Investment Banks

9 Key excerpts on "Investment Banks"

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  eBook - ePub

  Financial Policies and Capital Markets in Arab Countries

  • Saíd El-Naggar(Author)
  • 1994(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  The supply of equities in many countries has been limited by the reluctance of owners of private companies to dilute their ownership and control by issuing stock to the public and to comply with requirements to disclose information about their operations. The availability of less expensive debt finance has also discouraged equity issues. The absence of an appropriate legal, regulatory and tax framework has further inhibited the development of capital markets. Double taxation on dividends and capital gains, and the tax-free status of government securities has lessened the appeal of private equity and bonds. Investor confidence has been further undermined by the lax enforcement of corporate income taxes as closely held corporations are able to avoid taxes by showing depressed profits. The lack of timely and accurate financial information has often resulted in speculative trading that has further hurt investor demand for securities in developing countries.

  The efficient functioning of financial markets also depends on institutions that lend and borrow little on their own account; Investment Banks, securities brokers and credit rating agencies.

  Investment Banks . Investment Banks are important constituents of securities markets; they are intermediaries for locating and collecting funds for their clients so they can finance new investment products. They are major players in the development of securities offerings. In addition, they arrange private placements, provide funds management, and perform corporate advisory and portfolio management services. Investment Banks have yet to play a major role in Arab countries, which are still in the process of developing their nascent capital markets.

  Investment bankers bring new securities to the market by purchasing whole issues of securities from corporate issuers or from public bodies and distributing them to institutional and individual investors. By making a firm commitment to purchase the securities from the company, the investment banker insures any risk associated with a new issue. This service, known as underwriting, permits government and corporate entities to broaden their sources of long-term financing beyond the banking system. Underwriting is critical to the development of emerging markets where corporate or public entities are reluctant to raise equity capital without the guarantee provided by this service. Investment Banks are also market makers in secondary markets.

  Corporate advisory services are a growing business for Investment Banks in emerging markets. The private sector in many developing countries has been accustomed to functioning in heavily controlled and protected market environments that have provided inadequate preparation for businesses to respond to market signals. Investment Banks can play an important part in advising businesses on how to compete in a more open and international economy. However, they also have a key advisory role in relation to project financing, i.e., identifying project risks, attracting technical partners, identifying and selecting sources of finance, and structuring the financial package. While banks, long-term financing institutions, and institutional investors provide financing, Investment Banks arrange financing and can play a useful role in organizing loan syndications for large amounts of financing.

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  Investment Management

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 4 Investment Banking An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provides ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. Unlike commercial banks and retail banks, Investment Banks do not take deposits. From 1933 (Glass-Steagal Act) until 1999 (Gramm–Leach–Bliley Act), the United States maintained a separation between investment banking and commercial banks. Other industrialized countries, including G8 countries, have historically not maintained such a separation. There are two main lines of business in investment banking. Trading securities for cash or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the sell side, while dealing with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on investment) constitutes the buy side. Many firms have buy and sell side components. An investment bank can also be split into private and public functions with a Chinese wall which separates the two to prevent information from crossing. The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information. An advisor who provides investment banking services in the United States must be a licensed broker-dealer and subject to Securities & Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regulation.

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  Concepts and Theories of Investment Management

  • (Author)
  • 2014(Publication Date)
  • College Publishing House

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 4 Investment Banking An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mer-gers and acquisitions, and provides ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. Unlike commercial banks and retail banks, Investment Banks do not take deposits. From 1933 (Glass-Steagal Act) until 1999 (Gramm–Leach–Bliley Act), the United States maintained a separation between investment banking and commercial banks. Other industrialized countries, including G8 countries, have historically not maintained such a separation. There are two main lines of business in investment banking. Trading securities for cash or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the sell side, while dealing with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on investment) constitutes the buy side. Many firms have buy and sell side components. An investment bank can also be split into private and public functions with a Chinese wall which separates the two to prevent information from crossing. The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information. An advisor who provides investment banking services in the United States must be a licensed broker-dealer and subject to Securities & Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regulation.

