Description
It explains different types of investment banks and various services offered by investment banks. It also gives introduction to merchant banking.
INVESTMENT AND MERCHANT BANKING
INVESTMENT BANKING
? ? ? ? ? ? ? ? ? ? ? ? ?
Bank of America (Merrill Lynch) Citigroup Credit Suisse Wells Fargo Securities Barclays Capital Morgan Stanley Deutsche Bank UBS Nomura Securities Cholamandalam Investment & Finance Company JP Morgan Chase Bajaj Capital Goldman Sachs
Investment Bank (Definition)
?
A financial intermediary that performs a variety of services. This includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients.
Investment Bank- (Features)
?
1/2
?
Unlike commercial banks and retail banks, investment banks do not take deposits. From 1933 (Glass–Steagall 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 sellside in order to maximize their return on investment) constitutes the "buy side". Many firms have buy and sell side components.
Investment Bank- (Features)
?
2/2
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
Indian Context
Commercial Banks and financial institutions set up subsidiaries in 1972. With foreign investment banks in 1990s merchant banking came to be known as Investment banking Comes under the purview of SEBI.
Types of Investment Banks
Investment Banks
Full Service Global Investment Banks
Regional Investment Banks
Boutique Firms
Full Service Global Investment Banks
Operates on global basis and provides a complete set of services to their clients ? Large investment firms serving multinationals ? E.g.
?
? Jefferies ? Goldman
Sachs, ? JP Morgan Chase &Co. ? Kotak Investment Banking
Regional Investment Banks
Concentrated in particular region with specialized geographical knowledge. ? Variety of product offerings ? Also known as ‘Speciality Investment Banks’ ? E.g.
?
? Piper
Jaffray Companies ? Simmons & Company
Boutique Firms
Small Investment Firms organized at local level ? Specialize in particular industry or product ? Better advisors in some particular deals ? E.g
?
? Avendus
Capital ? Veda (Chennai based) ? Montague Partners
INVESTMENT BANKING SERVICES
Investment Banking Fund-Raising Services Advisory Services
FUND-RAISING SERVICES
1/1
Initial Public Offerings (IPOs) Follow-on Public Offers (FPOs)
Qualified Institutional Placements (QIPs)
Rights Issues
FUND-RAISING SERVICES
2/2
Preferential Allotments
Foreign Currency Convertible Bonds (FCCBs)
Global Depository Receipts (GDRs)
INVESTMENT BANKING SERVICES
?
Advisory Services
? Export
and Project Finance
? Project
Advisory ? Project Debt Arrangement ? Forfaiting
? Mergers
and Acquisitions
INVESTMENT BANKING SERVICES
?
Mergers and Acquisitions
Package of Services Scope of Services
• Strategic Advise • Buy-side and Sell-side Advisory • Divestures • Recapitalizations • Buyouts • Capital Raising
• Legal Documentation • Valuation
INVESTMENT BANKING SERVICES
?
Mergers and Acquisitions
Buy Side Advisory
Sell Side Advisory
• • • •
Target Short Listing Preparing and Executing Term Sheet Due Diligence and Transaction Closure Transaction Closure
• • • •
Collateral Preparation Target Short-Listing Preparing and Executing Term Sheet Due Diligence and Transaction Closure
INVESTMENT BANKING SERVICES
?
Promoter and Acquisition Financing Services
? Promoter
Financing ? Acquisition Financing
Private Equity Advisory ? Infrastructure Advisory
?
? Capital ? Advisory
?
Strategic Advisory Services
INVESTMENT BANKING SERVICES
?
Debt Syndication and Structure Finance
? Raising
Debt Capital ? Debt Structuring
Financial Restructuring and Turnaround Financing ? Private Client Services ? Sales and Trading ? Equities Research and Broking
?
MERCHANT BANKING
MERCHANT BANKING
?
Merchant Banker is any person who is
? ?
Engaged in the business of issue management OR Acting as a Manager, Consultant, Advisor
?
