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SYMBIOSIS INSTITUTE OF MANAGEMENT

STUDIES

RETAIL BANKING AND WEALTH MANAGEMENT

INVESTMENT BANKING

Submitted to: Submitted by:

Prof. Anish Dey Harsheen Sandhu, C4

Gurleen Kaur, C10

Ekta Singh, C11

Dated: 8th

Feb 2011 Aditi Bhandari, C13

Anisha Deb, C20Neha Lande, C29

Faisal Khan, C 36

Arzoo Singh, C56



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An investment bank is a financial institution which raises capital, trades securities, and

manages corporate mergers and acquisitions. Another term used for investment banking is

corporate finance.

Investment banks work for companies and governments, and profit from them by raising

money through the issuance and selling of securities in capital markets (both equity anddebt) and insuring bonds (for example selling credit default swaps), and providing the

necessary advice on transactions such as mergers and acquisitions. Most of investment

banks provide strategic advisory services for mergers, acquisitions, divestiture or other

financial services for clients, like the trading of derivatives, commodity, fixed income,

foreign exchange, and equity securities.

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is a form of banking which finances the capital requirements of

enterprises. Investment banking assists as it performs IPOs, private placement and bond

offerings, acts as broker and helps in carrying out mergers and acquisitions.

An Investment Banker can be considered as a total solutions provider for any corporate,desirous of mobilizing its capital. The services provided range from investment research to

investor service on the one hand and from preparation of the offer documents to legal

compliances & post issue monitoring on the other. A long lasting relationship exists between

the Issuer Company and the Investment Banker.

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OF INVESTMENT BAN ¤ ING

Investment banks can raise money from the stock markets or they can raise money for

corporations using advanced products called derivatives. Investment banks can invest their

own money directly into a company, project, etc., as a direct investment for which they

carry the full risk (known as merchant banking). An investment bank can raise money for the

corporation from a high net worth individual and that investment is known as private equity.

An investment bank can raise money for a corporation from a hedge fund that is dedicated

to making direct investments in corporations, which is usually referred to as venture capital,



or as loans with collateral as security to reduce risk. A combination of equity and loans also

exist, such as mezzanine.

FUNCTIONS OF INVESTMENT BAN ING

Investment banks carry out multilateral functions. Some of the most important functions of

investment banking are as follows:

y Investment banking helps public and private corporations in issuance of securities in

the primary market. They also act as intermediaries in trading for clients.

y Investment banking provides financial advice to investors and helps them by

assisting in purchasing and trading securities as well as managing financial assets

y Investment banking differs from commercial banking as investment banks don't

accept deposits neither do they grant retail loans.y Small firms which provide services of investment banking are called boutiques. They

mainly specialize in bond trading, providing technical analysis or program trading as

well as advising for mergers and acquisitions

INVESTMENT BAN ING: AN INTRODUCTION HISTORY AND RECENT TRENDS

Investment banking involves raising money (capital) for companies and governments,usually by issuing securities. Securities or financial instruments include equity or ownership

instruments such as stocks where investors own a share of the issuing concern and

therefore are entitled to profits. They also include debt instruments such as bonds, where

the issuing concern borrows money from investors and promises to repay it at a certain date

with interest. Companies typically issue stock when they first go public through initial public

offerings (IPOs), and they may issue stock and bonds periodically to fund such enterprises as

research, new product development, and expansion. Companies seeking to go public must

register with the Securities and Exchange Commission and pay registration fees, which cover

accountant and lawyer expenses for the preparation of registration statements. A

registration statement describes a company's business and its plans for using the money

raised, and it includes a company's financial statements.

Before stocks and bonds are issued, investment bankers perform due diligence

examinations, which entail carefully evaluating a company's worth in terms of money and

equipment (assets) and debt (liabilities). This examination requires the full disclosure of a

company's strengths and weaknesses. The company pays the investment banker after the

securities deal is completed and these fees often range from 3 to 7 percent of what a

company raises, depending on the type of transaction.



Investment banks aid companies and governments in selling securities as well as investors in

purchasing securities, managing investments, and trading securities. Investment banks take

the form of brokers or agents who purchase and sell securities for their clients; d ealers or

principals who buy and sell securities for their personal interest in turning a profit; and

broker-dealers who do both.

The primary service provided by investment banks is underwriting, which refers to

guaranteeing a company a set price for the securities it plans to issue. If the securities fail to

sell for the set price, the investment bank pays the company the difference. Therefore,

investment banks must carefully determine the set price by considering the expectations of

the company and the state of the market for the securities. In addition, investment banks

provide a plethora of other services including financial advising, acquisition advising,

divestiture advising, buying and selling securities, interest -rate swapping, and debt-for-stock

swapping. Nevertheless, most of the revenues of investment banks come from

underwriting, selling securities, and setting up mergers and acquisitions.

When companies need to raise large amounts of capital, a group of investment banks often

participate, which are referred to as syndicates. Syndicates are hierarchically structured andthe members of syndicates are grouped according to three functions: managing,

underwriting, and selling. Managing banks sit at the top of the hierarchy, conduct due

diligence examinations, and receive management fees from the companies. Underwriting

banks receive fees for sharing the risk of securities offerings. Finally, selling banks function

as brokers within the syndicate and sell the securities, receiving a fee for each share they

sell. Nevertheless, managing and underwriting banks usually also sell securities. All major

investment banks have a syndicate department, which concentrates on recruiting members

for syndicates managed by their firms and responding to recruitments fro m other firms.

A variety of legislation, mostly from the 1930s, governs investment banking. These laws

require public companies to fully disclose information on their operations and financialposition, and they mandate the separation of commercial and investment banking. The

latter mandate, however, has been relaxed over the intervening years as commercial banks

have entered the investment banking market.

HISTORY AND DEVELOPMENT OF INVESTMENT BAN ING

Investment banking began in the United States around the middle of the 19th century. Prior

to this period, auctioneers and merchants particularly those of Europeprovided the

majority of the financial services. The mid-1800s were marked by the country's greatesteconomic growth. To fund this growth, U.S. companies looked to Europe and U.S. banks

became the intermediaries that secured capital from European investors for U.S.

companies. Up until World War I, the United States was a debtor nation and U.S. investment

bankers had to rely on European investment ban kers and investors to share risk and

underwrite U.S. securities. For example, investment bankers such as John Pierpont (J. P.)

Morgan (1837-1913) of the United States would buy U.S. securities and resell them in

London for a higher price.



