introduction Flashcards
what is investment banking (strictly)?
supporting corporations in accessing and raising funds in capital markets. (underwriting bond, equity and hybrid instrument issues)
what are the ways in which IBs support their clients during issues?
1) placement services: the IB has strong knowledge of participants of the market and knows where, how and when to place the security to ensure best result
2)underwriting service: common in equity, any unsold part of the issue is acquired by the IB so as to grant insurance of satisfaction to the issuer.
do IBs operate in primary or secondary markets?
mainly in primary markets, however, by leveraging company valuation resources, IBs also moved into trading and brokerage services in secondary markets.
what 4 additional services did IBs add to their portfolio after underwriting, trading and brokerage?
1)Asset management dedicated towards institutional investors and high wealth individuals.
2) corporate financial advisory (M&A): advisory services in view of onerous non-recurring transactions.
3) Private equity investing: valuation and investments of private assets
4) risk management
in summary what are the business areas in which IBs operate?
1) underwriting and primary market dealing
2) secondary market trading and brokerage
3) asset management (out of scope)
4) M&A (corporate finance advisory)
5) Private equity
6) risk management (out of scope)
Note that not all IBs offer all services, but a combination of those.
what are the 3 types of deals in which IBs participate when talking about DCMs?
1) syndicated loans: loans by groups of large institutional investors
2) Bond issues: to markets
3) asset backed security issues: not covered in the course, they are sometimes relegated to a separate department
How are ECM division structured?
Matrix like structure based on type of offering and type of client (corporate, sovereign, privatizations). synergies between divisions but also there are large informational barriers between divisions to avoid conflict of interest.
activities performed by the ECM division of IBs
1)IPOs and seasoned offerings
2) trading
3) security analysis and valuation
How are DCM division structured?
matrix structure by type of instrument (syndicate loans, bonds, structtured finance) ,type of client (corporate, sovereign, supranational) and usually credit rating of the issuance (junk vs investment grade). synergies among division but info barriers to avoid COI.
general definition of M&A
In general, services provided to firms in order to strategically maximize their financial policies
Strict sense: Pure advisory
However, customers usually prefer to have a one-stop shopping behaviour.
what are the types of advisory services requested at each stage of company life cycle?
-growth: M&A, defensive advisory, strategic alliance
-maturity: refocus, turnaround, takeover advisory
-decline: corporate crisis, restructuring
what is structured finance? which types of deals does it involve?
Financing of special purpose vehicles
Based on the cash flow generation of the underlying assets.
Project Financing
Asset Backed Securities
Leasing and Asset Finance
LBOs
what is private equity?
Equity financing of firms
Unlisted/private, with good management, good products, good growth potential
Listed firms, with the purpose to de-list them, restructure them and then resell them on the stock exchange by means of an IPO (PIPEs: private investments in public equity)
how can we categorize PE activity?
involvement: hands-on vs hands-off
target: VC, PE, vulture investments
structure: corporate PE vs partnership/CEF PE
who is asset management services directed to?
HNWI and Institutional clients
what does risk management entail?
Research and modelling
Products for risk management (but not insurance, at least directly)
what are possible strategies when selecting which services to offer? on what does this choice depend?
Strategies played can be very different
Global banks.
Capital market focus.
International wholesale market.
Boutiques.
It’s a matter of specialization/core competencies and available capital to stretch the service offering over the whole spectrum of services.
what is the current segmentation of the market?
US Players (but also Globally in top positions)
Pure Investment Banks: Goldman Sachs
Investment Banks with Retail / Wealth Management component: Morgan Stanley
Large global Conglomerates: JP Morgan; Bank of America; Citigroup
Large European financial conglomerates: HSBC, Barclays, Deutsche Bank, BNP Paribas, Société Generale, Unicredit and UBS
what are current key trends in the IB market?
Global players are redesigning their strategy
Focus on core segments, exit or reduction of focus (and capital) in non-profitable areas
Increasing concentration in the market
US banks increasingly larger share of global fee pot
European banks’ IB arms have not yet fully recovered from the crisis and are still readjusting their business model
