INVESTMENT BANKING

CHAPTER 1
INTRODUCTION

An ​investment bank is a financial institution that assists individuals, corporations,

and governments in raising capital by underwriting or acting as the client's agent
in the issuance of securities (or both). An investment bank may also assist
companies involved in mergers and acquisitions and provide ancillary services
such as market making, trading of derivatives and equit​y securities, and FICC
services ​ (fixed income​ instruments, ​ currencies,​ and ​ commodities​).
Unlike commercial banks and retail banks, investment banks do not take deposits.
From 1933 (Glass–Steagall Act) until 1999 (Gramm–Leach–Blile​y 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. As part of the Dodd–Fran​k Wall
Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act of 2010),
Volcker Rule asserts full institutional separation of investment banking services
from commercial banking.
There are two main lines of business in investment banking.

The "sell side" involves trading securities for cash or for other securities
(e.g. facilitating transactions, market-making), or the promotion of securities
(e.g. underwriting, research, etc.).
The "buy side" involves the provision of advice to institutions concerned
with buying investment services. Private equity funds, mutual funds, life

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insurance companies, unit trusts, and hedge funds are the most common
types of buy side entities.

An investment bank can also be split into private and public functions with an
information barrier 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 Commissio​n (SEC)
and ​ Financial Industry Regulatory Authority​ (FINRA) regulation.

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DEFINITION

'Investment Banking’

A specific division of banking related to the creation of capital for other

companies. Investment banks underwrite new debt and equity securities for all
types of corporations. Investment banks also provide guidance to issuers regarding
the issue and placement of stock.

Investopedia explains 'Investment Banking’

In addition to the services listed above, investment banks also aid in the sale of

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securities in some instances. They also help to facilitate mergers and acquisitions,
reorganizations and broker trades for both institutions and private investors. They
can also trade securities for their own accounts.

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CHAPTER 2

THE HISTORY OF INVESTMENT BANKING

JP Morgan

Undoubtedly, investment banking as an industry in the United States has come a

long way since its beginnings. Below is a brief review of the history

1896-1929
Prior to the great depression, investment banking was in its golden era, with the
industry in a prolonged bull market. JP Morgan and National City Bank were the
market leaders, often stepping in to influence and sustain the financial system. JP
Morgan (the man) is personally credited with saving the country from a
calamitous panic in 1907. Excess market speculation, especially by banks using
Federal Reserve loans to bolster the markets, resulted in the market crash of 1929,
sparking the great depression.

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1929-1970
During the Great Depression, the nation’s banking system was in shambles, with
40% of banks either failing or forced to merge. The Glass-Steagall Act (or more
specifically, the Bank Act of 1933) was enacted by the government with the intent
of rehabilitating the banking industry by erecting a wall between commercial
banking and investment banking. Additionally, the government sought to provide
the separation between investment bankers and brokerage services in order to
avoid the conflict of interest between the desire to win investment banking
business and duty to provide fair and objective brokerage
services (i.e., to prevent the temptation by an investment bank to knowingly peddle
a client company’s overvalued securities to the investing public in order to ensure
that the client company uses the investment bank for its future underwriting and
advisory needs). The regulations against such behavior became known as the
"Chinese Wall.

1970-1980
In light of the repeal of negotiated rates in 1975, trading commissions collapsed
and trading profitability declined. Research-focused boutiques were squeezed out
and the trend of an integrated investment bank, providing sales, trading, research,
and investment banking under one roof began to take root. In the late
70’s and early 80’s saw the rise of a number of financial products such as
derivatives, high yield an structured products, which provided lucrative returns for
investment banks. Also in the late 1970s, the facilitation of corporate mergers was
being hailed as the last gold mine by investment bankers who assumed that

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Glass-Steagall would someday collapse and lead to a securities business overrun

by commercial banks. Eventually, Glass-Steagall did crumble, but not until 1999.
And the results weren’t nearly as disastrous as once speculated.

1980-2007
In the 1980s, investment bankers had shed their stodgy image. In its place was a
reputation for power and flair, which was enhanced by a torrent of mega-deals
during wildly prosperous times. The exploits of investment bankers lived large
even in the popular media, where author Tom Wolfe in “Bonfire of the
Vanities” and movie-maker Oliver Stone in “Wall Street” focused on investment
banking for their social commentary. Finally, as the 1990s wound down, an IPO
boom dominated the perception of investment bankers. In 1999, an eye-popping
548 IPO deals were done – among the most ever in a single year -- with most going
public in the internet sector.

The enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999

effectively repealed the long-standing prohibitions on the mixing of banking with
securities or insurance businesses under the Glass-Steagall Act and thus permitted
“broad banking.” Since the barriers that separated banking from other financial
activities had been crumbling for some time, GLBA is better viewed as ratifying,
rather than revolutionizing, the practice of banking

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INVESTMENT BANKING HISTORY IN THE 20​TH

CENTURY

In the mid-20th century, large investment banks were dominated by the

dealmakers. Advising clients on mergers and acquisitions and public offerings was
the main focus of major Wall Street partnerships. These “bulge bracket” firms
included Goldman Sachs, Morgan Stanley, Lehman Brothers, First Boston and
others.

That trend began to change in the 1980s as a new focus on trading propelled firms
such as Salomon Brothers, Merrill Lynch and Drexel Burnham Lambert into the
limelight. Investment banks earned an increasing amount of their profits from
proprietary trading. Advances in computing technology also enabled banks to use
more sophisticated model driven software to execute trades and generate a profit
on small changes in market conditions.

In the 1980s, financier Michael Milken popularized the use of high yield debt (also
known as junk bonds) in corporate finance and mergers and acquisitions. This
fueled a boom in leverage buyouts and hostile takeovers (see History of Private
Equity). Filmmaker Oliver Stone immortalized the spirit of the times with his
movie, Wall Street, in which Michael Douglas played the role of corporate raider
Gordon Gekko and epitomized corporate greed.

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Investment banks profited handsomely during the boom years of the 1990s and into
the tech boom and bubble. When the tech bubble burst, it precipitated a string of
new legislation to prevent conflicts of interest within investment banks. Investment
banking research analysts had been actively promoting stocks to investors while
privately acknowledging they were not attractive investments. In other instances,
analysts gave favourable stock ratings to corporate clients in the hopes of attracting
them as investment banking clients and handling potentially lucrative initial public
offerings.

These scandals paled by comparison to the financial crisis that has enveloped the
banking industry since 2007. The speculative bubble in housing prices along with
an overreliance on sub-prime mortgage lending trigged a cascade of crises. Two
major investment banks, Bear Stearns and Lehman Brothers, collapsed under the
weight of failed mortgage-backed securities. In March, 2008, the Federal
government began using a variety of taxpayer-funded bailout measures to prop up
other firms. The Federal Reserve offered a $30 billion line of credit to J.P. Morgan
Chase to that it could acquire Bear Sterns. Bank of America acquired Merrill
Lynch. The last two bulge bracket investment banks, Goldman Sachs and Morgan
Stanley, elected to convert to bank holding companies and be fully regulated by the

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Federal Reserve.

Moving forward, the recent financial crisis has weakened both the reputation and
the dominance of U.S. investment banking organizations throughout the world.
The growth of foreign capital markets along with an increase in pools of sovereign
capital is changing the landscape of the industry.