During this period, U.S. investment banks were linked to European banks. These

connections included J.P. Morgan & Co. and George Peabody & Co. (based in London);

Kidder, Peabody & Co. and Barling Brothers (based in London); and Kuhn, Loeb, & Co. and

the Warburgs (based in Germany).

Since European banks and investors could not assess businesses in the United States easily,

they worked with their U.S. counterparts to monitor the success of their investments. U.S.

investment bankers often would hold seats on the boards of the companies issuing the

securities to supervise operations and make sure dividends were paid. Companies

established long-term relationships with particular investment banks as a consequence.

In addition, this period saw the development of two basic components of investment

banking: underwriting and syndication. Because some of the companies seeking to sell

securities during this period, such as railroad and utility companies, required substantial

amounts of capital, investment bankers began under-writing the securities, thereby

guaranteeing a specific price for them. If the shares failed to fetch the set price, the

investments banks covered the difference. Underwriting allowed companies to raise the

funds they needed by issuing a sufficient amount of shares without inundating the marketso that the value of the shares dropped.

Because the value of the securities they underwrote frequently surpassed their financial

limits, investment banks introduced syndication, which involved sharing risk with other

investment banks. Further, syndication enabled investment banks to establish larger

networks to distribute their shares and hence investment banks began to develop

relationships with each other in the form of syndicates.

The syndicate structure typically included three to five tiers, which handled varying degrees

of shares and responsibilities. The structure is often thought of as a pyramid with a few

large, influential investment banks at the apex and smaller banks below. In the first tier, the"originating broker" or "house of issue" (now referred to as the manager) investigated

companies, determined how much capital would be raised, set the price and number of

shares to be issued, and decided when the shares would be issued. The originating broker

often handled the largest volume of shares and eventually began charging fees for its

services.

In the second tier, the purchase syndicate took a smaller number of shares, often at a

slightly higher price such as I percent or 0.5 percent higher. In the third tier, the banking

syndicate took an even smaller amount of shares at a price higher than that paid by the

purchase syndicate. Depending on the size of the issue, other tiers coul d be added such as

the "selling syndicate" and "selling group." Investment banks in these tiers of the syndicatewould just sell shares, but would not agree to sell a specific amount. Hence, they functioned

as brokers who bought and sold shares on commissi on from their customers.

From the mid-i800s to the early 1900s, J. P. Morgan was the most influential investment

banker. Morgan could sell U.S. bonds overseas that the U.S. Department of the Treasury

failed to sell and he led the financing of the railroad. He also raised funds for General



Electric and United States Steel. Nevertheless, Morgan's control and influence helped cause

a number of stock panics, including the panic of 1901.

Morgan and other powerful investment bankers became the target of the muckrakers as

well as of inquiries into stock speculations. These investigations included the Armstrong

insurance investigation of 1905, the Hughes investigation of 1909, and the Money Trust

investigation of 1912. The Money Trust investigation led to most states adopting the so-

called blue-sky laws, which were designed to deter investment scams by start-up

companies. The banks responded to these investigations and laws by establishing the

Investment Bankers Association to ensure the prudent practices among investment banks.

These investigations also led to the creation of the Federal Reserve System in 1913.

Beginning about the time World War I broke out, the United States became a creditor

nation and the roles of Europe and the United States switched to some extent. Companies

in other countries now turned to the United States for investment banking. During the

1920s, the number and value of securities offerings increased when investment banks

began raising money for a variety of emerging industries: automotive, aviation, and radio.

Prior to World War 1, securities issues peaked at about $ 1 million, but afterw ards issues of more than $20 million were frequent.

The banks, however, became mired in speculation during this period as over 1 million

investors bought stocks on margin, that is, with money borrowed from the banks. In

addition, the large banks began speculating with the money of their depositors and

commercial banks made forays into underwriting.

The stoc

market crashed on October 29, 1929, and commercial and investment banks lost

$30 billion by mid-November. While the crash only affected bankers, brokers, and some

investors and while most people still had their jobs, the crash brought about a credit crunch.

Credit became so scarce that by 1931 more than 500 U.S. banks folded, as the GreatDepression continued.

As a result, investment banking all but frittered away. Securities issues no longer took place

for the most part and few people could afford to invest or would be willing to invest in the

stock market, which kept sinking. Because of crash, the government launched an

investigation led by Ferdinand Pecora, which became known as the Pecora Investigation.

After exposing the corrupt practices of commercial and investment banks, the investigation

led to the establishment of the Securities and Exchange Commission (SEC) as well as to the

signing of the Bankin Act of 1933 also known as the Glass-Steagall Act. The SEC became

responsible for regulating and overseeing in-vesting in public companies. The Glass-Steagall

Act mandated the separation of commercial and investment banking and from thenuntilthe late 1980banks had to choose between the two enterprises.

Further legislation grew out of this period, too. The Revenue Act of 1932 raised the tax on

stocks and required taxes on bonds, which made the practice of raising prices in the

different tiers of the syndicate system no longer feasible. The Securities Act of 1933 and the

Securities Exchan e Act of 1934 required investment banks to make full disclosures of

securities offerings in investment prospectuses and charged the SEC with reviewing them.



This legislation also required companies to regularly file financial statements in order to

make known changes in their financial position. As a result of these acts, bidding for

investment banking projects became competitive as companies began to select the lowest

bidders and not rely on major traditional companies such as Morgan Stanley and Kuhn,

Loeb.

The last major effort to clean up the investment banking industry came with the U.S. v.

Morgan case in 1953. This case was a government antitrust investigation into the practices

of 17 of the top investment banks. The court, however, sided with the defendant

investment banks, concluding that they had not conspired to monopolize the U.S. securities

industry and to prevent new entrants beginning around 1915, as the government

prosecutors argued.

By the 1950s, investment banking began to pick up as the economy continued to prosper.

This growth surpassed that of the 1920s. Consequently, major corporations sought new

financing during this period. General Motors, for example, made a stock offering of $325

million in 1955, which was the largest stock offering to that time. In addition, airlines,

shopping malls, and governments began raising money by selling securities around thistime.

During the 1960s, high-tech electronics companies spurred on investment banking.

Companies such as Texas Instruments and Electronic Data Systems led the way in securities

offerings. Established investment houses such as Morgan Stanley did not handle these

issues; rather, Wall Street newcomers such as Charles Plohn & Co. did. The established

houses, however, participated in the conglomeration trend of the 1950s and 1960s by

helping consolidating companies negotiate deals.