?
Facilitate the issue process by coordinating various activities Mandatorily required in case of
? ? ?
?
Public issues Rights issues Open offers Buy-backs
?
Prohibited from carrying out any fund based activity
MERCHANT BANKING – ISSUE MANAGEMENT
1 2 3 4
• Preparation of prospectus and other documents • Determining financial structure • Tie-up of financiers • Appropriate pricing and marketing of the issue • Final allotment and refund of subscription
5
MERCHANT BANKERS REGISTERED WITH SEBI
SEBI (MERCHANT BANKER) REGULATIONS, 1992
?
The applicant should comply with the following requirements:
Should be a body corporate other than a non-banking financial company Being a primary dealer registered with RBI, applicant should not accept or hold any public deposit Should have necessary infrastructure
Should not be guilty of any economic offence
APPOINTMENT OF LEAD MERCHANT BANKERS
?
Number of lead merchant bankers depends on the size of issue and may not exceed as below:
Size of Issue Less than Rs. 50 Crores Rs. 50 Crores but less than Rs. 100 Crores Rs. 100 Crores but less than Rs. 200 Crores Rs. 200 Crores but less than Rs. 400 Crores Above Rs. 500 Crores, five or more No. of Merchant Bankers Two Three Four Five As may be agreed by the Board
MERCHANT BANKING
?
Responsibility of Lead Managers
?
No lead manager shall agree to associate unless his responsibilities are clearly defined, allocated and determined
Acquisition of shares on the basis of unpublished price-sensitive information is prohibited ? Information to the board – about acquisition of securities ? Disclosures to the SEBI ? Appointment of Compliance Officer
?
PRE-ISSUE OBLIGATIONS
1.
SUBMISSION OF DOCUMENTS
Offer document Memorandum of Understanding Inter-Se Allocation of Responsibilities Due-diligence certificate Certificates signed by the CS or CA
2.
SUBMISSION OF UNDERTAKING
Transactions in securities between the date of filing the offer documents and the closure of the issue will be reported to the stock exchanges concerned within 24 hrs
PRE-ISSUE OBLIGATIONS
3.
SUBMISSION OF LIST OF PROMOTER’S GROUP
The issuer company shall issue the list and the individual shareholding to the SEBI
4.
APPOINTMENT OF INTERMEDIARIES
A merchant banker shall not lead manage the issue if he is a promoter or a director or an associate of the issuer company
5.
APPOINTMENT OF OTHER INTERMEDIARIES
The lead merchant shall ensure that the other intermediaries are duly registered with the Board; that issuer companies enter into MoUs with the intermediaries concerned
PRE-ISSUE OBLIGATIONS
6.
APPOINTMENT OF UNDERWRITER
The lead merchant shall satisfy himself about the ability of the underwriters to discharge their underwriting obligations; also he should ensure that the relevant details of underwriters are included in the offer document
7.
MAKING OFFER DOCUMENT PUBLIC
The draft-offer document filed with the SEBI shall be made public for a period of 21 days, from the date of filing the offer document with the SEBI
8.
FILING A NO-COMPLAINT CERTIFICATE
After a period of 21 days from the date the draft offer was made public, the lead merchant banker shall file a statement withh the board
PRE-ISSUE OBLIGATIONS
8.
APPOINTING AUTHORISED COLLECTION AGENTS
The issuer company can appoint authorised collection agents according to the discretion of the lead merchant banker
9.
ENTERING INTO AN AGREEMENT WITH DEPOSITORY(IES)
The lead manager shall ensure that the issuer company has entered into agreements with all the depositories for dematerialisation of securities
POST-ISSUE OBLIGATION OR REQUIREMENTS
The following are the post-issue obligations: ? Receiving of application forms. ? Screening of applications. ? Deciding allotment procedure. ? Mailing of allotment letters. ? Shares certificate or demat account entries and refund orders.
