Introduction to IB

Question 1

What are investment banks in a strict sense?

Answer 1

IBs offer support to firms in collecting money on the capital market (placement and underwriting of equity and bond offerings - Capital markets services)

Question 2

What are the 6 business areas of Investment Banks’

Answer 2

1. Capital Markets
2. M&A (or Corporate Financial advisory)
3. Structured Finance
4. Private Equity
5. Asset Management
6. Risk Management

Question 3

What are main characteristics/IB functions in Equity Capital Markets (ECM)?

Answer 3

1. Primary market offerings (IPOs - Initial Public Offerings, Seasoned Offerings)
2. Trading
3. Security analysis and research

Question 4

How are services specialized in ECM?

Answer 4

Services are specialized following a matrix structure:
1. By type of deal: IPOs vs Seasoned Offers
2. By type of customer: corporates, sovereigns (privatizations)
3. Synergies with other ECM departmetns (but also existence of high chinese walls in order to prevent conflict of interest)

Question 5

What are main characteristics/IB functions in Debt Capital Markets (DCM)?

Answer 5

1. Bond issues placement and underwriting
2. Syndicated loans
3. Asset-backed securities

Question 6

How are services specialized in DCM?

Answer 6

Services are specialized following a matrix structure:
1. By type of debt instrument: bonds, ABS, syndicated loans
2. By type of customer: sovereigns, financials, corporates, agencies/suproanational (with further specializations regarding hihg yield vs investment grade)
3. Synergies with other departments (trading and derviatives)

Question 7

What are the specifics of M&A services in IB?

Answer 7

In general, services provided to firms in order to strategically maximize their financial policies:
1. Strict sense: Pure advisory
2. However, customers usually prefer to have a one-stop shopping behaviour
3. … so 2 possible options:
* move to a financial conglomerate;
* alliances between pure advisory boutiques and commercial baknks

Question 8

What are the specifics of Structured Finance work that IBs do?

Answer 8

1. Sometimes included in the DCM department, sometimes stand-alone
2. Project Financing
3. Asset Backed Securities
4. Leasing and Asset Financing
5. Acquisition Financing and LBOs

Question 9

What are the specifics of Private Equity work that IBs do?

Answer 9

1. Equity financing of firms
2. Different styles of investing (hands-on vs hands-off approach)
3. Different investment targets (venture capital, private equity, vulture investments)
4. Corporate private equity vs partnerships/closed end funds

Question 10

What are the specifics of Asset Management work that IBs do?

Answer 10

1. Institutional clients (insurance firms, pension funds, large firms)
2. Private customers (HNWI = high net worth individuals)

Question 11

What are the specifics of Risk Management work that IBs do?

Answer 11

1. Research and modelling
2. Products for risk management (but not insurance, at least directly)

Question 12

Shich services offered by IB correspond to which part of the company lifecycle?

Answer 12

1. Development
   * Advisory for growth:
   * M&A
   * Alliances/strategic partnerships
   * Defence advisory
2. Steady state
   * Advisory for mature firms:
   * Corporate Refocus
   * Trunaround
   * Takeover advisory
3. Decline
   * Advisory for decline:
   * Corporate crisis
   * Restructuring