Investment Banks Flashcards
What do investment banks do
They underwrite stocks bonds and commercial papers as well as acting as deal makers in mergers and acquisitions
What differentiates investment banks from stock brokers
They earn their money from fees rater than commissions on stock trades
What was the glass steagall act
It separated commercial banking from investment banking by prohibiting banks from trading securities on behalf of customers
What does it mean to underwrite a stock
To purchase the entire batch for a predetermined price to sell on the secondary market
What services do investment banks provide during underwriting
Advice filing documents and doing the actual underwriting
What is a seasoned equity offering
Offering nee stock of a company already publicly listed
What documents need to be filed when issuing stocks
The registration statement must be filed with the sec securities and exchange commission aka finansinspektionen
What is the registration statement that must be filed with the sec
Like an initial report about the condition of the company and what the money will be used for
What does sec approval mean
Only that the document is correct not that it is accurate nor än endorsement of the company
What is the prospectus of the registration statement
The part of the statement that all investors can see
When is a stock issue fully subscribed
When enough customers are convinced to buy each share on the issuing date
Why might it be bad for an investment bank if the stock is oversubscribed
Because then it seams like the price is too low and that the IV screwed the issuing firm
Why is it bad for an investment bank if a share is under subscribed
Because they may loose a lot of money
What is a best effort agreement
An alternative to underwriting where shares are sold on a commissions basis aka at the price that the issuing firm asks for
What are private placements in investment banking
When securities are sold to a limited number of investors. Here IBs are mostly matchmakers and advisors
Does a firm need to register with sec in a private placement
No because it is not going public.
What are equity sales in investment banking
When part if or the whole business is sold, here IBs are matchmakers
How aee equity sales comducted
IB prepares confidential memorandum with financial info to prospecting buyer that responds with a letter of intent that contains the terms if acquisition. IB then helps negotiators and when seller accepts the due diligence period begins where the buyer verifies the accuracy. When all is done a legally binding contract is signed called the definite agreement
What happens in a hostile takeover of a company
When an outside firm forces a merger by acquiring 50% of voting shares without the approval of top managers
How can IBs assist in hostile takovers
They can help raising capital or help relaying a tender offer to willing shareholders. They can also assist in protecting the shares
What is the difference between brokers and dealers
Brokers matchmake in exchange for a comission. Dealers stand ready to buy for cheap and sell for slightly more and make a living on the spread aka the diference
What can you do at a brokerage house
Place an order to buy stocks at the market price or some other rate
What is the risk with a market order of a stock
It might take time to fulfill meanwhile the price may change
What is a limited order in the stock market
Where a buy order has a macimum price and a sell order has a minimum price