The growing international flow of capital has also opened up opportunities for
investment banking in new financial centers around the world, including those in
developing countries such as India, China and the Middle East.

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EVOLUTION OF INVESTMENT BANKING IN INDIA

The origin of investment banking in India can be traced back to the 19​th century

when European merchant banks set-up their agency houses in the country to assist

in the setting of new projects. In the early 20​th century, large business houses

followed suit by establishing managing agencies which acted as issue house for
securities, promoters for new projects and also provided finance to Greenfield
ventures. The peculiar feature of these agencies was that their services were
restricted only to the companies of the group to which they belonged. A few small
brokers also started rendering Merchant banking services, but theirs was limited
due to their small capital base.

In 1967, ANZ Grind lays bank set - up a separate merchant banking division to
handle new capital issues. It was soon followed by Citibank, which started
rendering these services. The foreign banks monopolized merchant banking
services in the country. The banking committee, in its report in 1972, took note of
this with concern and recommended setting up of merchant banking institutions by
commercial banks and financial intuitions. State bank of India ventured into this
business by starting a merchant banking bureau in 1972. In 1972, ICICI became
the first financial institution to offer merchant banking services. JM finance was
set-up by Mr. Nimesh Kampani as an exclusive merchant bank in 1973. The
growth of the industry was very slow during this period. By 1980, the number of
merchant banks rose to 33 and was set-up by commercial banks, financial

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institutions and private sector. The capital market witnessed some buoyancy in the
late eighties. The advent of economic reforms in 1991 resulted in sudden spurt in
both the primary and secondary market. Several new players entered into the field.
The securities scam in may, 1992 was a major setback to the industry. Several
leading merchant bankers, both in

public and private sector were found to be involved in various irregularities. Some
of the prominent public sector players involved in the scam were can

bank financial services, SBI capital markets, Andhra bank financial services, etc.
leading private sector players involved in the scam included Fair growth financial
services and Champaklal investments and finance (CIFCO).

The market turned bullish again in the end of 1993 after the tainted shares problem
was substantially resolved. There was a phenomenal surge of activity in the
primary market. The registration norms with the SEBI were quite liberal. The low
entry barriers coupled with lucrative opportunities lured many new entrants into
this industry. Most of the new entrants were undercapitalized with little or no
expertise in merchant banking. These players could hardly afford to be discerning
and started offering their services to all and sundry clients. The market was soon
flooded with poor quality paper issued by companies of dubious credentials. The
huge losses suffered by investors in these securities resulted in total loss of
confidence in the market. Most of the subsequent issues started failing and
companies started deferring their plans to access primary markets. Lack of business
resulted in a major shake out in the industry. Most of the small firms exited from

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the business. Many foreign investment banks started entering Indian markets.
These firms had a huge capital base, global distribution capacity and expertise.
However, they were new to Indian markets and lacked local penetration. Many of
the top rung Indian merchant banks, who had string domestic base, started entering
into joint ventures with the foreign banks. This energy resulted in synergies as their
individual strength complemented each other.

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CHAPTER 3
TYPES OF PLAYERS IN INVESTMENT BANKING

● Full-Service Firms

These are type of investment banks who have significant presence in all areas like
underwriting, distribution, M&A, brokerage, structured instruments, asset
management etc. They are all rounder 0f the game.

● Commercial Banks

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Commercial Banks operating through “Section 20” subsidiaries referring to the

subsidiaries formed under section 20 of the Glass- Steagall Act which were
allowed to carry on limited investment banking services.

● Boutique Firms

These are the type of players which specialist in particular areas of investment
banking.

● Brokerage Firms

These firms offers only trading services to retail & institutional clients. They have
huge investor base which is also used by underwriters to place issues.

● Asset Management Firms

These firms offer on investment services. This includes activities like fund
management, wealth management, cash management, portfolio management
depending on the type of investors, tenure of corpus, purpose of
investments, type of instrument invested in etc.

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CHAPTER 4

SKILLS SUGGESTED FOR INVESTMENT BANKERS

▪ Technical Skill

● Academic Background

In the early days of investment banking, not much importance was attached to
academic background. Today, the business has become very complicated and the
skill requirements have multiplied. Consequently, investment banks find it
important to recruit people with the right academic credentials. Typically, for most
of the important jobs, an MBA is a must. Investment banks rely heavily on campus
recruitments

● Conceptual Soundness

One of the major benefits for a professional in an investment bank is the learning
associated with work. The financial skills of an expert are tested to the core while
handling a complicated deal. Comprehensive and in-depth knowledge of financial
and business concepts are essential to sustain business. Multiple relationships
between various factors render decision-making difficult. Financial solutions can

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be provided to the clients only when the advisor is competent to understand all or
at least a majority of them. Before practical solutions emerge, the tools for
decision-making will give greater choice to the solution provider. A strong
grounding in theory and concepts facilitates this.

● Product Specialization

One way to specialize in an investment bank is through products. An expert in a

particular product, say hybrid instruments, can work out financial solutions for any
client across the industries. Each client has his or her individual risk taking ability.
To cater to the client on an in basis, appropriate products that would suit their risk
profile should be identified. The clients will also feel at home while dealing with a
product specialist.

● Legal Knowledge

While clear cut guidelines can be issued to the traders regarding their market
related activities that are governed by the law, the complexity multiplies for an
M&A deal. The regulators’ guidelines have to be strictly followed, even while
envisaging a combination. Legal knowledge is also important for structuring such
deals, which will help identify the constraints associated with proposed solution.
The situation gets more intense when the deal is a cross-border M&A proposal.
Apart from the knowledge of the inland laws, foreign laws also have to be

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considered. Any regulation by the foreign government can make an otherwise

desirable deal, unviable.

● Knowledge of Capital Markets and Functioning

More than any other industry, it is the investment banking industry that has a direct
bearing on the way capital markets function. Any changes in the capital market
regulations affect the brokerage side of the business, along with the trade clearing
and settlement houses. The trading personnel should be conversant with the
regulations, guidelines, procedural formalities and actual trade execution processes
involved in capital market. E.g. Trading system involves a lot of additional skills
than online trading. He has to be conversant with the codes, symbols and
conventions followed by the market. Quick signaling and accurate interpretation
are of utmost significance. Any mistake in these would lead to faulty execution of
orders and might entail additional costs to the firm in correcting the errors.

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● Knowledge of Regulatory Bodies involved in the Various

Operations

It is necessary for an investment banker to be aware of all the regulatory bodies

that govern the activities in which he/she is involved. A thorough knowledge of all
such bodies is absolutely essential to perform extraordinarily. In India, the SEBI &
central bank acts as a watchdog and regulator of market related activities.

● Knowledge of International Business Scenario and Economic

Trends

Though a researcher is primarily involved in economic and business cycle studies,

it is the duty of all the investment bankers to have a general overview of these
affairs. Salespersons, who also act as financial consultants/advisors, should
essentially be aware with economic and business cycles, lest they lose the respect
and trust of the client. The requirement for global perspective and international
exposure is becoming increasingly important. The firm should offer services across

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the national borders to the corporate clients and informed services are possible only
when the employee is well-equipped with international business information.

● Knowledge of Software Tools, Developments in the Field of

Information Technology

One of the most important technical skills is the usage of computers, tools and
internet technologies. Marketing, brokerage, research and capital mobilization have
all undergone sweeping changes owing to technology.

