investment banking
TRANSCRIPT
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ATHARVA INSTITUTE OF
MANAGEMENT STUDIES
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A PRESENTATION ON
INVESTMENT BANKING
GROUP MEMBERS:NAME ROLL NO.
GAURAV KULKARNI 21MITHESH KUMAR 11GAURAV PATIL 28SOURABH BHAJIRAO 48AKHLAQUE SHAIKH 54AKASH PURI 33MILAN JAIN 14SUMIT KASAT 19
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DEFINITION
• “An investment bank is financial institution
which raises capital, trade securities and
manages corporate mergers and acquisition”
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IN SIMPLE
• It is a business of rising capital for
companies
• capital is required for growth and expansion
of business
• Investment bank sell securities to public
investors in order to raise this capital
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ROLE
• Issuing and selling securities in primary
market
• Assist public,private corporation and
government agencies in rising fund
• Advisory services for mergers and
acquisition
• Intermediaries in trading for client
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company Investment bank investors
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INVESTMENT BANK
Investment bank focus on large public and private share offering.
Investment bank participate in trade financing activity.
Investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market.
MERCHANT BANK
Merchant bank tends to operate on small scale co. & offers creative equity financing.
Merchant bank often expand in the field of underwriting.
Merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation.
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Investment banks facilitate mergers & acquisitions through share sales and provide research and financial consulting to companies.
Merchant bank is involved in issuing letters of credit, transferring funds intnly, trade consulting and co-investment in projects.
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TOP 10 INVESTMENT BANK GLOBALLY
1. JP Morgan Chase
2. Goldman Sachs
3. Credit Suisse
4. Morgan Stanley
5. Citigroup
6. Barclays Capital
7. Bank of America (Bank of America Merrill Lynch)
8. Lazard
9. Deutsche Bank
10.UBS
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TOP INVESTMENT BANK IN INDIA
ICICI Securities Kotak Mahindra Capital SBI Capital Bajaj Capital UTI Securities Tata Investment Corporation Limited Yes Bank Cholamandalam Investment & Finance Co. Avendus Capital Ambit Corp Finance
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SELL & BUY SIDE
SELL SIDE
Newly Issued IPOs
New Bond Issues
Engaging In Market Making Services
Helping Clients Facilitate Transactions
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BUY SIDE
Pension Fund
Mutual Fund
Hedge Fund
Give Maximum Return To Investor On Their
Investment
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INVESTMENT BANKING ACTIVITIES
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Front office
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INVESTMENT BANKING
Investment Banking is the traditional aspect of
investment banks which involves helping customers
raise funds in the Capital Markets and advising on
mergers and acquisitions.
Prepare a Pitch book of financial information.
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SALES AND TRADING
• Primary function is buying and selling products.
• Goal of making money on each trade.
• Primary job is to call on institutional and high-net-worth
investors to suggest trading ideas.
• Structure new products that fit a specific need.
• Quantitative analysis.
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RESEARCH
• The division which reviews companies and writes
reports about their prospects, often with "buy" or "sell"
ratings.
• Sales force in suggesting ideas to customers.
• Research also serves outside clients with investment
advice.
• In recent years the relationship between investment
banking and research has become highly regulated.
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MIDDLE OFFICE
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Risk management:-
• Analyzing the market and credit risk.
• Setting limits on the amount of capital.
• Ensure that the above mentioned economic risks are captured
accurately correctly and on time (typically within 30 minutes
of trade execution).
Corporate treasury:-
Responsible for an investment bank's funding, capital
structure management, and liquidity risk monitoring.
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Financial control:-
• Tracks and analyzes the capital flows of the firm.
• Controlling the firm's global risk exposure and profitability.
Compliance:-
Responsible for an investment bank's daily operations
compliance with government regulations and internal
regulations
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BACK OFFICE
Operations:-
• It involves data-checking trades that have been
conducted.
• Involves managing the financial information of the bank
and ensures efficient capital markets through the
financial reporting function.
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Technology:-
• Information technology department.
• In-house software, technical support.
• Technology has changed considerably in the last few years as
more sales and trading desks are using electronic trading.
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INVESTMENT BANK IN INDIA
J P MORGAN began Investment Banking in India in 1993.
This bank primarily provided services which included loan syndication, equity raising and other advisory services.
Currently, without holding a certificate of registration granted by the Securities and Exchange Board of India, no person can act as a Investment Bank.
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The categories for which merchant banking registration may be granted by SEBI: Category I : to carry on the activity of issue
management and to act as adviser, consultant, manager, underwriter, portfolio manager
Category II :to act as adviser, consultant, co-manager, underwriter, portfolio manager.
Category III :to act as underwriter, adviser or consultant to an issue
Category IV :to act only as adviser or consultant to an issue.