The stock market collapse of 1969 ushered in a new era of economic problems which

continued through the 1970s, stifling banks and investment houses. The recession of the1970s brought about a wave of mergers among investment brokers. Investment banks

began to expand their services during this period, by setting up retail operations, expanding

into international markets, investing in venture capital, and working with insurance

companies.

While investment bankers once worked for fixed commissions, they have been negotiating

fees with investors since 1975, when the SEC opted to deregulate investment banker fees.

This deregulation also gave rise to discount brokers, who undercut the prices of established

firms. In addition, investment banks started to implement computer technology in the

1970s and 1980s in order to automate and expedite operations. Furthermore, investment

banking became much more competitive as investment bankers could no longer wait forclients to come to them, but had to endeavour to win new clients and retain old ones.



CORE ACTIVITIES OF INVESTMENT BANKING

y In

estment banking: is the traditional as ect of investment banks that involves

helping c

stomers raise funds in the capital markets and advise them on mergers and ac uisitions ! Investment banking can also involve subscribing investors to a

security issuance " negotiating with a merger target and coordinating with bidders !

y Sales and trading: Depending on the needs of the bank and its clients # the main

function of a large investment bank is buying and selling products $ In market making,

the traders will buy and sell securities or financial products with the goal of earning

an incremental amount of money on every trade $ Sales is the term that is used for

the sales force, whose primary job is to call on institutional and high-net-worth

investors to suggest trading ideas and take orders

y Resear%

h: Two categories of research areEquity Research (Stock) and Fixed Income

Research (Bonds). Research analyst reviews the company for its financial strength

and ability to meet its obligations and promises. Each analyst covers 10-15

companies in a particular industry segment or sub-segment. The aim of the equity

research undertaken on a company is to come up with a fair price of the company



share. Depending upon the prevailing market price, the analyst will issue Buy,

Hold or Sell rating. Fixed income research, deals with corporate bonds, though

the considerations are almost similar as in equity, however, there is a little

difference in the approach to accommodate the differences in the characteristics of

the instruments i.e., debt vs. equity.

Bank makes money by publishing these researches and selling them for a price. Research

analysts also advise high net worth clients on investments.

An investment bank may be involved in providing both advisory services and conducting

research on a company for example, same investment bank may be lead underwriter for a

companys next public issue and the company may also covered by banks research analyst.

As is suspected there is possible situation for conflict of interest. In absence of regulations,

research will issue high recommendations for the issue that is underwritten by the bank. To

avoid such situation there are strict regulations and a Chinese Wall is put up between

research and advisory services desks of the bank i.e. there is no communication in any way

between these two businesses. Investment banks follow these regulations religiously

without any fail.

On the basis of what kind of employer employs the analysts, research could be Buy-side

or Sell-side.

Buy-side: analysts are usually employed by mutual funds, hedge funds, pension funds, etc.

The objective with which buy-side analysts undertake research is to determine how

promising investment in a particular company will be and how it fits the investment strategyand goals of the money manager. The analysts hired are paid for by the fund and these

researches are not generally available for use by other parties.

Sell-side: analysts work for brokerage firms, involved in managing individual accounts and

issue recommendations regarding the performance of the stock or bond they are covering.

The purpose of the research is to help their clients make knowledgeable decision to buy or

sell a security.

.

DEVELOPMENT OF THE INVESTMENT BAN &

Investment bankers originated in the Middle Ages, when governments and kings received

long-term loans for conducting wars and maintaining courts. Notable among the early

money lenders were the Hansa merchants who supplied funds to many of the European



kings and emperors, but usually with assurance of return. The ruler received a certain sum

of money in the form of gold or silver bullion, and in return he gave the lender the rights

over revenue derived from tariffs or taxes for a certain period of years. Loans were also

extended on real property such as mines, fisheries, and forests owned by the government,

and the products of the mines were applied to the payment of principal and interest. These

early magnates were also merchants, and they were able to use their own money directly in

granting loans, and in this way they differed from the modern investment bankers who act

as intermediaries in gathering the funds of others for making advances to borrowers. With

the close of the Napoleonic wars financial supremacy shifted from Amsterdam and the

Continent to London and with this change the modern investment bank as an intermediary

institution between borrower and lender was developed.

The same general evolution was repeated in the financial history of the United States.

During the first quarter of the nineteenth century American states and municipalities

secured whatever capital they needed from merchants. During the second quarter, the

westward movement caused an extension of such internal improvements as canals and

railroads, and capital for these purposes was raised mainly from investors in England and in

other European countries. Securities marketed in this country consisted largely of municipal

bonds which were sold, usually without public notice, to local bankers who in turn marketed

them among insurance companies, savings banks, and private investors. In order to secure a

better price for bonds, municipalities began to advertise their new issues and their sales

were conducted on a competitive basis. Blocks of these bonds were purchased by

individuals for the purpose of selling them on a retail basis, and these individuals thus

performed in a small way the mediation function of the modern investment bankers.

The development of free banking encouraged the organization of many banks, and until the

opening of the Civil War there was considerable investment of capital in bank stock. After

the Civil War the growth of transcontinental railways led to the issue of large blocks of

bonds which were absorbed by American and European investors, whose contributions of capital made possible also the organization and development of great industrial trusts at the

opening of the twentieth century. The war changed the movement of capital between

Europe and America. At first a large proportion of American railroad and industrial securities

held abroad were repurchased, and later the war obligations of the European governments

found a market in the United States.

FUNCTIONS OF AN INVESTMENT BAN '

As already indicated, the types of investment banks considered perform in general one ormore of the following functions: (1) investigating proposals, (2) forming syndicates for

underwriting, (3) selling securities. In addition, investment houses may render the public

such services as advice in selecting securities, information to customers, and protection in

case of failure of the corporation issuing the securities.



Functions of Investment Bankin ( :

Investment banks have multilateral functions to perform. Some of the most important

functions of investment banking can be jot down as follows:

y Investment banking help public and private corporations in issuing secur ities in the

primary market, guarantee by standby underwriting or best efforts selling and

foreign exchange management. Other services include acting as intermediaries in

trading for clients.

y Investment banking provides financial advice to investors and serves them by

assisting in purchasing securities, managing financial assets and trading securities.

y Investment banking differs from commercial banking in the sense that they don't

accept deposits and grant retail loans. However the dividing line between the two

fraternal twins has become flimsy with loans and securities becoming almost

substitutable ways of raising funds.

y Small firms providing services of investment banking are called boutiques. These

mainly specialize in bond trading, advising for mergers and acquisitions, providing

technical analysis or program trading.