The securities trader has changed into a tech-savvy professional, executing online
orders & maintaining databases. The technology helps management and other
departmental professionals and even the clients to disseminate such data in
negligible time. Asset managers have now complicated tools for scientific and
in-depth valuation of portfolios. Comp frameworks can be solved with minimum
effort using technology.

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▪ Communication Skills

● Ability to Cater to the Audience According to its Awareness

Levels

Communication skills include both the means of communication — written and

oral. However, the audiences vary extensively, and hence, the requisite
communication skills also differ widely. A marketer handling individual investors
will necessarily have to keep the content very simple and express t in layman’s
terms. Usage of financial terms & jargons will not fetch results. Cash flows, the
characteristics of the instruments & the risk class to which the investment belongs
to must be explained in simple & easily understandable terms.

● Negotiation Skills

Negotiation skills is important at a variety of places. Institutional clients have to be

convinced about the prospects of the investments that are solicited by the firm.
Investors in syndicated debt must be satisfied with the payment streams and
interest rate terms. M&A transactions are the toughest assignments for
negotiations. Even a friendly transaction would be difficult if not for patient and
mutually negotiations. The common issues that pertain to negotiation are — terms
of offer, offer price, post merger integration, organization and reporting structure,
business lines to be developed above all dealing with the overlapping functions.

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While negotiating, the banker should always keep the prime object in the mind &
quickly evaluate the various counter offers & suggestions made by other party.

● Personality Traits

Personality Traits plays an important role in developing the skill set of an

investment banker. Creativity is an important feature. It comes in use while
handling prospectus, clients & team members. It is essential when solutions are to
be identified for complex problem. Innovations & creativity are required structure
deals.

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▪ Other Skills

● Marketing Skill

The marketing skills would be an application of skills mentioned above. One of the
important marketing skill would be relationship management. Unlike most other
industries where relationship plays a facilitating role in conducting business, it
is fundamental issue in the investment banking industry. An attitude for
creating, establishing & maintaining relationships, during boom & down period,
is of utmost importance in getting mandates.

● Inter-Personal Skills

Inter-personal skills are basically blended from communication skills, and

personality traits. They include interactions with superiors, subordinates,
colleagues, clients, competitors, team members and even politicians and public
office bearers. Inter-personal skills come to the fore during team exercises
where diplomacy and manners become essential. Team exercises can also
include dealing with members from other departments or even with other firms.
Such situations call for greater application of team skills and an element of
mutual respect towards each other.

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● Networking Skills

Networking refers to the process of developing a web of contacts and

acquaintances. Some of the special attributes required to develop networking
abilities would include:

● Knowledge of human psychology;

● Presence of mind to apply the appropriate skills as situation demands;
● Approaching through proper channels that would lend credibility
respectability to contacts;
● Persuasion skills;
● Highest standards of professionalism.

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CHAPTER 5

FUNCTIONS OF INVESTMENT BANKS

Investment bankers play an important role in the issue management process. Lead
managers (category I merchant bankers) have to ensure correctness of the
information furnished in the offer document. They have to ensure compliance with
SEBI rules and regulations as also guidelines for disclosures and investor
protection. To this effect, they are required to submit to SEBI a due diligence
certificate conforming that the disclosures made in the draft prospectus or letter of
offer are true, fair and adequate to enable the prospective investors to make a well
informed investment decision. The role of merchant bankers in performing their
due diligence functions has become even more important with the strengthening of
the disclosure requirements and with the SEBI giving up the vetting up of
prospectus. SEBIs various operational guidelines issued during the year to
merchant bankers primarily addressed the need to enhance the standard of
disclosures.

It was felt that a further strengthening of the criteria for registration of merchant
bankers was necessary, primarily through an increase in the net worth
requirements, so that the capital would be commensurate with the level of activities
undertaken by them. With this in view, the net worth requirement or category I
merchant bankers was raised in 1995-96 to Rs.5 crore. In 1996-96, the SEBI
(merchant bankers) regulations, 1992 were amended to require the payment of fees
for each letter of offer or draft prospectus that is filed with SEBI.

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MAJOR FUNCTIONS OF THE INVESTMENT BANK

● Raising Capital & Security Underwriting

Banks are middlemen between a company that wants to issue new securities and
the buying public.
● Mergers & Acquisitions
Banks advise buyers and sellers on business valuation, negotiation, pricing and
structuring of transactions, as well as 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.

● Retail and Commercial Banking

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Investment banks now offer traditionally off-limits services like commercial

banking.

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CHAPTER 6
SCOPE OF INVESTMENT BANKS

Following are activities of investment banks. They can be allocated into categories
such as “Corporate Finance,” “Capital Markets,” “Wealth Management /
Private Client,” “Alternative Investments,” and the like.

● Public Offerings of Debt and Equity Securities

There are four general types of public offerings: 1) Initial public offerings (IPOs)
of securities issued by companies that have never before issued any public
securities (normally common stock is the first security to be issued in an
IPO); 2) Initial public offerings of new securities that companies that are
already public have not before issued (e.g., a new class of convertible debt
security); 3) Further public offerings of securities that are already publicly
traded (e.g., the issuance of additional common stock when its price is
sufficiently high so that cost of capital is sufficiently low); 4) Public
offerings by company shareholders of securities that are already publicly
traded (e.g., when an original large shareholder, say a private equity fund,
wants to cash out its position).In the past we could cleanly differentiate debt
and equity securities and put them into separate categories. Investment grade
corporate bonds were distinct from high-yield (“junk”) bonds. Today the old
distinctions are fuzzy. Debt and equity are more points on a continuum than
boxes on a chart. Junior subordinated zero-coupon convertible debentures

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can be thought more equity than debt and dutch-auction preferred stock can
be thought more debt than equity. Geography, as well, is no longer a
constraint: Companies can reach anywhere in the world to lower their cost of
capital.

● Private Placements of Debt and Equity Securities

Private placement is the selling of securities to investors without the regulatory

requirements of public offerings. The regulations defining private
placements are complex and the securities and investment vehicles offered
are numerous. Ranging from corporate equities to real estate interests,
privately placed securities carry a higher return than similarly structured
securities that can trade in the public markets. The loss of liquidity enhances
risk and therefore requires a proportionally higher return.

● Mergers and Acquisitions (M&A)-

This is the front-page stuff – the huge acquisitions, takeover battles, hostile attacks
and fierce defences. But it’s not all war. The vast majority of M&As are
friendly. Investment bankers seek to optimize price and terms, so that the
“best price” may not be the highest price for client sellers (all cash or
confidence in closing may be more important) nor the lowest price for client

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buyers (certainty of getting the deal done may be more vital). Investment
banks find, facilitate, price, and finance mergers and acquisitions. Also
included in M&A are leverage buyouts by private equity, the restructuring
and recapitalization of companies, and the reorganization of troubled
companies.

● Financial Advisory / Sponsor Group Finance-

Financial advisory services have grown dramatically as investment banks work

with the large number of private funds – hedge funds and private equity –
that have mushroomed in recent years and control hundreds of billions of
dollars. Services include (i) raising of capital for general funds, (ii) M&A
acquisitions, (iii) financing acquisitions, (iv) IPOs of portfolio companies
owned by the funds (when appropriate) and (v) M&A of these companies
(when IPOs are not appropriate). Investment banks like to involve
themselves with hedge funds and private equity since they are transaction
oriented, generate huge fees and are in perpetual deal mode​.