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TOP 10 INVESTMENT BANKS OPERATING IN INDIA
1. JP Morgan
2. UBS AG
3. Goldman Sach
4. Deutsche Bank
5. HSBC
6. Morgan Stanley
7. ICICI Securities
8. Kotak Mahindra
9. SBI Capital Markets
10. Ambit Corp Finance
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• J.P. Morgan has a long and successful legacy of investment banking in India. J.P. Morgan was a founding shareholder of one of India's largest financial institutions and also established the country's first international investment bank in 1993 as a joint venture between J.P. Morgan and a leading Indian financial institution.
• During the balance of payments crisis in 1991, J.P. Morgan played a key role in advising the Reserve Bank of India on liquidity management and facilitated measures to avoid debt rescheduling. J.P. Morgan is currently one of the leading investment banks in India and has a market leading position across the spectrum of services it offers.
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Recent Trends in Investment Banking
• Service small as well as large customers
• International transactions
• Over industries investment banks changing the
merchant trend, growth and potential growth
• Outsourcing and Offshoring
• Investment banking operation process reengineering
• Scale through integrated delivery operation,
technology and infrastructure
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Cont...
• Implications of FASB Financial Instruments Accounting
Standard Update
• Auditors Likely to Expand Scrutiny of Fair Value Estimates
• Fair Value Measurement
• Cost of Capital
• Debt Exchange Offers: A Refinancing Alternative in
Challenging Markets
• The Credit Crisis
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Cont…
• Underwater Option Exchanges: Meeting Employee,
Shareholder and Company Concerns
• Global IPO
• Launching green investment bank to fund renewable
energy power plants
• Take over code :-boost M & A
• Japan M & A in India seen 40% up
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Mergers & Acquisitions
• JP Morgan :- IPO - Essar Energy ($1b); NTPC ($1.8b);
Power Grid ($1b) and Convertible Bonds – Vedanta
Resources ($833m); Tata Motor’s ($345m); HDIL
($250m)
• UBS :- 2007 – 2009, 28 deals in equity capital raising
in excess of $11b
• Goldman Sachs :- $9b deals
• Deutsche bank :- $3b deals
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Key Changes in take over code
1• Higher threshold for ‘Open Offer’ trigger – 15% to 25%
2• Creeping Acquisition up to 75%
3• Increase in ‘Open Offer’ Size from 20% to 26
4• Voluntary Offer – New Thought
5• Value based classification of ‘Indirect Acquisitions’
6• Other Stipulations
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Why investment bank fails?
• In the past there are many instances where the investment bank had failed.
• The most notable Banks that failed wereACQUISITION DATE
ACQUIRED COMPANY
ACQUIRER COMPANY
VALUE
APRIL 1 2008 BEAR STEARNS JP MORGAN AND CHASE
$2.2 BILLION
SEPTEMBER 14 2008
MERRIL LYNCH BANK OF AMERICA
$44 BILLION
SEPTEMBER 17 2008
LEHMAN BROTHERS
BARCLAYS PLC $1.3 BILLION
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Reasons of failure for investment banks are• High leverage ratio• Low capital reserve ratio• Non Diversified currency base• High exposure to derivatives and complex
structured financial products• Non diversified business model• Operation in single market
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High Leverage ratio• In finance, leverage is a general term for
any technique to multiply gains and losses.
• Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.
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• If leverage ratio is 30:1 it means that– You can borrow 30 times the assets you have.– For example for every $10 you can borrow $300
and total new capital is $310– If the rate of interest on borrowing is 5% and
earning is 6%. The total profit that can be gained is $3.60 ($18.60-$15.0 interest) on every $10. which is 36% returns.
– But if there is 5% loss in investment, after paying interest you have $279.5 + you still owe $300 to lender, to pay back loan you have to borrow $21.5 and you have lost initial $10 capital.
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Low capital reserve ratio• The capital ratio is the percentage of a
bank's capital to its risk-weighted assets.• Lower ratio means less investment bank
capital.• Capital reserve ratio should be high to
avoid failure.
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Non Diversified currency base• Diversified currency base helps in hedging
forex risks. Enhances liquidity and security.
• The more diversified the currency base less is the forex risk.
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High exposure to derivatives and complex structured financial products
• Derivatives products inherently carries high risks, products include– Property (mortgage) derivatives– Economic derivatives– Freight derivatives– Inflation derivatives – Weather derivatives – Insurance derivatives– Emissions derivatives
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Operations in single markets• If a investment bank operates in a single
market or region then there is greater economic risk.
• For example If a bank is limited to business in the U.S. or Europre for example, it is at greater risk at suffering a loss from an economic downturn.