MONITORING REPORTS
The lead merchant banker ensures the submission of the post-issue monitoring
reports based on the formats, irrespective of the level of subscription. 3-day monitoring report for book-built portion
•
The due date for this report is the third day from the date of allocation, or one day
before the opening of the fixed price portion.
3-day monitoring report in other cases
•
Fixed price portion of the book-built issue. The due date for the report is the third day from the date of closure of the issue.
Final post-issue monitoring report for all issues
•
The due date for the report is the third day from the date of listing of the report, or 78 days from the date of closure of the issue subscription, whichever is earlier.
ALLOTMENT PROCEDURE
The Executive Director or Managing Director of the Regional Stock Exchange consults with the post-issue lead merchant banker and the registrars regarding public issue of securities. Proportionate allotment procedure The lead banker must ensure that the allotment is made on a proportionate basis as explained below:
•
The applicants are divided into separate category based on the number of shares they have applied for.
•
The total number of shares to be allotted to each category is done on a
proportionate basis. This is based on the product of the total number of shares applied for in that category and the inverse of the oversubscription ratio.
REDRESSAL OF INVESTORS’ GRIEVANCES
?
The post issue lead merchant banker must interact on a regular basis with the post-issue activities such as allotment and refund. The merchant banker must regularly monitor the redress of investors’ grievances arising from the activities.
COORDINATION WITH INTERMEDIARIES
Close co-ordination with the registrars to an issue,
and also arranges to assign the officers of
intermediaries at regular intervals after the closure of the
• •
Finalization of the basis of allotment Sending off the security certificates
•
•
Completion of refund orders
Listing of securities.
POST ISSUE ADVERTISEMENTS
•
Advertisement gives the details regarding oversubscription, basis of allotment, number; value and percentage of applications received with the stock invest.
•
The post-issue lead merchant banker ensures the advertisement circulates in at least three publications in English, Hindi and a regional language at the place, where registered office of the issuer company is situated. This is applicable for all issues.
•
The post-issue lead merchant banker ensures that the issuer company, advisors, brokers or any other agencies associated with the issue do not publish any kind of advertisement describing the status of the issue.
OTHER RESPONSIBILITIES
The post-issue lead merchant banker is responsible
for post issue activities till:
•
The subscribers have got the shares or debenture certificates or refund of application money
•
The listing agreement is entered into by the issuer company with the stock exchange
•
The listing or trading permission is received
REALIZATION OF STOCK INVESTS
The post-issue lead merchant banker must submit a certificate within two weeks from the date of allotment to the board. The certificate must certify that the stock invests are released on the basis of the allotment finalised.
?
CHANGING LANDSCAPE
•Investment
banking was a lucrative business till
2007 •Sub prime crisis took toll of the global investment banks. •Investment banks were not under control of either Federal reserve bank or the US securities and Exchange Commission.
?
Impact on Indian Investment banks – Drop In big deals and revenues Growth rate slowed down but comparatively good
FUTURE OF INVESTMENT BANKING
?
•
More Stringent Laws and Restrictions Claw-back ProvisionsThis provision requires those whose trades cause subsequent losses, to pay back all or part of their bonuses
Emphasis on Equity Derivatives and Currency trading ? Fewer big banks and more small boutiques
?
FUTURE OF INVESTMENT BANKING (CONT.)
•
Lesser Dependence on Short-Term Funding
–
– –
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 the good times, not the bad ones
•
Potential conflicts of interest:
Some of the conflicts of interest that can be found in investment banking are – Credit Rating: Historically, equity research firms were founded and owned by investment banks – Market Manipulation: Many investment banks also own retail brokerages.
CHALLENGES AHEAD
• • • • • •
Align their product capabilities and cost structures to exploit their competitive advantage Move towards more integrated client relationship and service models Adopt new performance measurement and reward systems Understand the product life cycle and manage their product portfolio more aggressively Adopt a more segmented approach to serving clients Build scale on an operational level to cut costs
THANK YOU!
doc_197413319.pptx
It explains different types of investment banks and various services offered by investment banks. It also gives introduction to merchant banking.