Financial Advisory Services:

An investment bank is involved heavily in financial advisory services. Investment banks give

companies advice on mergers and acquisition, when and how capital should be raised,tracking the market for the best possible time to offer an IPO or secondary offering etc.

Apart from advisory services, investment bank operates extensively in Capital

Markets arena. The term capital markets, relates to equity and bond markets, both

domestic and international, as well as cover derivatives and other financial instruments.

Over years with development of securitization and derivatives market a whole new segment

of Structured Transaction has surfaced in investment banking business.

To work in research and financial advisory services area of Investment Banks, one requires

expertise in excel based financial modelling and valuation. Though, a job in capital market

groups will require in-depth knowledge of functioning of capital markets, analytics of various financial instruments like convertible securities, derivatives etc and excel based

modelling skills.

There are certain other banking related activities that might be undertaken by an

investment bank itself or by firms specializing in these areas, for example Private Equity,

Venture Capital etc.



Private Equity:

Private equity implies equity investment in companies that are not traded

publically. Private equity investment may be in the form of Leveraged Buy-Outs, Venture

Capital or Distressed Financing.

Private Equity capital is very risky investment with huge payout potential. However, each

kind of private equity investment has different risk return profile.

In case of leveraged buyouts, private equity fund buys a large portion of a publically traded

company and takes it private, turns it around by taking over management and a complete

operational overhaul. The investment horizon is generally 5-9 years, at the end of which

company is taken public again and the private equity fund gets it investment back along

with huge returns.

CLASSES OF INVESTMENT BAN ) S

Investment institutions may be divided into three general groups - wholesale houses, large

retail houses, and small retail, or bond, houses. The first group is composed of about a

dozen large banking firms with many correspondent connections abroad. These housesundertake the marketing of the larger issues of railroads and of foreign governments,

exceeding at times $100,000,000 in amount, by selling them, usually not. to the public

directly, but indirectly through other houses. As wholesale houses are engaged mainly in the

purchase of securities, the organization of their buying department is of special importance,

and so it usually retains the services of engineers, accountants, lawyers, and other experts

for the complete evaluation of the properties on the basis of which the securities are issued.

For the selling of these securities the wholesale houses in most cases associate themselves

with the large retailers, who are much more numerous. These usually have their home

office in New York City, in some other Eastern money center, or in Chicago, and operate in

other important cities through their own branches or through partnerships and corporationswhich are independently organized, but always closely affiliated with the home office. The

securities companies of national banks and the bond departments of trust companies are, of

course, not permitted to organize branches, but instead operate correspondent offices

which perform about the same activities as private investment banks. The large retailers will

purchase securities for their own account directly from the issuing corporations to a limited

extent only, and for relatively small amounts. In the case of large issues, the retailers will

not usually assume the responsibility alone, but join with others in a syndicate or group of



houses, of which each takes over a portion of the securities. As the main task of a large

retail house is the disposing of securities, the sales department is the most important unit in

its organization.

Large retail houses may be grouped according to the form of the securities or the nature of

the issues in which they are interested. Thus there are houses specializing in bonds or

stocks, or in both forms of securities. Other firms handle only such issues as government

bonds, railroad, public utility, or industrial securities. While most investment banks naturally

press the sale of their own specialties or issues, at the same time they will also execute

orders to buy and sell other stocks and bonds either directly as members of the various

stock exchanges or indirectly through brokers.

The branches and the affiliated offices of the large retailers throughout the country come

into active competition with the bond houses or small retailers. These are of several classes,

such as small banks and brokerage houses dealing in all kinds of securities, or handling

specialties such as Standard Oil stocks, equipment bonds, and issues of local corporations.

The organization of the small investment house is quite similar to that of the large retail

firm, but on a more limited scale, for usually the buying and selling departments areconducted by only one person, who controls the entire business. The small bond house at

times finds difficulty in obtaining high-grade securities, for those yielding a satisfactory

profit are handled by the large retail houses themselves, which allow only a small

commission on these sales.

ROLE OF AN INVESTMENT BAN 0

The major work of investment banks includes a lot of consulting. For instance, they offer

advices on mergers and acquisitions to companies. The other arena where they give adviceare tracking the market and determining when should a company come out with a public

offering and what is the best possible way to manage the public assets of businesses. The

role that an investment bank plays sometimes gets overlapped with that of a private

brokerage house. The usual advice of buying and selling is also given by investment banks.

There is no demarcating line between the investment banking and other forms of banking in

India. This has been observed majorly of late. All banks nowadays want to provide their

customers the best of services and create a niche for themselves and that is why apart from

investment banks, all other banks too are aiming at making it big.

At the macro level, investment banking is related with the primary function of assisting thecapital market in its function of capital intermediation, i.e., the movement of financial

resources from those who have them (the investors), to those who need to make use of

them for producing GDP (the issuers). Over the decades, investment banks have always

suited the needs of the finance community and thus become one of the most vibrant and

exciting segment of financial services.

Globally investment banks handle significant fund-based business of their own in the capital



market along with their non-fund service portfolio which is offered to the clients. All these

activities are broadly segmented across three platforms - equity market activity, debt

market activity and merger and acquisitions (M&A) activity. In addition, given the structure

of the market, there is also a segmentation based on whether a particular investment bank

belongs to a banking parent or is a stand-alone pure investment bank.

LARGEST FULL-SERVICE INVESTMENT BAN 1 S

The following are the largest full-service global investment banks; Full-service investment

banks usually provides both advisory and financing banking services, as well as the sales,

market making, and research on a broad array of financial products including equities,

credit, rates, currency, commodities, and their derivatives. The list compiled here is based

on investment banking revenues and assets.

y Credit Suisse

y Bank of America (Bank of America Merrill Lynch)

y BNP Paribas (BNP Paribas CIB)

y Citigroup (Citi Institutional Clients Group)

y Barclays Capital

y Deutsche Bank

y Goldman Sachs

y HSBC

y JPMorgan Chase (J.P. Morgan Investment Bank)

y Morgan Stanley

y UBS (UBS Investment Bank)

y Royal Bank of Scotland

INVESTMENT BAN 2 S WORLDWIDE

y Morgan Stanley Dean Witter

One of the largest investment banks in the United States, with clients worldwide.

y Merrill Lynch

A leading global financial management and advisory company.

y Credit Suisse First Boston Global investment banking firm offers financial

advisory, capital raising, sales and trading, and financial products.

y Deutsche Bank AG

European bank serving the financial needs of corporations, firms, institutions,

and private and business clients worldwide.



y J.P. Morgan & Co.