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● Fairness Opinions

Fairness opinions support M&A, leveraged buyouts and restructurings for public
companies. Providing an independent, defensible, expert statement on values
and the “fairness” of those values is an essential part of any such public
transaction. Investment banks command what may seem to be exorbitantly
high fees for giving fairness opinions, considering the number of hours
worked (and the amount of paper produced). The reason is the significant
liability the investment bank assumes, which can be realized both in the
courts via shareholder suits and in industry reputation. In fact, major
investment banks do not like to provide fairness opinions – the risks are too
high for the fees – but generally do so only to serve important clients.

● Risk Management

Hedging positions in interest rates, foreign currency exchanges and commodity

positions through swaps, options and futures are an essential building block
of financial markets. Swaps are the mechanism by which two or more parties
exchange their debt obligations in order to control more precisely each
party’s desired risk/return profile. Swaps work because different entities

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have different comparative advantages when pricing different categories of

debt in different financial markets. Parties of dissimilar credit ratings or
financing needs can exchange their obligations (e.g., from shorter term to
longer term and vice versa) in order to optimize their financial strategy and
structure. Risk management groups combine expertise in diverse hedging
instruments to develop a complete hedging strategy for enterprises.

● Merchant Banking

Merchant banking is the commitment of an investment bank’s own capital to

equity-level investments and participations, seeking very high returns. Such
commitment of capital is made for two general purposes: 1) to facilitate a
client transaction (i.e., a bridge loan until permanent financing is obtained);
or 2) to purchase securities in an operating company for the firm’s own
account (i.e., whether 100% ownership by the investment bank, in
partnership with a client, or as the manager of an LBO[BP1] fund). Bridge
loans are highly profitable, combining commitment fees, placement fees,
high interest rates,and equity kickers.

● Finance / Securitization

The creation of synthetic financing mechanisms and structures makes possible

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allocations of capital with better risk-return features for both issuers and
investors. This is generally achieved by instruments that (i) pool assets, (ii)
allocate liabilities into different “trenches” (with different risk-return
profiles), and (iii) are contained within an independent legal entity.
Securitization is the process by which formerly illiquid assets, mostly small
consumer receivables of all kinds (e.g., home mortgages, automotive loans,
credit card receivables), can be liquefied by their being “rolled up” into
large, publicly tradable securities with improved risk-return for both issuers
and investors. (Such innovations exemplify investment banking’s
contribution to financial markets.)
Securitized obligations are sophisticated in design and often require statistical
analysis and sensitivity testing of key criteria (e.g., default rates, prepayment
profiles, interest rate sensitivity, tax changes, etc.). For example, a change
from forecasted rates of prepayment (e.g., due to interest rate declines and
the resulting refinancing of older, higher-rate mortgages) can result in
shocking differences in returns from initial expectations. (Principal itself can
suffer significantly.)
Other kinds of structure finance include project finance, which is used to fund
large-scale enterprises such as power plants and infrastructure.

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● Wealth Management

The accumulation of vast wealth by institutional investors (i.e., pension and

insurance funds), and by rich and super-rich individuals, has made money
management a vital business. (For individuals, the departments are called
“private banking” or “private client.” ) Investment banks compete with one
another, and with large commercial banks and specialized money
management firms in accumulating assets under management. Hundreds of
billions of dollars are at stake.

● Alternative Investments

The investments in financial products other than exchange-traded stocks and

bonds have become a huge business, such as private equity, real estate,
arbitrage, international, and the like. The development of funds under
management, including private equity and hedge funds, has increased
dramatically, and investment banks both develop their proprietary products
and sell others.
Public / Government Finance The raising of money for governments
(“sovereigns”) at all levels: national governments, state governments, county
and municipal governments. Also included is working with national
governments in the privatization of government assets.

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● Public Trading of Debt and Equity Securities

Most large investment banks maintain strong trading capabilities, which is a

significant though volatile profit centre – profits are made both from
commissions generated by trading for clients and from capital appreciation
generated by trading for the firm’s own account. Investment banks act as
brokers, dealers, and market makers (which can differ for different
securities). In addition to traditional stocks and bonds, money market
instruments and commodities (e.g., gold, silver, coffee, crude oil, various
metals, various foods), investment banks create “synthetic securities” (e.g.,
striped Treasuries, interest only and principal only instruments), which by
appealing to different investors, enhance the risk-return for all.

Brokers are commissioned agents who represent either buyers or sellers and work
much as do real estate agents; they carry no securities in inventory and
therefore assume no risk in price variation or interest-charge. Dealers set
bid-and-ask prices for each security they offer for trade; by maintaining an

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inventory of securities, dealers assume a price risk since the market may go
up or down during the time they hold the securities. Market Makers establish
(and support) the entire market for a security on either side of a transaction.
Brokers and dealers are regulated by the various exchanges of which they
are members and the National Association of Securities Dealers (NASD),
which is the self-regulating organization to which they all belong.

Investment Research and Security Analysis For decades, the research capabilities
of an investment bank’s security analysts were often the firm’s most
prestigious and visible strength. (More recently, M&A, IPOs, LBOs, and
private equity / hedge funds have usurped the limelight.) Indeed, many
investment banks used the reputation derived from their investment analysis
expertise to develop underwriting and money management businesses.
Typical subdivisions are Global Equities and Fixed-Income. Today, after
various scandals and prosecutions, investment banks must enforce strict
compartmentalization between their corporate finance and investment
research departments (the so-called “Chinese Wall”).

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CHAPTER 7
CORE INVESTMENT BANKING ACTIVITIES

Investment banking has changed over the years, beginning as a partnership form
focused on underwriting security issuance, i.e. initial public offerings
(IPOs) and secondary offerings, brokerage, and mergers and acquisitions,
and evolving into a "full-service" range including securities research,
proprietary trading, and investment management. In the modern 21st
century, the SEC filings of the major independent investment banks such as
Goldman Sachs​ and ​ Morga​n ​ Stanley​ reflect three product segments:
Investment banking (fees for M&A advisory services and securities underwriting);
Asset management (fees for sponsored investment funds), and Trading and
principal investments (broker-dealer activities including proprietary trading
("dealer" transactions) and brokerage trading ("broker" transactions).

In the United States, commercial banking and investment banking were separated
by the Glass–Steagall Act, which was repealed in 1999. The repeal led to
more "universal banks" offering an even greater range of services. Many
large commercial banks have therefore developed investment banking
divisions through acquisitions and hiring. Notable large banks with
significant investment banks include JPMorgan Chase, Bank of America,
Credit Suisse, Deutsch​e Bank, Barclays, and Wells Fargo. After the
financial crisis of 2007–2008 and the subsequent passage of the Dodd-Frank

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Act of 2010, regulations have limited certain investment banking operations,

notably with the Volcker Rule's restrictions on proprietary trading.

The traditional service of underwriting security issues has declined as a percentage

of revenue. As far back as 1960, 70% of Merrill Lynch's revenue was
derived from transaction commissions while "traditional investment
banking" services accounted for 5%. However, Merrill Lynch was a
relatively "retail-focused" firm with a large brokerage network.