INVESTMENT AND MERCHANT BANKING
INVESTMENT BANKING
? ? ? ? ? ? ? ? ? ? ? ? ?
Bank of America (Merrill Lynch) Citigroup Credit Suisse Wells Fargo Securities Barclays Capital Morgan Stanley Deutsche Bank UBS Nomura Securities Cholamandalam Investment & Finance Company JP Morgan Chase Bajaj Capital Goldman Sachs
Investment Bank (Definition)
?
A financial intermediary that performs a variety of services. This includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients.
Investment Bank- (Features)
?
1/2
?
Unlike commercial banks and retail banks, investment banks do not take deposits. From 1933 (Glass–Steagall 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 sellside in order to maximize their return on investment) constitutes the "buy side". Many firms have buy and sell side components.
Investment Bank- (Features)
?
2/2
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
Indian Context
Commercial Banks and financial institutions set up subsidiaries in 1972. With foreign investment banks in 1990s merchant banking came to be known as Investment banking Comes under the purview of SEBI.
Types of Investment Banks
Investment Banks
Full Service Global Investment Banks
Regional Investment Banks
Boutique Firms
Full Service Global Investment Banks
Operates on global basis and provides a complete set of services to their clients ? Large investment firms serving multinationals ? E.g.
?
? Jefferies ? Goldman
Sachs, ? JP Morgan Chase &Co. ? Kotak Investment Banking
Regional Investment Banks
Concentrated in particular region with specialized geographical knowledge. ? Variety of product offerings ? Also known as ‘Speciality Investment Banks’ ? E.g.
?
? Piper
Jaffray Companies ? Simmons & Company
Boutique Firms
Small Investment Firms organized at local level ? Specialize in particular industry or product ? Better advisors in some particular deals ? E.g
?
? Avendus
Capital ? Veda (Chennai based) ? Montague Partners
INVESTMENT BANKING SERVICES
Investment Banking Fund-Raising Services Advisory Services
FUND-RAISING SERVICES
1/1
Initial Public Offerings (IPOs) Follow-on Public Offers (FPOs)
Qualified Institutional Placements (QIPs)
Rights Issues
FUND-RAISING SERVICES
2/2
Preferential Allotments
Foreign Currency Convertible Bonds (FCCBs)
Global Depository Receipts (GDRs)
INVESTMENT BANKING SERVICES
?
Advisory Services
? Export
and Project Finance
? Project
Advisory ? Project Debt Arrangement ? Forfaiting
? Mergers
and Acquisitions
INVESTMENT BANKING SERVICES
?
Mergers and Acquisitions
Package of Services Scope of Services
• Strategic Advise • Buy-side and Sell-side Advisory • Divestures • Recapitalizations • Buyouts • Capital Raising
• Legal Documentation • Valuation
INVESTMENT BANKING SERVICES
?
Mergers and Acquisitions
Buy Side Advisory
Sell Side Advisory
• • • •
Target Short Listing Preparing and Executing Term Sheet Due Diligence and Transaction Closure Transaction Closure
• • • •
Collateral Preparation Target Short-Listing Preparing and Executing Term Sheet Due Diligence and Transaction Closure
INVESTMENT BANKING SERVICES
?
Promoter and Acquisition Financing Services
? Promoter
Financing ? Acquisition Financing
Private Equity Advisory ? Infrastructure Advisory
?
? Capital ? Advisory
?
Strategic Advisory Services
INVESTMENT BANKING SERVICES
?
Debt Syndication and Structure Finance
? Raising
Debt Capital ? Debt Structuring
Financial Restructuring and Turnaround Financing ? Private Client Services ? Sales and Trading ? Equities Research and Broking
?
MERCHANT BANKING
MERCHANT BANKING
?
Merchant Banker is any person who is
? ?
Engaged in the business of issue management OR Acting as a Manager, Consultant, Advisor
?