A leading global financial firm that meets critical financial needs for business

enterprises, governments, and individuals.

y Barclays Capital

International investment bank with presence in all the major markets around the

world.

y Goldman Sachs

A full-service global investment banking and securities firm.

y Banc of America Securities LLC

A full service investment bank and brokerage firm.

y Nomura International -The European subsidiary of the Nomura Securities Co.,

Ltd., focused on meeting the needs of investors and i ssuers across Europe and

beyond.

y HSBC Group Holdings

Headquartered in London, with an international network of offices in multiplecountries and territories across the world. The Group provides a range of

financial services.

y Macquarie International

Provides specialist investment banking and financial services in select markets

around the world.

y RBC Dominion Securities Inc.

A Full Service Investment Dealer based in Canada. It has operations in mergers

and acquisitions, sales and trading of equities, bonds, money market

instruments, foreign exchange, futures and options, research and investment

management.

y Bank of Scotland

A part of Lloyds banking group, offering many personal and business banking

services. PC banking available.

y Smith Barney

Provides brokerage, investment banking and asset management to corporations,

governments and individuals.

y Deutsche Bank New Zealand

A full service investment bank with four banking divisions operating from two

branches.

y Robert W. Baird

Investment banking and wealth management firm servicing clients in the U.S.

and Europe

y Jeff eries Group, Inc.

An investment bank serving mid-cap investors and issuers worldwide. Based in

New York City. (NYSE: JEF)



y The Jordan, Edmiston Group, Inc.

Middle-market investment banking services for companies in the media and

information industries.

y CIBC World Markets

Offers credit and capital markets products, securities, brokerage and asset

management services.

y N M Rothschild and Sons

Provides investment banking and financial services worldwide.

y SG Cowen Securities

The U.S. broker-dealer subsidiary of SG providing securities and investment

banking services.

y CLSA Emerging Markets

Provider of investment banking in the emerging markets of Asia, Latin America

and Europe.

y

Dresdner Kleinwort Wasserstein Provides financing and distribution capabilities on a global scale.

y BMO Nesbitt Burns

Full-service investment bank serving the financial needs of individual,

institutional, corporate and government clients.

y Mirus Capital Advisors

Provides investment banking solutions to middle market technology, busines s

services companies, and family-owned businesses.

y Simmons & Company International

Specialist in investment banking, mergers and acquisitions, public debt and

equity offerings to the Energy Industry.

y Jane Capital Partners LLC

International investment bank focusing on corporate finance and mergers and

acquisitions.

y The International Investor

Global Islamic investment bank with offices in Kuwait, London, Qatar, Bahrain

and UAE.

y Keef e, Bruyette & Woods, Inc.

Institutionally oriented securities broker/dealer and full service investment bank

y

Ziegler and Companies, Inc.

Provides integrated financial services through two main segments: investment

banking and capital markets, and investment services. features an overview of

services,and investor information. (NASDAQ:ZCO

y Allison-Williams Company

Serves financial institutions, investors and companies seeking to raise capital.

y Sanders Morris Harris Group Inc.



Offer investment banking services to companies and industries. Includes sections

for client, institutional services, and research library, with contacts for offices

throughout the USA, and headquarters in Houston, Texas. (Nasdaq: SMHG)

y George K. Baum and Company

Regional investment banking firm.

y Houlihan Lokey

A international investment banking firm offering mergers and acquisitions,

corporate financing, business valuation, financial opinions, financial restructuring

and merchant banking services.

y Alpha Finance US Corporation

Investment bank specializing in Greek investments and brokers.

y Gu3

man & Company

Investment banking and institutional brokerage firm serving plan sponsors and

investment management firms.

y

Updata Capital, Inc.

An investment banking firm specializing in mergers and acquisitions in the

information technology industry.

y Greystone

Specializes in financing multi-family housing and health care properties.

y Young and Partners

Investment bank for chemical, pharmaceutical, biotechnology, and medical

device companies.

y Buchanan Street

Real estate investment bank that invests on behalf of private and institutional

clients.

y Chanin Capital Partners

Provides financial restructurings, mergers and acquisitions, corporate finance

and private placements.

y Oscar Gruss & Son Incorporated

A full service broker dealer that provides execution and research services to

institutional investors.

y Gordian Group, L.P.

y Provides investment banking and financial advisory services in complex

situations.y Menke and Associates, Inc.

Investment banking firm specializing in ESOP and management buyouts.

y eMergers.com

Designed to broaden distribution of merger and acquisition opportunities on the

Internet.

y TM Capital Corp.



A NY Based Investment Banking Firm providing clients with the experience and

expertise necessary to complete strategic corporate transactions including

mergers, acquisitions and financings.

y Kontiki Capital Ltd.

Provides investment banking products and services to the South Pacific. Licensed

as an Investment Adviser by the Capital Markets Development Authority of Fiji.

y Arab Investment Bank s.a.l.

Offers medium and long term financing and investments in local and foreign

currencies. Includes information on the Lebanon stock and bond markets, as well

as foreign exchange rates.

y Sindicatum Limited

London-based corporate finance/mergers and acquisitions firm focused on global

emerging markets.

y Griffin Securities, Inc.

Global investment banking, financial advisory and brokerage firm.

y Leonard Green and Partners

A merchant and investment banking firm.

y Energy Spectrum

Energy Spectrum offers private equity investments and premium investment

banking services for the energy industry.

y Presidio-The Credit Specialist

Provides bond market matched principal intermediation, credit trading and risk

management advisory services. Based in Asia.

y Gruppo, Levey & Co.

Provides financial and advisory services to the direct marketing and e-commerce

industries.

y Kuhn Information Capital

Provides merger and acquisition services to software, data and Internet vendors.

y SARS Ltd.

Offers corporate finance advice to multinationals, governments, and

corporations in central and eastern Europe.

y Cameron Thomson Group

Investment banking group specializing in converging media/entertainment and IT

industries.

y Cross Border Enterprises

International investment bank providing private equity banking services.

y EurOrient Investment Group

A privately held investment and merchant banking firm located in Los Angeles,

California.

y Wall Street Organi4 ation, Inc.



Online investment banking and financial public relations firm.

y Instream Partners LLC

San Francisco firm providing middle market mergers and acquisitions and capital

raising services.

y Alderman & Company

Investment bankers provide financial advice to aerospace and defense industry.