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I. FRONT OFFICE

Front office is generally described as a revenue generating role.

There are two main areas within front office:

Investment Banking and Markets, which includes: Sales; Trading; Research;

Structuring. Investment Banking involves advising the world's largest
organizations on mergers, acquisitions, as well as a wide array of fund
raising strategies. This is, on average, the most prestigious and highest paid
department in the bank with first year analysts typically making £60,000
upwards (depending on individual, team and firm performance).

Markets are then split into further divisions; sales, trading, some research and also
structuring. Though the average investment banker will make considerably
more than the average trader, the best trader will make significantly more
than the best investment banker.

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● INVESTMENT BANKING

Corporate finance is the traditional aspect of investment banks which also

involves helping customers raise funds in capital markets and giving advice
on mergers and acquisitions (M&A). This may involve subscribing investors
to a security issuance, coordinating with bidders, or negotiating with a
merger target. Another term for the investment banking division is corporate
finance, and its advisory group is often termed "mergers and acquisitions". A
pitch boo​k of financial information is generated to market the bank to a
potential M&A client; if the pitch is successful, the bank arranges the deal
for the client. The investment banking division (IBD) is generally divided
into industry coverage and product coverage groups. Industry coverage
groups focus on a specific industry – such as healthcare, public finance
(governments), FIG (financial institutions group), industrials, TMT
(technology, media, and telecommunication) – and maintains relationships
with corporations within the industry to bring in business for the bank.
Product coverage groups focus on financial products – such as mergers and
acquisitions, leveraged finance, public finance, asset finance and leasing,
structured finance, restructuring, equity, and high-grade debt – and generally
work and collaborate with industry groups on the more intricate and
specialized needs of a client. The Wall Street Journal, in partnership with
Dialogic, publishes figures on investment banking revenue such as M&A in
its Investment Banking Scorecard.

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● SALES AND TRADING

On behalf of the bank and its clients, a large investment bank's primary function is
buying and selling products. In market making, traders will buy and sell
financial products with the goal of making money on each trade. Sales is the
term for the investment bank's sales force, whose primary job is to call on
institutional and high-net-worth investors to suggest trading ideas (on a
cavea​t emptor basis) and take orders. Sales desks then communicate their
clients' orders to the appropriate trading desks, which can price and execute
trades, or structure new products that fit a specific need. Structuring has
been a relatively recent activity as derivatives have come into play, with
highly technical and numerate employees working on creating complex
structured products which typically offer much greater margins and returns
than underlying cash securities. In 2010, investment banks came under
pressure as a result of selling complex derivatives contracts to local
municipalities in Europe and the US. Strategists advise external as well as
internal clients on the strategies that can be adopted in various markets.
Ranging from derivatives to specific industries, strategists place companies

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and industries in a quantitative framework with full consideration of the

macroeconomic scene. This strategy often affects the way the firm will
operate in the market, the direction it would like to take in terms of its
proprietary and flow positions, the suggestions salespersons give to clients,
as well as the way structures create new products. Banks also undertake risk
through proprietary trading, performed by a special set of traders who do not
interface with clients and through "principal risk"—risk undertaken by a
trader after he buys or sells a product to a client and does not hedge his total
exposure. Banks seek to maximize profitability for a given amount of risk on
their balance sheet. The necessity for numerical ability in sales and trading
has created jobs for physics, computer science, mathematics and
engineering​ Ph.D.’s​ who act as ​ quantitative analysts​.

● RESEARCH

The equity research division reviews companies and writes reports about their
prospects, often with "buy" or "sell" ratings. Investment banks typically have
sell-side analysts which cover various industries. Their sponsored funds or
proprietary trading offices will also have buy-side research. While the
research division may or may not generate revenue (based on policies at
different banks), its resources are used to assist traders in trading, the sales
force in suggesting ideas to customers, and investment bankers by covering
their clients. Research also serves outside clients with investment advice
(such as institutional investors and high net worth individuals) in the hopes
that these clients will execute suggested trade ideas through the sales and

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trading division of the bank, and thereby generate revenue for the firm.
Research also covers credit research, fixed income research, macroeconomic
research, and quantitative analysis, all of which are used internally and
externally to advise clients but do not directly affect revenue. All research
groups, nonetheless, provide a key service in terms of advisory and strategy.
There is a potential conflict of interest between the investment bank and its
analysis, in that published analysis can affect the bank's profits.

● RISK MANAGEMENT

Risk management involves analyzing the market and credit risk that an investment
bank or its clients take onto their balance sheet during transactions or trades.
Credit risk focuses around capital markets activities, such as loan
syndication, bond issuance, restructuring, and leveraged finance. Market risk

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conducts review of sales and trading activities utilizing the VaR model and
provides hedge-fund solutions to portfolio managers. Other risk groups
include country risk, operational risk, and counterparty risks which may or
may not exist on a bank to bank basis. Credit risk solutions are key part of
capital market transactions, involving debt structuring, exit financing, loan
amendment, projec​t finance, leveraged buy-outs, and sometimes portfolio
hedging. Front office market risk activities provide service to investors via
derivative solutions, portfolio management, portfolio consulting, and risk
advisory. Well-known risk groups in JPMorgan Chase, Goldman Sachs and
Barclays engage in revenue-generating activities involving debt structuring,
restructuring, loan syndication, and securitization for clients such as
corporate, governments, and hedge funds. J.P. Morgan IB Risk works with
investment banking to execute transactions and advise investors, although its
Finance & Operation risk groups focus on middle office functions involving
internal, non-revenue generating, operational risk controls. Credit default
swap, for instance, is a famous credit risk hedging solution for clients
invented by J.P. Morgan's Blythe Masters during the 1990s.The Loan Risk
Solutions group within Barclays' investment banking division and Risk
Management and Financing group housed in Goldman Sach's securities
division are client-driven franchises. However, risk management groups
such as operational risk, internal risk control, legal risk, and the one at
Morgan Stanley are restrained to internal business functions including firm
balance-sheet risk analysis and assigning trading cap that are independent of
client needs, even though these groups may

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be responsible for deal approval that directly affects capital market activities. Risk
management is a broad area, and like research, its roles can be client-facing
or internal.

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II. MIDDLE OFFICE

This area of the bank includes treasury management, internal controls, and internal
corporate strategy.

● Corporate treasury is responsible for an investment bank's funding,

capital structure management, and ​ liquidity risk​ monitoring.

● Financial control tracks and analyzes the capital flows of the firm the
finance division is the principal adviser to senior management on
essential areas such as controlling the firm's global risk exposure and
the profitability and structure of the firm's various businesses via
dedicated trading desk product control teams. In the United States
and United Kingdom, a financial controller is a senior position, often
reporting to the chief financial officer. Internal corporate strategy
tackling firm management and profit strategy, unlike corporate
strategy groups that advise clients, is non-revenue regenerating yet a
key functional role within investment banks.
● This list is not a comprehensive summary of all middle-office
functions within an investment bank, as specific desks within front
and back offices may participate in internal functions.

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III. BACK OFFICE

● OPERATIONS

This involves data-checking trades that have been conducted, ensuring that
they are not wrong, and transacting the required transfers. Many banks
have outsourced operations. It is, however, a critical part of the bank.