?
Facilitate the issue process by coordinating various activities Mandatorily required in case of
? ? ?
?
Public issues Rights issues Open offers Buy-backs
?
Prohibited from carrying out any fund based activity
MERCHANT BANKING – ISSUE MANAGEMENT
1 2 3 4
• Preparation of prospectus and other documents • Determining financial structure • Tie-up of financiers • Appropriate pricing and marketing of the issue • Final allotment and refund of subscription
5
MERCHANT BANKERS REGISTERED WITH SEBI
SEBI (MERCHANT BANKER) REGULATIONS, 1992
?
The applicant should comply with the following requirements:
Should be a body corporate other than a non-banking financial company Being a primary dealer registered with RBI, applicant should not accept or hold any public deposit Should have necessary infrastructure
Should not be guilty of any economic offence
APPOINTMENT OF LEAD MERCHANT BANKERS
?
Number of lead merchant bankers depends on the size of issue and may not exceed as below:
Size of Issue Less than Rs. 50 Crores Rs. 50 Crores but less than Rs. 100 Crores Rs. 100 Crores but less than Rs. 200 Crores Rs. 200 Crores but less than Rs. 400 Crores Above Rs. 500 Crores, five or more No. of Merchant Bankers Two Three Four Five As may be agreed by the Board
MERCHANT BANKING
?
Responsibility of Lead Managers
?
No lead manager shall agree to associate unless his responsibilities are clearly defined, allocated and determined
Acquisition of shares on the basis of unpublished price-sensitive information is prohibited ? Information to the board – about acquisition of securities ? Disclosures to the SEBI ? Appointment of Compliance Officer
?
PRE-ISSUE OBLIGATIONS
1.
SUBMISSION OF DOCUMENTS
Offer document Memorandum of Understanding Inter-Se Allocation of Responsibilities Due-diligence certificate Certificates signed by the CS or CA
2.
SUBMISSION OF UNDERTAKING
Transactions in securities between the date of filing the offer documents and the closure of the issue will be reported to the stock exchanges concerned within 24 hrs
PRE-ISSUE OBLIGATIONS
3.
SUBMISSION OF LIST OF PROMOTER’S GROUP
The issuer company shall issue the list and the individual shareholding to the SEBI
4.
APPOINTMENT OF INTERMEDIARIES
A merchant banker shall not lead manage the issue if he is a promoter or a director or an associate of the issuer company
5.
APPOINTMENT OF OTHER INTERMEDIARIES
The lead merchant shall ensure that the other intermediaries are duly registered with the Board; that issuer companies enter into MoUs with the intermediaries concerned
PRE-ISSUE OBLIGATIONS
6.
APPOINTMENT OF UNDERWRITER
The lead merchant shall satisfy himself about the ability of the underwriters to discharge their underwriting obligations; also he should ensure that the relevant details of underwriters are included in the offer document
7.
MAKING OFFER DOCUMENT PUBLIC
The draft-offer document filed with the SEBI shall be made public for a period of 21 days, from the date of filing the offer document with the SEBI
8.
FILING A NO-COMPLAINT CERTIFICATE
After a period of 21 days from the date the draft offer was made public, the lead merchant banker shall file a statement withh the board
PRE-ISSUE OBLIGATIONS
8.
APPOINTING AUTHORISED COLLECTION AGENTS
The issuer company can appoint authorised collection agents according to the discretion of the lead merchant banker
9.
ENTERING INTO AN AGREEMENT WITH DEPOSITORY(IES)
The lead manager shall ensure that the issuer company has entered into agreements with all the depositories for dematerialisation of securities
POST-ISSUE OBLIGATION OR REQUIREMENTS
The following are the post-issue obligations: ? Receiving of application forms. ? Screening of applications. ? Deciding allotment procedure. ? Mailing of allotment letters. ? Shares certificate or demat account entries and refund orders.