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  The Future of Global Financial Services

  • Robert E. Grosse(Author)
  • 2009(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  As long as Investment Banks can maintain leadership in the skills required for underwriting, advising on mergers and acquisitions, and some other functions, it is not likely that they will be beaten out by commercial banks with deeper pockets or by other intermediaries. Returning to the question of definitions, investment banking includes at least the following activities: 10 154 THE FUTURE OF GLOBAL FINANCIAL SERVICES • Underwriting corporate stock, bond, and other securities issues. • Arranging, evaluating, and advising on corporate merger and acquisition (M&A) activities. • Arranging financing for corporations through nonloan vehicles such as commercial paper, financing facilities, and securitization of accounts receivable. • Providing risk management services through the creation/issuance of derivative instruments such as futures and options. • Providing buy-and-sell opportunities in a secondary market for existing securities (brokerage). One study defines the set of activities comprising investment banking, as shown in figure 10.1. As one can readily see from the two lists, there are quite a few different investment banking services, which are quite varied in their nature, their clientele, and their value. For example, retail stockbroker services are quite small in their impact per transaction – but the firm can carry out thousands of trades every day, and thus generate interesting, actually very large, income. At the other extreme, major mergers or acquisitions between companies are far, far fewer in number, but may involve values of billions of dollars per transaction. And likewise with respect to staffing needs: the investment bank may employ thousands of retail stockbrokers to deal with millions of individual clients, while at the other extreme the M&A staff may be numbered in dozens of people, dealing with a likewise limited number of clients and deals.

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  CFIN

  • Scott Besley, Eugene Brigham, Scott Besley(Authors)
  • 2021(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  8 3-3 THE INVESTMENT BANKING PROCESS When a business needs to raise funds in the finan- cial markets, it generally enlists the services of an investment banker (see the middle panel in Figure 3.1). Such organizations perform three tasks: (1) They help corporations design securities with the features most attractive to investors, given existing market conditions; (2) they generally buy these securities from the corporations; and (3) they resell the securities to investors (savers). Although the securities are sold twice, this process is actually one primary market trans- action, with the investment banker acting as an agent that transfers funds from investors to businesses. The major investment banking houses often are divisions of large financial service corporations that engage in a wide range of activities (e.g., Bank of America/Merrill Lynch). In this section we describe the general procedures that are followed when stocks and bonds are issued in the financial markets with the aid of investment bankers. 3-3a Raising Capital: Stage I Decisions A corporation that needs to raise funds makes some pre- liminary decisions on its own, including the following: 9 1. Dollars to be raised—How much new capital is needed? 2. Type of securities used—Should stock, bonds, or a combination of these instruments be used? 3. Competitive bid versus negotiated deal—Should the company simply offer a block of its securities for sale to the investment banker that submits the highest bid of all in- terested investment bankers, or should it sit down and negotiate a deal with a single investment 8 Insiders must file monthly reports of changes in their holdings of the corporation’s stock, and any short-term profits from trading in the stock must be handed over to the corporation. 9 For the most part, the procedures described in this section also apply to government entities. Governments issue only debt, however; they do not issue stock.

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  How the Global Financial Markets Really Work

  The Definitive Guide to Understanding International Investment and Money Flows

  • Alexander Davidson(Author)
  • 2009(Publication Date)
  • Kogan Page

    (Publisher)

  Investment banking Introduction In this chapter we will see how investment banking works, and how it has changed. We will focus on mergers and acquisitions, and share issues, includ-ing IPOs and rights issues. The business Investment banking covers a range of activities, including raising money for clients in capital markets, mergers and acquisitions (M&A), securities trading and sales, treasury dealing and investment management. Banks have tended to specialise within these areas, branching also into proprietary trading, investing in private equity and becoming prime brokers for hedge funds. This is a high-risk, high-reward business. Global investment banking rev-enues reached US$84.3 billion (£56.5 billion) in 2007, up by 21 per cent on the previous year, which was a rise for the fifth year running, according to ‘Banking 2008’, a report by International Financial Services London (IFSL). Europe, with the Middle East and Africa, accounted for 32 per cent of the whole and the United States accounted for 53 per cent. The credit crisis since 2007 has forced a reshaping of investment banking. In March 2008, J P Morgan Chase agreed to buy Bear Stearns, one of the last few Investment Banks, in a rescue backed by the US Federal Reserve. The Fed provided a US$30 billion (£20.1 billion) guarantee, a move that was seen as preventing a systemic collapse. The Fed and the treasury were intervening only to protect Bear Stearns’s counterparties, with which it had made many trades. It was similarly to avoid a systemic problem that the US government on 7 September 2008 announced a cash injection package of up to US$110 billion (£73.7 billion) for Fannie Mae, the Federal National Mortgage Association, 7 69 and Freddie Mac, the Federal Home Loan Mortgage Corporation. Between them Fannie Mae and Freddie Mac back three-quarters of all new US mort-gages and own or guarantee US$4.8 trillion (£3.2 trillion) of US mortgages.