Includes practice, services, clients, recent transactions, newsletter. Based in

South Norwalk, CT.

y Asia Capital Group, Ltd.

Provides professional investment banking services to multinational corporations.

y Avondale Partners, LLC

Provides equity research and sales and trading capabilities to the institutional

marketplace. Also offers investment banking services including mergers and

acquisitions, financial and strategic advisory and capital raising.

y

Corsum financeInvestment Banking, Mergers and Acquisitions, Financial Engine ering, Financial

Restructuring and Strategy Analysis in Czech Republic.

y Texada Capital Corp

Investment banking firm offers corporate finance services to direct marketing

companies.

y Latitude Partners

Investment banking firm for technology, internet, and communications sectors.

y Phoenix Management Group, LLC

Provides investment banking, debt restructuring and mezzanine financing.

y Pharus Advisors, LLC

Sell-side and buy-side mergers and acquisitions advisory services to venture-

backed technology companies in the small-middle markets.

y Wm Sword and Co.

Investment bank specializing in merger/acquisition advisory services.

y Capital Investment Partners

An established investment banking and capital formation fir m.

y Agawam Partners

Merchant banking firm focused on the media, technology and

telecommunications industries.y Douglas Group

Investment banking firm represents business owners in the sale and purchase of

businesses.

y Metos Investments

Provides investment banking, merger, acquisition, and financial services.

y Macadam Capital Partners



Private investment bank advising companies in planning for their capital needs.

EnCapital

Investment bank off ers financial advice to the energy, engineering and

environmental industries.

y International Capital Corporation

Provides pro ject financing and development services around the world.

y Bryan, Garnier & Co

European investment bank specialising in European growth companies.

Quarterde5

k In6

estment Partners, In5

.

An investment banking firm in Los Angeles and Washington DC.

y Deuts7

he Bank Alex.Brown

Investment banking and brokerage services for private wealth and asset

management

y Bear Stearns & Co. In8

.

A worldwide investment banking and securities trading and brokerage firm.

LIST OF TOP 10 INVESTMENT BANKS IN INDIA

1. A9

endus Capital: An investment bank providing mergers and acquisitions, fixed returns,

controlled finance, calculated advisory facilities and Private Equity Syndication to its

customers ranging from investors to corporates. The bank has a powerful research

competence which it utilizes to close business deals in hostile circumstances. It presently

concentrates on sectors where Indian firms have strategic expansion advantage namely

Healthcare, Pharmaceuticals, IT Services, Consumer goods, manufacturing, etc.

2. Bajaj Capital: The Ba ja j Capital Group is one of the renowned Investment consultant and

Financial Planning firms in India. It is certified under the Category I of Merchant Bankers by

SEBI. Ba ja j Capital provides custom-made Fiscal Planning facilities and investment

consultation to the investors, organizational investors, corporates, high income patrons and

Non-Resident Indians (NRIs).

Being one of the biggest distributors of economic goods, Ba ja j provides an extensive range

of investment schemes such as general insurance, lif e insurance, mutual funds, etc to both

public and private institutions.

3. Cholamandalam In@

estment & FinanA e Company:A combined fiscal service provider of

three firms namely Cholamandalam DBS Finance Limited (CDFL), DBS Cholamandalam

Distribution Limited and DBS CholamandalamSecurities Limited, Cholamandalam DBS

operates in 16 international markets. DBS provides an extensive range of facilities to small

and medium sized enterprise, corporates, customers and comprehensive banking activities

across Middle East and Asia.



4. ICICI Securities Ltd: India's biggest equity house, ICICI Securities Ltd provide back-to-back

banking solutions through its extensive distribution network to cater to the varied needs of

its retail and corporate clients. The firm is listed under the Monetary Authority of Singapore

(MAS) and Financial Services Authority, UK and has an authoritative place in the core

divisions of its functional areas such as consultant services, fiscal good distribution, Equity

Capital Markets Advisory Services, etc.

5. IDFC: Initiated in 1997 in Chennai, IDFC undertook the responsibility of providing financial

support to 332 projects accruing a profit of upto Rs 2, 20, 400 million. The sectors under

IDFC's financial assistance are infrastructure, agri related business, transportation,

healthcare, tourism and others.

6. Kotak Mahindra Capital Company: Initiator and leader in equity capital markets, Kotak

Investment Banking has undertaken the developmental work of most ground breaking

advances in the Indian capital markets comprising the launch of book building and Qualified

Institutional Placements (QIPs) in India. The investment bank has an impressive track recordof controlling various sectors and has played a major role in the government's milestone

disinvestments.

7. SBI Capital Markets: SBICAPS is India's foremost investment bank and project consultant,

aiding local firms in capital enlistment endeavors for last many years. The firm started it

operations in 1986 and is an entirely owned subordinate of the State Bank of India. Asian

Development Bank (ADB) possesses 13.84% stakes in equity segment of SBICAPS.

8. Tata Investment Corporation Limited (TICL): A non-banking financial company (NBFC), TICL

is listed with the Reserve Bank of India under the group of 'Investment Company'. The firm's

commercial activities constitute mainly of endowing in long-standing investments in equity

of the firms in various sectors. The chief source of return for the firm entails income on

investment trading and income accrued on dividend.

9. Yes Bank: This Investment Banking association is engaged in the classification, arrangement

and implementation of deals for their clients in varied sectors and nations. Some of the

archetypal transactions incorporate divestitures, private equity syndication, mergers &

acquisitions and IPO consultation.

10. UTI Securities Ltd: Endorsed as a self-regulating professional body in 1994, UTI Securities

Ltd., is one of the renowned investment bank of India. After the termination of Unit Trust of India (UTI) Act, the total share fund of UTISEL is now controlled by superintendent of

particular enterprise of UTI. The firm has been offering all sorts of investment associated

activities which incorporates investment banking and corporate consultation facilities.



INVESTMENT BANKING: CHANGED FOREVER?

The investment banking and securities dealing industry underwent massive disruptions over

the past two years. The year 2008 saw a complete makeover of the industry as Bear Stearns

fell into the hands of JP Morgan, Lehman Brothers filed for bankruptcy protection, Merrill

Lynch staved off collapse with a Bank of America takeover and the two remaining giants,

Goldman Sachs Group and Morgan Stanley, converted into bank holding companies to

qualify for government assistance. We have seen an incredible destruction of the industry

that was years in the making. Many of the causes came from perverse regulatory incentives

as the industry transitioned from a natural oligopoly into freer competition.

