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Chapter 1

Chapter 1. Investment Banking Activities. A. Investment Banking Activities. Investment Bank. Support Activities. Revenue-Generating Activities. Clearing. Primary market making Corporate finance Municipal finance Treasury and agency finance. Research. Secondary market making

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Chapter 1

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  1. Chapter 1 Investment Banking Activities

  2. A. Investment Banking Activities Investment Bank Support Activities Revenue-Generating Activities Clearing • Primary market making • Corporate finance • Municipal finance • Treasury and agency finance Research • Secondary market making • Dealer Activity • Brokerage activities • Trading • Speculation • Arbitrage Internal finance(funding) • Corporate Restructuring • Expansion • Contraction • Ownership and control Information services • Financial engineering • Zero coupon securities • Mortgage-backed securities • Asset-backed securities • Derivative products • Other revenue-generating activities • Advisory services • Investment Management • Merchant banking • Venture capital • Consulting

  3. B. Investment Banking v.s. Commercial Banking • The Glass-Steagall Act, 1933 • Gramm-Leach-Bliley Act, 1999 • Banking • Securities • Insurance • Fed funds market vs. Repo market

  4. C. Investment Bankers • Oligopoly • U.S. Firms • Merrill Lynch, Pierce, Fenner & Smith Inc. (Bank of America) • Citigroup Salomon Smith Barney(SSB) Inc. • Lehman Brothers. (Chapter 11) • Goldman Sachs & Co. • Morgan Stanley Dean Witter.

  5. C. Investment Bankers • Oligopoly • Euro Firms • UBS Warburg • Credit Swissie • Deutsche Bank • Abn Amro (RBS) • Barclays

  6. C. Investment Bankers • Oligopoly • Local Firms • China Development Industrial Bank • Taiwan Industrial Bank • Securities Firms

  7. D. Types of Market Making • Brokered Trading • Dealer Trading • Market Making

  8. E. Market Making by Underwriting • Equity financing vs. Debt financing • Equity Financing • Venture Capital(VC) • Initial Public Offering(IPO) • Seasoned Equity Offering(SEO) • Deposit Receipt(DR) • Debt Finance • Mezzanine Finance • Convertible bonds • Government bonds • Eurodollar bonds • Junk bonds • LYONs

  9. E. Market Making by Underwriting • Public offerings vs. Private placement • Public Offerings • Private placement • Initial Public Offerings vs. Seansoned Public Offerings • IPOs • Seasoned Public Offerings

  10. F. Market Making by Financial Innovation * Conversion arbitrage : The investment bank takes one (or more) financial instruments and, through a process of composition or decomposition, creates one (or more) very different financial instruments.

  11. F. Market Making by Financial Innovation • Mortgage Pass-through Mortgage-backed securities: a single-class whole mortgage is used to create multi-class mortgage-back securities call collateralized mortgage obligations. * GNMA collateralized Bonds * Collateralized Mortgage obligations of FHLMC * GNMA-type CMOs issued by subsidiaries of investment bankers, mortgage bankers and home builders

  12. F. Market Making by Financial Innovation Demand side: • For short term issues • Thrifts • Commercial-bank portfolios • Money-market funds • Corporate treasurers • For intermediate term and longer term issues • Insurance companies • Pension funds • Bank trust departments • Investment advisors • International investors

  13. F. Market Making by Financial Innovation • Zero coupon bonds a single-class conventional bond is used to create a strip of individual zero coupon bonds

  14. Interest rate swaps • Fixed-rate payer (S&L) has sold a hypothetical fixed rate security to the floating rate payer (the bank) • Floating rate payer (bank) has sold a hypothetical floating rate note to the fixe rate payer (the S&L)

  15. G. Market Making by Corporate Restructuring • Expansion • Mergers : horizontal, vertical, conglomerate • Tender offer • Joint ventures • Sell offs • Spin offs • Divestitures

  16. G. Market Making by Corporate Restructuring • Corporate control • Premium buybacks • Anti-takeover amendments • Changes in ownership structure • Exchange offers • Share repurchases • Going private • Leverage Buy out (LBO)

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