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Econ 310  Financial Institutions in Hong Kong

Econ 310  Financial Institutions in Hong Kong. Investment Bank – Merrill Lynch. The Nature of Investment Bank. - intermediary that help corporations raise funds. Role of investment banks. - underwrite the initial sale of stocks and bonds

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Econ 310  Financial Institutions in Hong Kong

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  1. Econ 310  Financial Institutions in Hong Kong Investment Bank – Merrill Lynch

  2. The Nature of Investment Bank - intermediary that help corporations raise funds

  3. Role of investment banks - underwrite the initial sale of stocks and bonds - a deal maker in mergers, acquisitions, and spin-offs - a middleman in the purchase and sale of companies - a private broker to the very wealthy

  4. The revenue of investment banks - Commission - fee income - Spread - principal activities

  5. Global investment banking revenue increased in to $52.8bn 2005. - This was up 14% on the previous year - The recovery resulted in an increase in M&A activity

  6. The US was 51% of the total Europe (with Middle East and Africa) generated 31% of the total Asian countries generated the remaining 18%.

  7. Well-known investment banking firms - Morgan Stanley - Merrill Lynch - Salomon brothers - First Boston Corporation - Goldman, Sachs.

  8. The Background of Merrill Lynch 1914 - Charles E. Merrill & Co. opened for business at 7 Wall Street in New York Cityon January 6. A few months later, Edmund C. Lynch, joined him 1915 - The name was officially changed to Merrill Lynch & Co. in

  9. 1941 – Merrill Lynch became the first company of announcing annual report at Wall street 1955 – It gained a underwriting contract of 100million in the first time 1960 and 1961 – It set up in London and Tokyo separately 1993 – It became the first securities firm of Beijing

  10. - with offices in 37 countries and territories - total client assets of approximately $1.5 trillion - ranked No.34 in Fortune 500 from the April 17th 2006 issue - topped Barron's annual "Top 100 Financial Advisers" again in April 2006, with the largest number on the list of any firm — 22

  11. Two core businesses of Merrill Lynch - Global Private Client - Global Markets & Investment Banking Group

  12. Services of Merrill Lynch - Securities origination, brokerage, dealer and related activities - Investment banking - Securities clearance, settlement, equity financing and services, including prime brokerage - Wealth management products and services, including financial, retirement and generational planning - Banking, trust and lending services - Insurance and annuity products and annuity underwriting - Private equity and other principal investing activities - Global investment research - BlackRock

  13. Major locations - New York City, New York, U.S., global headquarters - Jacksonville, Florida, U.S., corporate center, supporting North America operations - Hopewell, New Jersey U.S., corporate center, supporting North America operations - London, UK, European headquarters - Hong Kong, PRC - Tokyo, Japan

  14. Other Services of Merrill Lynch • Two global business - global private client - global markets

  15. Global private client • Main Services provided • GPC business model • Target Customers

  16. Global private client • Four main services of small and mid-sized businesses : - integrated cash management - flexible financing - retirement & benefits - personalized advice

  17. Global private client • Role of GPC • Total MerrillSM • Awards

  18. Global Markets • Services provided • Fixed Income, Currencies and Commodities group (FICC) • Global Equities • Award

  19. Performance of Merrill Lynch 2005 Financial Data Total Revenue : $ 26.0 billion USD Change : ↑18% Net Profit Margin : $ 5.1 billion USD Change : ↑15% Total Asset : $ 681 billion USD Change : ↑8.4%

  20. Revenue from : - Asset management fees - Portfolio service fees - Commissions of Equities and Mutual Funds - Principal transactions - Underwriting - Strategic advisory

  21. Key Event in 2006 • Merger Merrill Lynch Investment Managers with BlackRock, Inc. - 49.8% shareholding • more than $1 trillion in assets under management

  22. Stock Performance of Merrill Lynch (MER)

  23. Morgan Stanley : 凹凸科技 (457) 中國建材 (3323) 湖南有色 (2626) 世茂房地產 (813) 中煤能源 (1898) Goldman Sachs : 上海先進半導體(3355) 中國銀行 (3988) 建滔積層板 (1888) 中國通信服務 (552) Primary Sponsor（保薦人) of IPO Merrill Lynch : - ICBC (1398) - 中國交通建設 (1800)

  24. Case Study: ICBC

  25. 210 hundred million US dollars • ICBC will purchase in Hong Kong and Shanghai, distribute 483 hundred million for A shares and H shares • Hong Kong release partially approximately composes for 3/4 • ICBC can become the stock which goes on the market in Hong Kong and China.

  26. Feburary,2006 • ICBC gathers capital the amount 100 hundred million US dollars • the bank choice goes on the market sells on consignment business certainly to have to enjoy a higher well-knowingness in the local capital market, and has a stronger comprehensive strength.

  27. March 2006 • requested them to make the suggestion estimate and the detailed plan book

  28. July 2006 • ICBC incurs the stock price approximately 2.76 dollars • the independence buyers should have 3,000 dollars

  29. September 2006, • ICBC in the preliminary of raising capital which submits to Securities and Futures Commission

  30. the ICBC can distribute 130 hundred million of A shares, but H shares achieved 353 hundred million • public shares are partial initially only accounts for 5%

  31. The ICBC amounts between 180 to 210 hundred million US dollars • ICBC of stock price possibly lies between 2.6 dollars to 3.05 dollars

  32. On 27 of October, 2006 (1st Day) • All independence buyer totaled gains approximately 16 hundred million dollars. • ICBC of H shares receives nearly 15%, reports 3.52 dollars • each independence buyers gain 319 dollar

  33. ICBC • Merrill set the right price Over subscribe exist

  34. ICBC • - 1st day (opening) • Share price $3.60 • Higher than listing price • ($3.07 $3.6) 17% • $450/1000 share

  35. ICBC • China Merchants bank 24.9% • Bank of China 15.3% • ICBC 14.6% • Bank of Communication 13.2% • China Construction Bank 0%

  36. ICBC - Professional’s expectation Long term - Trend is going upward (share price)

  37. Competitors

  38. Short term • Great competition in local market • 58 banks providing investment banks’ services • many choices to choose underwriting IPO e.g. ICBC case

  39. Competitors • local banks are expanding their business to different categories, e.g. HSBC

  40. Competitors • 1.Commercial bank – the Hongkong and Shanghai banking co-operation • 2.Investment Banking -- HSBC Investment (Hong Kong) Limited • 3.Insurance • 4.Leasing, Finance and Factoring • 5.HSBC Securities Services • 6.Global Payments and Cash Management • 7.Trade Services • 8.Corporate, Investment Banking and Markets • 9.Property Services • 10.Shipping

  41. Competitors Long term • Merrill is not a local I-bank, cannot share the benefit of CEPA • Competitors doing more advanced • Market predicted is negative to Merrill

  42. Conclusion

  43. The End Group members • Ng Sin Kwan 043057 • Chiu Pui Ming Stephanie 055012 • Or Chung Ching 035165 • Lai Man Yan 043012 • Fan Man Kit 043022 • Wong Ping Yiu, Brian 043195

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