● TECHNOLOGY

Every major investment bank has considerable amounts of in-house

software​, created by the technology team, who are also responsible for
technical support​. Technology has changed considerably in the last
few years as more sales and trading desks are using electronic
trading. Some trades are initiated by complex algorithms for hedging
purposes.
Firms are responsible for compliance with government regulations and
internal regulations.

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● OTHER BUSINESSES

● 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 (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 can be called "very personal banking"; merchant

banks offer capital in exchange for share ownership rather than loans,
and offer advice on management and strategy. Merchant banking is
also a name used to describe the private equity side of a firm. Current

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examples include Defoe Fournier & Cie. and JPMorgan's One Equity
Partners and the original J.P. Morgan & Co. Rothschild’s, Barings,
Warburg’s and Morgan’s were all merchant banks. (Originally,
"merchant bank" was the British English term for an investment
bank.)

ORGANIZATIONAL STRUCTURE

● Investment banking is split into front office, middle office, and ​bac​k
office activities. While large service investment banks offer all lines
of business, both "sell side" and "buy side", smaller sell-side
investment firms such as boutique investment banks and small
broker-dealers focus on investment banking and
sales/trading/research, respectively.

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● Investment banks offer services to both corporations issuing securities

and investors buying securities. For corporations, investment bankers
offer information on when and how to place their securities on the
open market, an activity very important to an investment bank's
reputation. Therefore, investment bankers play a very important role
in issuing new security offerings

CHAPTER 8
INDUSTRY PROFILE

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There are various trade associations throughout the world which represent the
industry in lobbying, facilitate industry standards, and publish statistics. The
International Council of Securities Associations (ICSA) is a global group of
trade associations.

In the United States, the Securities Industry and Financial Markets Associatio​n
(SIFMA) is likely the most significant; however, several of the large
investment banks are members of the American Bankers Association
Securities Association (ABASA)​[13] while small investment banks are
members of the National Investment Banking Association (NIBA).

In Europe, the European Forum of Securities Associations was formed in 2007 by

various European trade associations. Several European trade associations
(principally the London Investment Banking Association and the European
SIFMA affiliate) combined in 2009 to form Association for Financial
Markets in Europe (AFME).

In the securities industry in China (particularly mainland China), the Securitie​s

Association of China is a self-regulatory organization whose members are
largely investment banks.

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GLOBAL SIZE AND REVENUE MIX

Global investment banking revenue increased for the fifth year running in 2007, to
a record US$84.3 billion, which was up 22% on the previous year and more
than double the level in 2003. Subsequent to their exposure to United States
sub-prime securities investments, many investment banks have experienced
losses. As of late 2012, global revenues for investment banks were estimated
at $240 billion, down about a third from 2009, as companies pursued less
deals and traded less. Differences in total revenue are likely due to different
ways of classifying investment banking revenue, such as subtracting
proprietary trading revenue.

In terms of total revenue, SEC filings of the major independent investment banks
in the United States show that investment banking (defined as M&A
advisory services and security underwriting) only made up about 15-20% of
total revenue for these banks from 1996 to 2006, with the majority of
revenue (60+% in some years) brought in by "trading" which includes
brokerage commissions and proprietary trading; the proprietary trading is
estimated to provide a significant portion of this revenue.

The United States generated 46% of global revenue in 2009, down from 56% in
1999. Europe (with Middle East and Africa) generated about a third while
Asian countries generated the remaining 21%. The industry is heavily

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concentrated in a small number of major financial centers, including City of

London,​ New Yor​k ​ City,​ Frankfurt,​ Hong Kong​ and ​ Tokyo​.

According to estimates published by the International Financial Service​s London,

for the decade prior to the financial crisis in 2008, M&A was a primary
source of investment banking revenue, often accounting for 40% of such
revenue, but dropped during and after the financial crisis. Equity
underwriting revenue ranged from 30% to 38% and fixed-income
underwriting accounted for the remaining revenue.

Revenues have been affected by the introduction of new products with higher
margins; however, these innovations are often copied quickly by competing
banks, pushing down trading margins. For example, brokerages
commissions for bond and equity trading is a commodity business but
structuring and trading derivatives has higher margins because each
over-the-counter contract has to be uniquely structured and could involve
complex pay-off and risk profiles. One growth area is private investment in
public equity (PIPEs, otherwise known as Regulation D or Regulation S).
Such transactions are privately negotiated between companies and
accredited investors​.

Banks also earned revenue by securitizing debt, particularly mortgage debt prior to

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the financial crisis. Investment banks have become concerned that lenders
are securitizing in-house, driving the investment banks to pursue vertical
integratio​n by becoming lenders, which is allowed in the United States since
the repeal of the Glass-Steagall Act in 1999

CHAPTER 9
TOP 10 BANKS
List of investment bank​s
The ten largest investment banks as of are as follows (by total fees from all
advisory). The list is just a ranking of the advisory arm of each bank and
does not include the generally much larger portion of revenues from sales
and trading​ and ​ asset management​.
Ran Bank Name Founde Headquarter Revenue
k d
1 J.P. Morgan & 2000 270 Park Avenue, Manhattan, New US$ 94.20 billion
Co. York, New York, U.S.

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2 Bank of 2009 Bank of America Tower, New US$ 85.11 billion

America York City, United States
Merrill Lynch
3 Goldman 1869 200 West Street, New York, New US$ 40.08 billion
Sachs York, U.S.
4 Morgan 1935 Morgan Stanley Building, New US$ 34.3 Billio
Stanley York City, New York, U.S.
5 Citigroup 1812 399 Park Avenue, Manhattan, New US$ 76.88 billion
York City, New York, U.S.
6 Deutsche 1870 Deutsche Bank Twin Towers, EUR 31.95 billion
Bank Taunusanlage 12 Frankfurt
Hesse, Germany
7 Credit Suisse 1856 Paradeplatz 8 Zurich, Switzerland CHF 25.22 billion
8 Barclays 1690 Canary Wharf, London, United EUR 25.288
Kingdom billion
9 Wells Fargo 1852 San Francisco, California, U.S. US$ 84.3 billion
10 UBS 1854 Bahnhofstrasse 45 Zürich, CHF63.526
Switzerland billion

World's biggest banks are ranked for M&A advisory, syndicated loans, equit​y
capital markets and ​ debt​ capital markets.
The Financial Times, The Wall Street Journal and Bloomberg often cover
mergers and acquisitions and capital markets. League tables are also
available:

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● Investment Banking Review,​ The Financial Times.

● Investment Banking Scorecard,​ The Wall Street Journal.

● Global M&A Financial Advisory Rankings,​ Bloomberg.

● Global Capital Markets League Tables,​ Bloomberg.

●

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CHAPTER 10
FINANCIAL CRISIS OF 2008

The 2008 financial credit crisis led to the notable collapse of several banks,
notably including the bankruptcy of large investment bank Lehman
Brother​s and the hurried sale of Merrill Lynch and the much smaller Bear
Stearns to banks which effectively rescued them from bankruptcy. The entire
financial services industry, including numerous investment banks, was
rescued by government loans through the Troubled Asset Relief Program
(TARP). Surviving U.S. investment banks such as Goldman Sachs and
Morgan Stanley converted to traditional bank holding companies to accept
TARP relief. Similar situations occurred across the globe with countries
rescuing their banking industry. Initially, banks received part of a $700
billion TARP intended to stabilize the economy and thaw the frozen credit
markets. Eventually, taxpayer assistance to banks reached nearly $13
trillion, most without much scrutiny, lending did not increase and credit
markets remained frozen.