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  Investment Theories

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  Hence in recent years the relationship between investment banking and research has become highly regulated, requiring a Chinese wall between public and private functions. Other businesses that an investment bank may be involved in • Global transaction banking is the division which provides cash management, custody services, lending, and securities brokerage services to institutions. Prime brokerage with hedge funds has been an especially profitable business, as well as risky, as seen in the run on the bank with Bear Stearns in 2008. • Investment management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g., real estate), to meet specified investment goals for the benefit of investors. Investors may be institutions ____________________ WORLD TECHNOLOGIES ____________________ (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g., mutual funds). The investment management division of an investment bank is generally divided into separate groups, often known as Private Wealth Management and Private Client Services. • Merchant banking is a private equity activity of Investment Banks. Current examples include Goldman Sachs Capital Partners and JPMorgan's One Equity Partners. (Originally, merchant bank was the British English term for an investment bank.) Commercial banking A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking . It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. After the implementation of the Glass-Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas Investment Banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S.

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  Crisis and Recovery

  Ethics, Economics and Justice

  • Larry Elliott, Rowan Williams, Archbishop of Canterbury(Authors)
  • 2010(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  123 6 INVESTMENT BANKING: THE INEVITABLE TRIUMPH OF INCENTIVES OVER ETHICS John Reynolds Investment banking is a necessity in the modern economy. It enables companies and governments to finance and carry out increasingly global activities. It offers significant rewards to some investment bankers. It is vulnerable to abuse and the relentless pursuit of money and, by implica- tion, power. Can it be ethical or is it intrinsically unethi- cal, given the huge temptations? WHY DO Investment Banks EXIST? The modern economy requires Investment Banks. The role they play includes raising money for governments, trans- mitting and converting currency around the world, as well as the areas requiring highly specialist advice for compa- nies and governments, which are often prohibitive for all but the largest organizations to retain in-house. It is helpful to understand the different roles played by and within Investment Banks. The first crucial separation is between advisory activities and markets. The second is between debt and equity markets. Within markets activi- ties, there is also a clear distinction between those involved in client activities, and those trading on behalf 124 CRISIS AND RECOVERY of the investment bank itself. It is also important to note that as well as well-known integrated Investment Banks, which are active across most areas of investment banking, there are also many firms that specialize in only one activity. In some cases, it can be increasingly difficult to assess the difference between the activities of a division of an investment bank and a hedge fund. This can also be the case in other areas, for example comparing advisory activities with similar services provided by an account- ancy firm. It is also the case that the main drivers of profitability change over time: in the late 1990s, equity issuance was extensive and very profitable. This was again the case in 2009, as banks and financial institutions replenished their balance sheets.

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  Basic Finance

  An Introduction to Financial Institutions, Investments, and Management

  • Herbert Mayo, , , (Authors)
  • 2018(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  This chapter also briefly describes the major federal laws that govern the issuing and subsequent trading in securities. The purpose of this legislation is not to ensure that you will earn a positive return. Instead its purpose is to ensure that you and all investors receive timely and accurate information. You continue to bear the risk associ-ated with buying stocks and bonds. Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 3 Investment Banking 31 3.1 The Transfer of Funds to Business One purpose of financial markets is to facilitate the transfer of funds from individuals (and firms and governments) with funds to invest to those individuals (and firms and governments) that need funds. One method is an indirect transfer through a financial intermediary such as a commercial bank. The other method is the direct investment in the firm by the general public. This transfer occurs when you start your own busi-ness and invest your savings in the operation. But the direct transfer is not limited to investing in your own business. Firms (and governments) also raise funds by selling securities directly to the general public. 3.2 The Role of Investment Bankers While companies could sell securities directly to you (and some do sell modest amounts of securities through programs such as the dividend reinvestment plans described in Chapter 10), the majority of these sales are executed through investment bankers . In effect, an investment banker serves as a middleman to channel money from investors to firms and governments that need the funds.

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