The investment banking industry directly correlates to economic growth given that its ability

to profit derives from the securitization of businesses. Generally, mergers, acquisitions and

other underwriting services depend on the overall level of corporate activity. Corporate

activity directly follows from earnings increases of individual companies and the general

economic outlook and confidence in business prospects. So the fate of investment banking

revenues relies heavily on the fate of the overall economy. Given some of the key structural

characteristics of the investment banking industry, investment banks must seek to form

long-term relationships with individual firms while respecting others banks relationships in

a naturally oligopolistic industry. First, investment banks must perform significantly deep

and pointed research into the companies that they offer securitization services to. The initial

enticement into private placements is largely dependent on the solid reputation of the lead

investment banks promoting the security. In orde r to find buyers for a particular stock issue

that the investment bank wishes to sell to the public, the bank puts its own reputation on

the line claiming its high-standards and due diligence of financial statement review give the

investor security. An investor needs to be able to trust the investment banks opinion on the

future prospects of the company and the investment. No investment bank will survive longshould it promote the securities of soon-failing institutions. Any individual bank promoting

worthless companies will soon go bankrupt as investors realize the ill-advised investments

they are taking. This is clearly why so-called chop shops and penny-stock promoters

typically never gain respected status and fail in short order or are shutdown by the SEC for

fraud. The major players in the industry have had collective breakdowns in underwriting

standards in times of the past but generally banks must be trustworthy and provide

accurate assessments of future business prospects. (2001 Anand & Galetovic) Initially, then,

a bank must study the company and its prospects and assign an appropriate valuation. This

initial due diligence is costly and results in sunk costs in order to begin a relationship with

outside firms. The costs are necessary but are undertaken because the bank clearly believes

it can garner greater profits in the future by having a relationship. (2001 Anand & Galetovic)These unrecoverable costs are worthwhile if the bank can create a lasting relationship

where it reuses the same information for future deals and is able to recoup the costs

associated to that particular company as well as the sunk costs lost on firms where potential

deals were rejected due to lower credit quality. These sunk costs relate to another trait in

the investment banking industry, the misaligned connection between costs and fee revenue.

(2001 Anand & Galetovic) Investment banks only generate revenue when they create and

execute a particular security deal. While banks may spend months and months studying a



company, gauging market buying interest, promoting a deal, offering advice, they are only

paid fee income once the deal is finally consecrated. Ultimately a bank may provide a great

deal of services and never collect fee revenues. A third characteristic of the industry is a

banks inability to claim any rights over the information it generates about a particular firm

it is investigating for a potential deal. (2001 Anand & Galetovic) The firm may spend

hundreds of man hours dedicated to deal but it has difficulty m aintaining that information

as proprietary. The risk of a lead person on the deal team to be hired away by another bank

is high. Banks can attempt to reduce this risk through non-compete agreements but given

the global nature of todays financial system, non-competes can fail rather easily given their

geographical limitations. Then, this employee who is hired away would bring with them all

the information they had gathered in hours of research at the bank. Also, once the bank has

researched the potential company for underwriting, it must use its reports to generate

outside interest among investors. In seeking these outsider investors, the research is pushed

into the public forum and its privacy is lost. These three traits of the industry point to why

investment banking is naturally oligopolistic. In perfect competition, investment banks

would allow other firms to incur the initial sunk costs for a deal and then free ride off the

information obtained. A bank could easily achieve this by stepping in late in the deal just

before the security is actually created and sold and undercut the initial firm. A simple way to

create the relationship would be to hire away the lead employee on the deal who has the

most intricate knowledge of the company and the deal at hand. For example, Deutsche

Bank built a global investment bank in a year (Deutsche Morgan Grenfell) by hiring away

staff en masse from other major banks (2001 Anand & Galetovic). The information and

advice exchanged prior to a deals completion give strong incentive for another investment

bank to free ride and offer the deal at a much lower price having not incurred the setup

costs. Therefore, the investment banking industry cannot be perfectly competitive and must

result in a voluntary cooperation among banks not to undercut each other in ruinous

competition that will ultimately destroy the incentives to create long-lasting relationships

with firms. Evidence of this dynamic has been studied in various literatures. In Struggle and

Survival on Wall Street written in 1994, Matthews found that firms have charged 7/8percent for underwriting top quality bonds for decades. Matthews concluded that there

must be some type of unspoken collusion among banks for this to occur so systematically

for so long. Chen and Ritter reported that gross spreads received by underwriters on initial

public offerings in the United States are much higher than in other countries. Furthermore,

in recent years more than 90 percent of deals raising $20-80 million have spreads of exactly

seven percent, three times the proportion of a decade earlier. The spreads were not near

or around seven percent, they broke down to exactly seven percent. In a more competitive

industry, one would expect to find spreads in a range where banks would compete with

each other at least to some degree. Chen and Ritter go on to claim that investment bankers

will openly admit that they dont want to turn it into a commodity business so banks do

not compete on the prices charged for initial public offerings. The ability to perform high-yielding securities deals is the lifeblood of the investment banking industry and executives

have made sure not to cause a breakdown in the fee schedule. These implicit agreements

show the oligopolistic structure of the investment banking industry. In such a structure,

there is a relatively fixed size of each individual dominant firm in the industry. If firms are all

too small, they will free ride off each others information and ruin each other. While if a

particular firm is too large relative to the others, the smaller firms will have increased

incentive to free ride to the detriment of the large firm. Therefore, no firm can become too



large without other, smaller firms attacking it and driving up its costs and reducing its fee

revenues through undercutting. The large firms operate on mutual high reputations and an

implicit agreement not to fall into ruinous competition. This creates the boys club that

Wall Street is sometimes seen as. The high barriers to entry in the industry also help support

the Wall Street club. The Securities and Exchange Commission has set a high standard of

capital and regulatory requirements that must be passed in order to setup as an investment

bank (2009 IBIS). The capital standards require large initial investments for conducting

business. More recently, increased regulation of the industry is likely thus further increasing

the barriers to entry for companies not able to produce significant economies of scale to

spread the high costs of compliance with legal regulations. Yet, once a bank is established,

their fixed capital costs are relatively low in comparison to variable labour costs. The

services provided by investment banks require a large amount of administrative work and

are highly labor intensive in general (2009 IBIS). These employees are typically highly

educated and very specialized in their field resulting in outsized wage expenses to maintain

the workforce. This relatively large portion of variable costs helps banks deal with

downturns in economic activity and massive layoffs are an understood part of the business

in times of economic contraction. But, as a barrier to entry into the industry, it can be

difficult to attract the well-qualified candidates in order to setup an enterprise espe cially in

investment banking because of its reliance on a bonus as a significant portion of an

employees compensation. This bonus is very large relative to the employees salary and is

only guaranteed if the firm can guarantee its ability to perform high profile securities deals.