The crisis led to questioning of the business model of the investment bank
without the regulation imposed on it by Glass-Steagall. Once Robert Rubin,
a former co-chairman of Goldman Sachs, became part of the Clinto​n
administration and deregulated banks, the previous conservatism of
underwriting established companies and seeking long-term gains was
replaced by lower standards and short-term profit. Formerly, the guidelines

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said that in order to take a company public, it had to be in business for a

minimum of five years and it had to show profitability for three consecutive
years. After deregulation, those standards were gone, but small investors did
not grasp the full impact of the change.

A number of former Goldman-Sachs top executives, such as Henry Paulson and

Ed Liddy were in high-level positions in government and oversaw the
controversial taxpayer-funded bank bailout. The TARP Oversight Report
released by the Congressional Oversight Panel found that the bailout tended
to encourage risky behaviour and "corrupted the fundamental tenets of a
marke​t ​ economy"​.

Under threat of a subpoena, Goldman Sachs revealed that it received $12.9 billion
in taxpayer aid, $4.3 billion of which was then paid out to 32 entities,
including many overseas banks, hedge funds and pensions. The same year it
received $10 billion in aid from the government, it also paid out
multi-million dollar bonuses; the total paid in bonuses was $4.82 billion.
Similarly, Morgan Stanley received $10 billion in TARP funds and paid out
$4.475 billion in bonuses.

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CHAPTER 11
MAJOR INVESTMENT BANKS IN INDI​A

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 eg: IPO/ FPO work is handled by
investment banks. An investment bank also assist companies in mergers and
acquisitions, and provide ancillary services such as market making, trading
of derivatives, fixed income instruments, foreign exchange, commodities,
and equity securities.
The following is the list of major indian investment banks based out of India.
● Avendus

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Avendus is an investment bank based in India with offices in Mumbai and

Bangalore. The firm was founded in 1999 by three investment bankers Ranu
Vohra, Gaurav Deepak and Kaushal Kumar, who had worked for large
global financial institutions and wanted to offer knowledge and research
oriented capital raising and M&A solutions to international firms with a
strong India connection.
Website url:​ http://www.avendus.co​m

● Bajaj Capital

Bajaj Capital’s Investment Banking Service is a step ahead in that direction.

Bajaj Capital offers you unparalleled capital raising solutions for your business.
With over 120 offices in 50 cities all over the country and a network of over
10,000 Advisor Associates, we can connect you to potential investors all
over the country.

● Barclays India

Barclays unveiled its Global Retail and Commercial Banking division in India
over the past year as part of its plan to be a leading global bank. In a very
short time, Barclays is already making waves in one of the world’s fastest
growing countries.
web site url: ​ http://www.barclays.i​n

● Cholamandalam Investment & Finance Company

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Cholamandalam Investment & Finance Company Limited is the financial services

arm of the USD 880 million Murugappa Group. Incorporated in 1978, it is
one of the leading Financial Services Company in the country. The products
and services include vehicle finance, capital market finance, mutual funds,
securities broking, depository services, and insurance and distribution
services. web site url: ​ http://www.cholamandalam.com​/

● ICICI Securities Ltd

A subsidiary of ICICI Bank – the largest and most recognized private bank in
India ICICI Securities Ltd is premier Indian Investment Bank, with a
dominant position in its core segments of its operations – Corporate Finance
including Equity Capital Markets Advisory Services, Institutional Equities,
Retail and Financial Product Distribution.
Website url: ​ http://www.icicisecurities.com​/

● ICRA Limited

ICRA Limited (an Associate of Moody’s Investors Service) was incorporated

in1991 as an independent and professional company. ICRA is a leading

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provider of investment information and credit rating services in India.

ICRA’s major shareholders include Moody’s Investors Service and leading
Indian financial institutions and banks.\
Website url​: http://www.icra.i​n

● IDFC

IDFC’s mission is to be the financier and advisor of choice for infrastructure in

India. IDFC is positioned as a special financial institution which is focused on
project finance and investment banking activities in infrastructure. Going
forward, IDFC will focus on establishing stable fee revenues from
innovative infrastructure initiatives in financial markets, asset management,
project development and advisory along with growing its balance sheet at a
significant pace. Website url: ​ http://www.idfc.com​/

● IDFC Private Equity.

IDFC Private Equity (IDFC PE) was set up in 2002 as a 100% subsidiary of the
Infrastructure Development Finance Company (IDFC). IDFC PE manages
two funds with a current corpus of INR 1,734 crore (USD 400 million). –
India Development Fund and IDFC Private Equity Fund II. Both these funds
provide growth capital to promising enterprises in the area of infrastructure
in India. web site url: ​ http://www.idfcpe.com​/

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● Industrial Development Bank of India

The Industrial Development Bank of India (IDBI) was established in 1964 under
an Act of Parliament. It was initially set up as a wholly owned subsidiary of
the Reserve Bank of India (RBI) with a mandate of providing credit and
other facilities for balanced industrial development. In 1976, the ownership
of IDBI was transferred to the Government of India and it was accorded the
status of principal financial institution in the country for co-ordinating the
working of institutions, engaged in financing, promoting and developing
industry, and also assisting in the development of such institutions.
Following amendment to IDBI Act in October 1994 to permit public
ownership up to 49% of its issued capital, IDBI went in for a public issue in
July 1995. The shareholding of Government of India in IDBI currently
stands at 58.47%. web site url: ​ http://www.idbi.com

● Tata Investment Corporation Limited (TICL)

TICL is a non-banking financial company (NBFC) registered with the Reserve

Bank of India under the ‘Investment Company’ category. The company’s
activities comprise primarily of investing in long-term investments in equity
shares and other securities of companies in a wide range of industries. The
major sources of income for the company consist of dividend income and
profit on sale of investments.
web site url: ​ http://www.tata.com/tata_investment

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● Kotak Mahindra Capital Company

As a full service Investment Bank, Kotak Investment Baking’s core business areas
include Equity Issuances, Mergers & Acquisitions, Advisory Services and
Fixed Income Securities and Principal Business.
web site url: ​ http://www.kmcc.co.in​/

● Industrial Finance Corporation of India (IFCI)

IFCI, the first Development Finance Institution in India, was set up in 1948, as a
Statutory Corporation, to pioneer institutional credit to medium and large
industries IFCI was also the first institution in the financial sector to be
converted into a Public Limited Company. IFCI’s record of performance has
broadly run parallel to the course of industrial and economic development of
the nation. IFCI’s principal operations include – Project financing, Financial
services & Comprehensive corporate advisory services web site url:
http://www.ifciltd.com​/

● Kotak Investing Banking

Kotak Mahindra Capital Company (KMCC) helps leading Indian corporations,

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banks, financial institutions and government companies access domestic and

international capital markets. KMCC has the most current understanding of
investor appetite, having been the leading book runner/lead manager in
public equity offerings in the period FY 2002-06.web site url:
http://www.kmcc.co.i​n

● SBI Capital Markets

SBI Capital Markets Ltd. is amongst the oldest players in the Indian Capital
Market, offering an entire range of Investment Banking Services. With
strong fund mobilization strengths, we are one of the leading players in the
areas of fund raising through Capital Market Issues / Private Placement.
web site url: ​ http://www.sbicaps.com​/

● Yes Bank

Yes Bank’s Investment Banking group is involved in the identification, structuring

and execution of transactions for our clients in diverse industries and
geographies. Some of the typical transactions include mergers &
acquisitions, divestitures, private equity syndication and IPO advisory.