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2010
Kotak Mahindra Bank
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LEADING INVESTMENT BANKING
2.4 BILLION DOLLAR REVENUE(11893 CRORE RS) IN 2011
16.6% MARKET SHARE IN INVESTMENT BANKING IN INDIA BY BLOOMBERG IN 2010(31.2 bn dollar)
BEST INVESTMENT BANKING AND EQUITY HOUSE IN INDIA BY ASIA MONEY
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SERVICES OF KOTAK INVESTMENT BANK
• EQUITY AND DEBT CAPITAL FUND
• MERGER AND ACQUISITIONS ADVISORY
• RESTRUCTURING AND RECAPITALIZATION
• INFRASTRUCTURE ADVISORY
• PRIVATE EQUITY ADVISORY
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• ChetanSavla, executive director and co-head of equity product group at
Kotak Investment Bank, said that firms such as his have the ability to service capital needs of small and large companies alike. “There was a time when we were doing five to seven transactions in a year and now we tend to close one transaction every week,” he added.
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TradeFinance
1985 1986
1990 2003200119981996199519921991
Ford Credit JVs
Mutual Fund
StockBroking
GoldmanSachs JVs
IPOInvestment
BankingAutoFinance
Life InsuranceOld Mutual JV
BANK
In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by Ford Credit International (FCI) and FCI acquired the stake in Ford Credit Kotak Mahindra (FCKM) held by Kotak Group.In May 2006, Kotak Group bought 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities
Restructuring Ford& Goldman JVs
2006
Journey so far…
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Leadership in the Indian Market
Award for ExcellenceAward for Excellence
∞ In the Annual Euromoney Private Banking Survey Poll for 2006,2011 for India, Kotak Mahindra Bank was ranked no. 1 in six categories∞ Topped the Bloomberg India M&A Financial Advisory League table (India announced deals) for the calendar year 2005
∞ Topped the India Advisory Partners Indata League table for the calendar year 2005
∞ 'Kotak Bond Regular Plan' was ranked ICRA-MFR1 and was the recipient of the Silver Award
∞ Best Bond Fund House 2006
∞ Kotak Bond Regular Plan was ranked the best debt fund over 3 years 2006
ACHIEVEMENTACHIEVEMENTAWARDSAWARDS
20012003
ACHIEVEMENTACHIEVEMENTAWARDSAWARDS
20012003
∞ Winner in 33 categories in the Asiamoney Private Banking Poll 2006,2008,2009,2010,2011 including the Best Private Bank award in Southern Asia
∞ Best Investment Bank in India 2003, 2004, 2006,2009,2010
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Leadership in the Indian Market
∞ Best Equity House in India: 2002,2003,2004,2008,2010,2011
∞ Best Domestic Equity house: 2003-2005,2008-2011
∞ Best Investment Bank in India 2004,2008,2009,2010
∞ IFR Asia's India Equity House Award for the year 2004,2008
∞ Best Broker - Kotak Securities : 2005
∞ # 1 Book runner/ Lead Manager in terms of value of Indian equity offerings (PRIME Database) 2006, 2005, 2004, 2003
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Best Equity House in India 2005,2004,2003
Best Domestic Equity House in India 2004, 2003,2008-2011
Best Investment Bank in India 2006-2011
Best Equity House in India 2004,2008
Topped league tables for book running equity offerings for last four years in a row
Topped Bloomberg M&A league tables for CY2005
International Subsidiaries Registered with
∞ International Offerings
∞ Investment Management
∞ Kotak Mahindra (UK) ∞ FSA, SEBI
∞ Kotak Mahindra Inc ∞ NASD
∞ Kotak Mahindra (International)
∞ FSC(financial service comm)
Investment BankingIndustry Awards & Rankings
(Rs mn)
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352 354
1,049
239
118 132
563
71
2007 2008 2009 2010
Revenue PBT
KMCC - Investment Banking segment
(Rs mn)
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Strong presence in retail and
institutional segments
Institutional sales team in New York
and London
Network of 1400 and more offices
(own & franchisees) across 435
cities(2011)
2011
India’s leading securities brokerage firm 8.5% market share in FY10 (6.3% in FY09)
Best Broker2005,2010,2011
Best Equity House 2005, 2011
Best Equity House 2004
Securities
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Securities
Strong research team
Wide coverage
Institutional research 117 companies
Retail research 150 companies
Awarded Best Provider of Portfolio Management –
Equities by Euromoney Private Banking Poll 2006
Over 2,45,000 secondary market customers
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FUTURE PLANNING ANF INVESTMENT BANKING
• Role In Economy• What Awaits In Future?• Estimated Investment Guidelines • Overall Economy In The Economy• Future Investment Planners• Future Investment Banking Firms
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FUTURE OF INVESTMENT BANKING
• More Stringent Laws And Restrictions• Claw-Back Provision• Emphasis On Equity Derivatives And
Currency Trading• Fewer Big Banks And More Small
Boutiques• Lesser Dependence Upon Short-Term
Funding
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SCOPE AND OPPORTUNITIESS IN INDIA
• Commencement Of New Business
• Business Expansion
• Financial Investment Planning
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THANK YOU