1 / 20

Overview

Overview. In this segment ... Securities Firms and Investment Banks: Activities of securities firms and investment banks Size, structure and composition Balance sheets and recent trends Regulation of securities firms and investment banks Global issues. Securities Firms &Investment Banks.

kolina
Download Presentation

Overview

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Overview • In this segment ... Securities Firms and Investment Banks: • Activities of securities firms and investment banks • Size, structure and composition • Balance sheets and recent trends • Regulation of securities firms and investment banks • Global issues

  2. Securities Firms &Investment Banks • Nature of business: • Underwrite securities. • Market making. • Advising (example: M&A, restructurings).

  3. Securities Firms &Investment Banks • Growth in domestic M&A: • Less than $200 billion in 1990. • $1.83 trillion in 2000 • In US: bottomed out at $458 billion in 2002 ($1.2 trillion worldwide) • $525 billion 2003 ($535 trillion worldwide)

  4. The Largest M&A Transactions

  5. Size, Structure and Composition • Dramatic increase in number of firms from 1980 to 1987. Decline of 31% following the 1987 crash, to year 2003. • 1987: Salomon Brothers held $3.21 billion in capital. • 2003: Merrill Lynch held capital of $24.8 billion. • Many recent inter-industry mergers (i.e., insurance companies and investment banks). • Role of Financial Services Modernization Act, 1999

  6. Types and Relative Sizes of Firms • National full-line firms are largest. • Merrill Lynch, Morgan Stanley • National full-line firms specializing in corporate finance are second in size. • Goldman Sachs, Salomon Brothers/Smith Barney • Remainder of industry: • Specialized investment subsidiaries of BHCs. • Discount brokers. • Regional securities firms (subdivided into large, medium and small). • Specialized electronic trading securities firms

  7. Top U.S.Underwriters, 2003

  8. Key Activities • Investing • Investment banking • Activities related to underwriting and distributing new issues of debt and equity. • Market making • Increasing importance of online trading • Trading • Position trading, pure arbitrage, risk arbitrage, program trading

  9. Key Activities (continued) • Cash management • Assisting with M&A • Back-office and service functions.

  10. Trends • Decline in trading volume and brokerage commissions • particularly since crash of 1987, although some recovery since 1992. Record volumes 1995-2000. • Declines in market values--and commission income 2001-2002 • Resurgence in market values and commissions 2003-2004.

  11. Trends (continued) • Pretax net income over $9 billion per year 1997-2000 • Pretax profits soared to $21.0 billion in 2000 • curtailed by economic slowdown and September 11 attacks 2001. • 2003 record pre-tax profits of $22.5 billion. • Continuing concerns over conflicts of interest and other ethical concerns • Soft dollars • Analysts’ recommendations to buy or hold collapsing technology stocks

  12. Balance Sheet • Key assets: • Long positions in securities and commodities. • Reverse repurchase agreements. • Key liabilities: • Repurchase agreements major source of funds. • Securities and commodities sold short. • Broker call loans from banks • Capital levels much lower than levels in banks

  13. Regulation • Primary regulator: SEC • Reiterated by National Securities Markets Improvement Act (NSMIA) of 1996. • Prior to NSMIA, regulated by SEC and states. • Regulate trading activities such as shelf registration

  14. Regulation • Early 2000s erosion of SEC dominance • Increased vigilance by State Attorneys General • Spring 2003, $1.4 billion in penalties over investor abuses. • Sarbanes-Oxley Act of 2002 • Independent auditing oversight board under SEC • Instigated by Enron, Global Crossings, Tyco, WorldCom

  15. Regulation (continued) • Day-to-day regulation: NYSE, NASD • October 2003 implementation of provisions of Patriot Act to combat money laundering • Scrutiny of individual identities and affiliations with terrorists

  16. Investor Protection & Other Monitoring • Securities Investors Protection Corporation (SIPC). • Protection level of $500,000 • Federal Reserve also has role in overseeing securities firms and investment banks • Vulnerability of the financial system • Issue of timely settlement raised by Greenspan

  17. Web Resources • For details of regulation of securities firms and investment banks, visit: SEC: www.sec.gov NYSE: www.nyse.com NASD: www.nasd.com SIPC: www.sipc.org

  18. Global Issues • Global nature of securities firms • Demonstrated by recent mergers such as Deutsche Bank/Bankers Trust • Dominance of UBS in U.S. mortgage backed securities markets • Growth in securities trading and underwriting is a global event

  19. Pertinent Websites Federal Reserve: www.federalreserve.gov NASD: www.nasd.com NYSE: www.nyse.com SEC: www.sec.gov Securities Industry Association: www.sia.com SIPC: www.sipc.org The Banker: www.thebanker.com Thompson Fin. Securities Data: www.tfibcm.com Wall Street Journal www.wsj.com

More Related