COMSATS

INSTITUTE

OF INFORMATION TECHNOLOGY, ISLAMABAD

ASSIGNMENT OF FINANCIAL DECISSION

MAKING
SUBMITTED BY
NOUMAN AJMAL

(SP13-MBA-052)

HYDER AYUB

(SP13-MBA-082)

ABUBAKAR QURESHI

(SP13-MBA-037)

MOHSIN RAZA

(SP13-MBA-035)

AKHTAR ALI

(SP13-MBA-004)

AQIB BASHIR

(SP13-MBA-001)

ABDUL MANAN

(SP13-MBA-002)

FAHAD AZHAR

(SP13-MBA-018)

DANIAL AHMED

(SP13-MBA-013)

ADEEL GHAZI KHAN

(SP13-MBA-003)

SUBMITTED TO
SIR KAMAL MUSTAFA

FUNCTIONS OF INVESTMENT BANKS

Investment banking is a stream of banking that primarily focuses
on capital financing for global and local businesses, individuals
and even governments. These diversified finance requirements
can be in the form of equity/debt IPO, bonds offering, mergers
and acquisitions, portfolio management, etc. following are the
functions of the investment banks:

Raising

Capital

&

Security

Underwriting. Banks

are

middlemen between a company that wants to issue new

securities and the buying public.

Mergers & Acquisitions (advisor). Banks advise buyers and

sellers

on

structuring

business
of

valuation,

transactions,

as

negotiation,
well

as

pricing

and

procedure

and

implementation.

Sales & Trading and Equity Research. Banks match up buyers

and sellers as well as buy and sell securities out of their own
account to facilitate the trading of securities

Front office vs back office. While the functions like M&A

advisory

are

front

office,

other

functions

like

risk

management, financial control, corporate treasury, corporate

strategy, compliance, operations and technology are critical
back office functions.

Distributing.
Once

the

investment banker owns

new

securities. It must get them into the hands of ultimate

investors. The investment banker is a specialist with a staff and
organization to distribute securities. So, they perform physical
distribution functions more efficiently and more economically
than and individual company.

Making A Market. In case of a company going public for the

first time, the investment banker may be obliged to maintain a
market

for

the

shares

after

the

issue.

The

investment banker generally agrees to make a market in the

stock and to keep it reasonably liquid. In making a market, the
underwriter maintains an inventory in the stocks, quotes bid
and asked prices, and stands ready to buy and sell it at those
prices.

TOP SIX INVESTMENT BANKS

This assignment lists the top six full service global investment
banks, with a brief introductory description and recent income
details of each, based on a combination of the above-mentioned
parameters. Although investment banks have a lot more functions
(like retail banking) which may not necessarily fall within
investment banking space, the list below indicates the top rated
banks and their numbers as a whole. Details specific to
investment banking division are included, based on available
data.

Goldman Sachs (GS)

One of the oldest banking firms founded in 1869 and their
headquarter is in New York, GS offers a wide range of services
spread across four divisions - investment banking, institutional
client services, investing and lending and investment
management. Goldman Sachs reported net revenues of $34.210
billion, of which investment banking division contributed $6
billion. Other divisions revenues were higher, but maximum
percentage growth was in the investment banking space (around
20% - compared to 2014). Earnings per share (EPS) were $16.34.

JP Morgan Chase (JPM)

One of the largest investment banks, JPM Chase reported net
revenues of $96,606 million, of which investment banking
revenue contributed $1,700 million. EPS was $4.39. The firm has
$2.4 trillion in assets and $211.2 billion in stockholders equity
and operates in 60 countries with more than 260,000 employees
with a diversified set of services. Apart from investment banking,
it also operates in small business finance, international banking,
and transaction processing and private equity.

Barclays (BCS)
Founded in 1896, the London, UK based investment bank hit the
recent headlines for allegations about rigging of London interbank
rates and news about huge number of job cuts globally. Backed by
a
strong
workforce
of
139,600
employees
globally,
reports indicate total income of 28,444 million of which the
investment banking segment contributed to 10,733 million a
segment decline of 9% compared to previous year. Overall, EPS
was 3.8 pence. Along with investment banking, it has a strong
presence in retail and commercial banking and card processing
business.

Bank of America Merrill Lynch (BofA-ML)

The large entity formed by erstwhile Merrill Lynch being taken
over by Bank of America following the 2008 financial crisis, offers
a wide array of banking services including investment banking,
mortgage, trading, and brokerage. Operating in 40 countries
across the globe with total revenue of $89,801 million, the

investment banking division contributed $6,126 million. The

overall EPS was $0.94 for 2013. (Report)

Morgan Stanley (MS)

Founded in 1935 and headquartered in New York USA, the global
firm employs 55,794 employees spread across multiple countries.
It reported net revenue of $32,417 million, of which the
investment banking segment contributed $5,246 million. EPS was
$1.42. Apart from the usual capital rising, M&A, corporate
restructuring services, and the firm also offers diversified services
like prime brokerage, custodian, settlement and clearing, etc.

Deutsche Bank (DB)

Based in Germany and listed on XETRA stock exchange, Deutsche
Bank reported net revenue of EUR 31,915 million. One of the
largest financial services firms of Europe, DB specializes in the
cross border payments, international trade financing, cash
management, card services, mortgage, insurance and the usual
investment banking stream. Deutsche has a global presence with
operations in 71 countries.

DIFFERENCE BETWEEN INVESTMENT BANKS

AND COMMERCIAL BANKS

Commercial banks borrow and lend money that they hold on

their
balance
sheets.

They hold depositors' money in instruments such as savings

accounts and CDs.

They earn profits based on the difference in the interest rate

at which they charge borrowers and the interest rate at which
they give depositors.

Their performance was very much linked to economic growth

and credit demand.

These banks are highly regulated by a variety of federal

authorities, such as the Federal Reserve and the Federal
Deposit Insurance Corporation (FDIC). Commercial banks are
insured by the federal government, maintaining an ability to
protect customer accounts and provide a certain level of
security.
Investment banks match institutions who want to borrow
money to institutions who want to lend money. However, unlike
commercial banks, investment banks simply intermediate these
transactions and don't hold much capital themselves.

These transactions can be in the form of debt or equity,

whereas commercial banks generally only deal with debt.

Investment banks are compensated on a transaction-basis

rather than an interest spread.

Their performance is strongly influenced by stock market

performance.

They are much more loosely regulated by the Securities and

Exchange Commission (SEC). This offers less protection to
customers, but allows investment banks a significantly greater
amount of operational freedom.
In many regions/ jurisdictions commercial banking and investment
banking have been legally separated. For instance, in the US, the
1933 Glass-Steagall Act prohibited commercial banks from
carrying out investment banking and insurance business. This

legislation was put in place by the US authorities in response to

the 1929 Wall Street Crash where excessive bank securities
speculation was blamed for the crash and the Great Depression
that followed. Similar legislation was put in place in Japan in 1948.
This legislation was cancelled in 1999 in both countries. Banks in
the EU have been allowed to offer commercial and investment
banking services without restriction since 1992.

REFRENCES
1. http://www.investopedia.com/articles/investing/111114/world
s-top-10-investment-banks.asp
2. https://www.wallstreetprep.com/knowledge/aboutinvestment-banking/
3. http://accountlearning.blogspot.com/2013/01/investmentbankers-and-their-functions.html
4. http://lexicon.ft.com/Term?term=investment-bank
5. https://www.quora.com/What-is-the-difference-betweencommercial-banks-and-investment-banks