MONITORING REPORTS
The lead merchant banker ensures the submission of the post-issue monitoring
reports based on the formats, irrespective of the level of subscription. 3-day monitoring report for book-built portion
•
The due date for this report is the third day from the date of allocation, or one day
before the opening of the fixed price portion.
3-day monitoring report in other cases
•
Fixed price portion of the book-built issue. The due date for the report is the third day from the date of closure of the issue.
Final post-issue monitoring report for all issues
•
The due date for the report is the third day from the date of listing of the report, or 78 days from the date of closure of the issue subscription, whichever is earlier.
ALLOTMENT PROCEDURE
The Executive Director or Managing Director of the Regional Stock Exchange consults with the post-issue lead merchant banker and the registrars regarding public issue of securities. Proportionate allotment procedure The lead banker must ensure that the allotment is made on a proportionate basis as explained below:
•
The applicants are divided into separate category based on the number of shares they have applied for.
•
The total number of shares to be allotted to each category is done on a
proportionate basis. This is based on the product of the total number of shares applied for in that category and the inverse of the oversubscription ratio.
REDRESSAL OF INVESTORS’ GRIEVANCES
?
The post issue lead merchant banker must interact on a regular basis with the post-issue activities such as allotment and refund. The merchant banker must regularly monitor the redress of investors’ grievances arising from the activities.
COORDINATION WITH INTERMEDIARIES
Close co-ordination with the registrars to an issue,
and also arranges to assign the officers of
intermediaries at regular intervals after the closure of the
• •
Finalization of the basis of allotment Sending off the security certificates
•
•
Completion of refund orders
Listing of securities.
POST ISSUE ADVERTISEMENTS
•
Advertisement gives the details regarding oversubscription, basis of allotment, number; value and percentage of applications received with the stock invest.
•
The post-issue lead merchant banker ensures the advertisement circulates in at least three publications in English, Hindi and a regional language at the place, where registered office of the issuer company is situated. This is applicable for all issues.
•
The post-issue lead merchant banker ensures that the issuer company, advisors, brokers or any other agencies associated with the issue do not publish any kind of advertisement describing the status of the issue.
OTHER RESPONSIBILITIES
The post-issue lead merchant banker is responsible
for post issue activities till:
•
The subscribers have got the shares or debenture certificates or refund of application money
•
The listing agreement is entered into by the issuer company with the stock exchange
•
The listing or trading permission is received
REALIZATION OF STOCK INVESTS
The post-issue lead merchant banker must submit a certificate within two weeks from the date of allotment to the board. The certificate must certify that the stock invests are released on the basis of the allotment finalised.
?
CHANGING LANDSCAPE
•Investment
banking was a lucrative business till
2007 •Sub prime crisis took toll of the global investment banks. •Investment banks were not under control of either Federal reserve bank or the US securities and Exchange Commission.
?
Impact on Indian Investment banks – Drop In big deals and revenues Growth rate slowed down but comparatively good
FUTURE OF INVESTMENT BANKING
?
•
More Stringent Laws and Restrictions Claw-back ProvisionsThis provision requires those whose trades cause subsequent losses, to pay back all or part of their bonuses
Emphasis on Equity Derivatives and Currency trading ? Fewer big banks and more small boutiques
?
FUTURE OF INVESTMENT BANKING (CONT.)
•
Lesser Dependence on Short-Term Funding
–
– –
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 the good times, not the bad ones
•
Potential conflicts of interest:
Some of the conflicts of interest that can be found in investment banking are – Credit Rating: Historically, equity research firms were founded and owned by investment banks – Market Manipulation: Many investment banks also own retail brokerages.
CHALLENGES AHEAD
• • • • • •
Align their product capabilities and cost structures to exploit their competitive advantage Move towards more integrated client relationship and service models Adopt new performance measurement and reward systems Understand the product life cycle and manage their product portfolio more aggressively Adopt a more segmented approach to serving clients Build scale on an operational level to cut costs
THANK YOU!
doc_197413319.pptx