, 2005, 2004, 2003

∞ Best Broker - Kotak Securities : 2005 ∞ Best Equity House in India: 2002,2003,2004,2008,2010,2011

∞ Best Domestic Equity house: 2003-2005,2008-2011

∞ Best Investment Bank in India 2004,2008,2009,2010 ∞ IFR Asia's India Equity House Award for the year 2004,2008

Investment Banking

Industry Awards & Rankings
Best Equity House in India
2005,2004, 2003
(Rs mn)

Best Domestic Equity House in India
Best Investment Bank in India Best Equity House in India

2004, 2003,2008-2011 2006-2011 2004,2008

Topped league tables for book running equity offerings for last four years in a row Topped Bloomberg M&A league tables for CY2005

International Subsidiaries ∞ Kotak Mahindra (UK) ∞ Kotak Mahindra Inc ∞ Kotak Mahindra (International)

Registered with ∞ FSA, SEBI ∞ NASD ∞ FSC(financial service comm)

∞ International Offerings ∞ Investment Management

KMCC - Investment Banking segment
Revenue PBT 1,049

(Rs mn)

563 352 239 118 2007 132 71 2009 2010 354

2008

Securities
India’s leading securities brokerage firm
8.5% market share in FY10 (6.3% in FY09)  Strong presence in retail and institutional segments
Best Equity House Best Broker 2005, 2010, 2011

 Institutional sales team in New York
Best Equity House

2005, 2011
2004

and London  Network of 1400 and more offices (own & franchisees) across 435 cities(2011)

Securities
 Strong research team

 Wide coverage
 Institutional research 117 companies  Retail research 150 companies  Awarded Best Provider of Portfolio Management – Equities by Euromoney Private Banking Poll 2006  Over 2,45,000 secondary market customers

FUTURE PLANNING ANF INVESTMENT BANKING
• • • • • • Role In Economy What Awaits In Future? Estimated Investment Guidelines Overall Economy In The Economy Future Investment Planners Future Investment Banking Firms

FUTURE OF INVESTMENT BANKING
• More Stringent Laws And Restrictions • Claw-Back Provision • Emphasis On Equity Derivatives And Currency Trading • Fewer Big Banks And More Small Boutiques • Lesser Dependence Upon Short-Term Funding

SCOPE AND OPPORTUNITIESS IN INDIA
• Commencement Of New Business • Business Expansion • Financial Investment Planning

THANK YOU

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