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● S.E Investments Limited

SEIL’s philosophy on corporate governance envisages commitment to ensure

customer satisfaction through better services. The company is committed to
good corporate governance & continuously reviews various relationship
measures with a view to enhance shareholder’s value. SEILprovides detailed
information on various issues concerning the company’s business and
financial performance. SEIL respects the rights of its share holders to
information on performance of the company and believes that the best
corporate governance promotes transparency and helps mitigate the risks
associated with the business. web site url: ​ http://www.seil.i​n

● SSKI Group

SSKI is a leading India-based financial services group that offers Institutional

Equities and Investment Banking services. SSKI Investment Banking is a
full-service investment bank with a strong research bias. Our team members
bring deep domain knowledge, spanning a number of sectors, that we are
able to leverage to meet the varied corporate finance needs of our clients.
We provide a full range of services, from private placements of equity and
debt, public offerings, project advisory to mergers and acquisitions.
web site url: ​ http://www.sski.co.in​/

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● Small Industries Development Bank of India

Small Industries Development Bank of India (SIDBI) was established in April

1990 under an Act of Indian Parliament. SIDBI has completed 12 years of
service to the small scale sector. Consequent upon, amendment in the SIDBI
Act, the Bank has been delinked from SIDBI with effect from March 27,
2000.
The SIDBI (Amendment) Act, 2000 has changed the provisions relating to capital
structure, share holding pattern, management, business, borrowings, etc. The
amended Act provides for divesting of 51% of the equity share capital of
Rs.4.5 billion Subscribed and held by IDBI in favour of Life Insurance
Corporation of India, General Insurance Corporation of India, Public Sector
Banks and other Institutions owned or controlled by the Government of
India. web site url: ​ http://www.sidbi.com​/

● UTI Securities Ltd

UTI Securities Ltd., was promoted as an independant professional entity in June

1994. With the repealing of Unit Trust of India (UTI) Act, the entire share

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capital of UTISEL is now held by Administrator of specified undertaking of

Unit Trust of India since 1st February 2003. UTISEL has been providing all
kinds of Investment related activities which include investment banking and
corporate advisory services.
web site url: ​ http://www.usectrade.com​/

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CHAPTER 12
ROLE/CHALLANGES OF INVESTMENT BANKING
COMPANISE IN INDIA

Investment banking companies generally help their client’s to access capital

through equity, debt, and others kinds of investment products. These firm
also trade in equity and derivative products and also help companies with
merger and acquisition deals.

About a couples of years back, when a world economy was reeling under a
recession, many investment banking either collapsed or were on the brink of
closure. Even a few firms in India were affected by this global downturn.
This led to many skeptices writing off the revival of those firms.

CHALLENGES

Investment banking is one of the most global industries and is hence continuously
challenged to respond to new developments and innovation in the global
financial markets. Throughout the history of investment banking, it is only
known that may have theorized that all investment banking product and
services would be commoditized. New product with higher margin are
constantly invented and manufactured by bankers in hopes of winning over

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clients and developing trading known-who in new markets. However, since

these can usually not be patented or copyrighted, they are very often copied
quickly by competing banks, pushing down trading margins.

For example, trading bonds and equities for customers is now a commodity
business structuring and trading and trading derivatives retains margins in
good times and the risk of large losses in difficult market conditions, such as
the credit crunch that begin in 2007. Each over-the-counter contract has to
be uniquely structured and could involve complex pay-off and risk profiles.

In addition, while many products have been commoditized, an increasing amount

of profit within investment banking industry has come from proprietary
trading, where size creates a positive network of benefit. The fast growing
segments of the investment banking industry are private investment in public
companies. Such transactions are privately negotiated between companies
and accredited investors.

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CHAPTER 13

FUTURE OF INVESTMENT BANKING

Investment banking has always been very crucial for smooth flow of market
transaction between various investors, companies, firms and the government.
These banks will have a role to play even in future, irrespective of the
economic conditions in the country.

● 1.Claw-backProvisions

In order to make the volatile market of investment banking more secured

from crashes caused by imprudent individual traders or groups, banks may
tighten up the claw-back provisions. This provision requires those whose
trades cause subsequent losses, to pay back all or part of their bonuses.
However, this might result in the transition of traders from big names to less
well-known boutiques, in order to avoid scrutiny.

● 2. Emphasis on Equity Derivatives and Currency trading

An equity derivative is an instrument used by investors to hedge the risks

associated with taking a position in stocks. It consists of underlying assets
based on equity securities and limits the losses incurred by either a short or

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long position in a company's shares. In order to derive more benefits,

investment banks will be emphasizing more on ​currency trading​,
interest-rate products, equity derivatives and corporate restructuring.

● 3. Fewer big banks and more small boutiques

As the giant investment banks faced heavy losses, which in turn affected the
government and investors, in future there will be fewer big banks and more
boutiques. This will force the big shot investment banks to be careful about
their position, as they will face stiff competition from small firms. In any
case, the charm of investment banks is something which will not decrease in
near future.

● 4. Lesser Dependence on Short-Term Funding

​Considering the negative impact of the aggressive strategies of investment

banks, in future, there might be lesser dependence on short-term funding and
high leverage. As the investment banks are largely financed with short-term
funding, a massive asset/liability mismatch is created which is difficult to
manage. It is also probable that more investment banks will be pushed into
the arms of banking acquirers with large and stable deposit bases. This will
provide solution to the investment banks which are generally financed for

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the good times, not the bad ones.

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CHAPTER 14

CONCLUSION

The investment banker plays a vital role in channelizing the financial surplus of
the society into productive investment avenues. Hence before selecting a
investment banker, one must decide what the services for which he is being
approached are. Selecting the right Intermediary who has the necessary skills
to meet the requirements of the client will ensure success.

It can be said that this project helped me to understand every details about
Investment Banking and in future how it’s going to get emerged in the
Indian economy. Hence, Investment Banking can be considered as essential
financial body in Indian financial system.

Market development is predicated on a sound, fair and transparent regulatory

framework. To sustain the growth of the market and crystallize the growing
awareness and interest into a committed, discerning and growing awareness
and interest into an essential to remove the trading malpractice and structural
inadequacies prevailing in the market, and provide the investors an
organized, well regulated market place in future.

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CHAPTER 15
BIBLIOGRAPHY

PRINCIPLES OF INVESTMENT – VIPUL PRAKASHAN

WEBILOGRAPHY

➢ www.economictimes.co​m

➢ www.wikipedia.co​m

➢ www.sebi.co​m

➢ www.managementparadise.co​m

➢ www.scribd.co​m

➢ www.indiastat.co​m

➢ www.jpmorgan.co​m

➢ www.wallstreetprep.com/knowledge/about-investment-bankin​g

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➢ www.investopedia.co​m

➢ www.morganstanley

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