Investment Banking

FinancialEnglishAboutthismoduleAims:•ReviewtheoryinFinance•Learnusefulwordsandexpressions•ImprovetheabilitytoemployEnglishinfinancefields•OtherneedsSchedules•LecturesWeek1InvestmentBankingWeek2InvestmentBankingWeek3DerivativesWeek4DerivativesWeek5NationalDayWeek6CommercialBankingWeek7CommercialBankingWeek8RelatedwritingWeek9FinalExaminationAttendance10%Coursework20%Finalexam70%100%•AssessmentStructureofFinals•Matching•Termexplanation•Translations•Shortanswerquestions•Vocabulary•Illustration•CalculationModule1InvestmentBanks•DefinitionIBisafinancialinstitutionthatraisescapital,tradesinsecuritiesandmanagescorporatemergersandacquisitions(M&A).BearStearnsCos.I.InvestmentBanks•DepartmentsIBissplitintothreeparts:frontofficemiddleofficebackofficeFrontOffice•Investmentbankingdivision(Corporatefinance)•Salesandtradingdivision•Researchdivision•Globaltransactionbankingdivision•InvestmentmanagementdivisionHelpingcustomersraisefundsinthecapitalmarketsandadviseonM&Aissues.MiddleOfficeProvidesservicesincludingriskmanagement,corporatetreasury,financialcontrolandcompliancewithgovernmentregulationsandinternalregulations.BackOfficeIthandlestradeconfirmation,thesoftwareandtechnologyplatformsthatallowtraderstodotheirjobs.FinancialandadministrationdepartmentHRInvestmentBanks•Investmentbanksperformavarietyofcrucialfunctionsinfinancialmarkets–Underwritetheinitialsaleofstocksandbonds–Dealmakerinmergers,acquisitions,andspin-offs(分拆)–Middlemaninthepurchaseandsaleofcompanies–PrivatebrokertotheverywealthyActivitiesWewillfocusontheirroleinthreeareas:•UnderwritingStocksandBonds•EquitySales•MergersandAcquisitionsUnderwritingStocksandBonds•Theprocessofunderwritingastockorabondissuerequiresthattheinvestmentbankerpurchasetheentireofferingatapredeterminedpriceandthenreselltheoffering(securities)inthemarket.Theservicesprovidedduringthisprocessinclude:–GivingAdvice–FilingDocuments–Underwriting,BestEfforts,orPrivatePlacementUnderwritingStocksandBonds•Givingadvice–Explainingcurrentmarketconditionstohelpdeterminewhattypeofsecurity(equity,debt,etc.)tooffer–Assistingindeterminingwhentoissue,howmany,atwhatprice(moreimportantwithIPOsthanSEOs)UnderwritingStocksandBonds•FilingDocuments–SECregistration(filing)isrequiredforissuesgreaterthan$1.5millionandwithamaturitygreaterthan270days.–Aportionoftheregistrationstatementknownastheprospectusismadeavailabletothepublic.–Debtissuesrequireseveraladditionalsteps,includingacquiringacreditrating,hireabondcounsel,etc.–Forequityissues,theinvestmentbankermayalsoarrangeforthesecuritiestoappearononeoftheexchanges.UnderwritingStocksandBonds•Underwriting(firmcommitment)–Theinvestmentbankerpurchasestheentireofferingatafixedpriceandthenresellstheofferingtothemarket.–Anunderwritermayformanunderwritingsyndicatetodiffusepartoftheunderwritingrisk.–Placementofatombstonein,forinstance,theWallStreetJournalUnderwritingStocksandBondsUnderwritingStocksandBonds•Thegoalofunderwritingisforallofthesharesinanofferingtobespokenfor.However,thismaynotoccur.–Fullysubscribed:allsharesarespokenfor–Undersubscribed:underwritingsyndicateunabletogenerateinterestinalloftheavailableshares–Oversubscribed:interestinmoresharesthanareavailable(mayleadtorationing).UnderwritingStocksandBondsFigure23.1UsingInvestmentBankerstoDistributeSecuritiestothePublicUnderwritingStocksandBonds•BestEfforts:Analternativetoafirmcommitment,theunderwriterdoesnotbuytheissue,butrathermakesits“besteffort”toselltheentireissue.•PrivatePlacements:Theentireissueissoldtoasmall,selectedgroupofinvestors.EquitySales•EquitySales:whenafirmsellsanentiredivision(ormaybetheentirecompany),enlistingtheaidofaninvestmentbanker.–Assistsindeterminingthevalueofthedivisionorfirmandfindpotentialbuyers–Developconfidentialfinancialstatementsforthedivisionforprospectivebuyer(confidentialmemorandum)–Preparealetterofintenttocontinue,assistwithduediligence,andhelpreachadefinitiveagreementMergersandAcquisitions•Investmentbankersmayassistbothacquiringfirmsandpotentialtargets(althoughnotbothinthesamedeal).•Dealmaybeahostiletakeover,wherethetargetdoesnotwishtobeacquired.•Investmentbankerswillassistinallareas,includingdealspecifics,liningupfinancing,legalissues,etc.SecuritiesBrokersandDealersSecuritiesfirmswithbrokerageservicesofferseveraltypesofservices:•BrokerageService•Full-ServiceBrokersvs.DiscountBrokersSecuritiesBrokersandDealers•SecuritiesOrders:whenyoucallabrokeragehousetobuyorsellasecurity,youessentiallyhavethreeoptions:–MarketOrder:buyorsellsecurityatcurrentprice–LimitOrder:youspecifythemostyouarewillingtopay(buy)ortheleastyouarewillingtoaccept(sell)forasecurity–ShortSales:sellasecurityyoudon’townwiththeintentofbuyingitbackatalaterdate(hopefullyatalowerprice)SecuritiesBrokersandDealers•OtherServices–Insuranceagainstlossofactualsecuritydocuments–Margincreditforpurchasingequitywithborrowedfunds–Otherservicesdrivenbymarketdemand(e.g.,theMerrillLynchcashmanagementaccount)SecuritiesBrokersandDealers•FullServiceBrokers:offerclientsresearchandinvestmentadvice,butusuallychargeahighercommissionontrades.•Dis