In this way, the top firms of the industry are naturally supported by their employees who

stay with the reputation and success guaranteeing their income at the end of the year. Also,

one of the greatest components for success for an investment bank is its reputation.

Reputations are not made in short order but rather take years of quality servicing and then

decades to establish the firm commitment to maintaining integrity in its dealings. Gaining

acceptance from firms as a desired promoter and underwriter of securities is a long, hard -

won battle that substantially hinders new entrants from the market. Reputation and brand

can be measured by goodwill accounting within the financial statements. Goldman Sachs,for example, records an asset value of over $5 billion for its goodwill and intangible assets

on its financial statements (2009 GS). UBS valued its goodwill at over $4 billion for the year

ended December 31, 2008 (2008 UBS). These goodwill measurements indicate the value of

the business segments that exceed the discounted expected future cash flows and point to a

valuation of a companys reputation, brand image and customer loyalty. According to U.S.

Census Bureau statistics, the investment banking industry had 5,583 firms in 2007

generating a total of $207.4 billion in sales and employing over 140,000. The industry

experienced rapid growth over the previous five-year period with a 109.7 percent growth in

revenues fuelled by a relatively minor 19.7 percent growth in the number of firms coupled

with a miniscule 6.4 percent increase in the number of employees. Compensation increased

57 percent over the same period from 2002 to 2007, a 9.5 percent compound annualgrowth rate. (2009 Census)The state of New York is, by far, the dominant player in the

investment banking industry in terms of revenue, but not hardly so in terms of the number

of institutions. While accounting for only 20.8 percent of the total firms in 2002, New York

firms produced 77.9 percent of the total revenues generated in the industry. California takes

up second in the total revenues with a measly 4.1 percent of total sales. This divergence

clearly points to the dominance of Wall Street and the large market shares of a limited

number of firms. (2009 Census)The year 2008 saw an extraordinary 93.0 percent drop in



industry revenue as the sector imploded in the wake of the subprime mortgage meltdown.

As recently as the year 2007, the top six investment banking firms accounted for 86 percent

of the total market. By the end of 2008, major consolidation had occurred and the top three

firms now had market share of 65 percent. The top six investment banks in 2007, in order of

market share, were Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear

Stearns and JP Morgan. By the end of the 2008, Goldman Sachs and Morgan Stanley had

survived only by converting to bank holding companies to qualify for government capital

infusions. Merrill Lynch was forced into an acquisition by Bank of America after Lehman

Brothers dramatically collapsed in a short time. Bear Stearns was the first to fall in early

2008 forcing a takeover by JP Morgan. The composure of the investment banking industry

has dramatically changed and will continue to change in the futu re. There are no

independent investment banks remaining of any sizable importance. (2009 IBIS) The current

industry now has four key players accounting for 80 percent of the market. JP Morgan, after

acquiring Bear Stearns in May of 2008, now holds a 26 pe rcent share operating with assets

of $1.6 trillion and 180,000 employees. JP Morgan bartered an exceptional deal with the

Federal Reserve Bank bearing only the first $1 billion in potential losses from the acquisition

while the Fed bears the next $29 billion offering JP a great chance to snap up huge market

share gains without excessive risk of losing capital. JP participated in the same leveraged

loans and mortgage investments that other banks did but on a much more conservative

scale so that still maintained profitability in 2008 with incomes declining 64%. (2009

IBIS)Goldman Sachs, one of the two remaining firms from the group of the five independent

investment banks, comes in second in market share with 23 percent. Goldman also

weathered the subprime meltdown relatively well as it hedged its positions wisely and

experienced an 80 percent decline in net income in the year 2008. Morgan Stanley ranks

third in share with 16 percent and Bank of America rounds out the top four with 15 percent

market share. These four companies dominate the investment banking industry in the

United States now. Citigroup is the fifth largest and holds a measly one percent share. (2009

IBIS)The 54 percent drop in the equity market from the October 2007 high to the March

2009 low has left many market participants asking why the crisis occurred. Given that thecrisis was first felt within the walls of Wall Street firms, it makes one ask how investment

banks could have incurred such massive losses. The top five firms as well as other

commercial banking institutions threatened the collapse of the entire global financial

system with their extraordinarily excessive leverage and concentration in subprime

mortgage backed securities. Much of the changes in banking habits can be traced back the

Gramm-Leach-Bliley Act (GLBA) of 1999. The GLBA most notably repealed Section 20 of the

Glass-Steagall Act of 1933 (2009 Geyfman & Yeager). After the stock market crash in 1929

the Federal government passed many new wide-ranging sweeping measures to curtail

excessive risk-taking in the financial markets by large banking institutions. The SEC was

formed to regulate entities and Federal Deposit Insurance Corporation was founded to

insure the deposits of individual customers. Along with these two entities which haveproved to be major successes in creating stability in financial markets, the Glass-Steagall Act

had the specific provision of Section 20. Section 20 prohibited commercial banking

institutions from engaging in securities activities. Banks that held customer deposits were

now prohibited from engaging in or having affiliations with firms that engaged principally in

the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or

through syndicate participation of stock, bonds, debentures, notes or other securities (Title

12, U.S Code, Section 20).Section 20 intended to separate the riskiness of activities that



dealt with securities and the necessity of safety for consumer depositors. Glass-Steagall

looked to curtail the negative effects losses in securities dealing would have on the security

of banking deposits in a firm participating in both aspects of the financial system. As with

many other industries, the move to deregulation seen in the United States throughout the

1980s had its effects on the financial services industry as well. The slow erosion of Section

20 finally culminated in the passing of GLBA, otherwise known as the Financial Services

Modernization Act in 1999. This Act allowed ba nk holding companies to convert into

financial holding companies and perform dealings in securities through subsidiaries without

regulatory limits. (2009 Geyfman & Yeager) The repeal of Section 20 was strenuously lobbied

for in Congress by banking institu tions on the premise that major synergies could be

achieved without it creating significant economies of scale. Investment banks must undergo

costly creditworthiness evaluations in order to underwrite securities. These activities are

linked to a firms day-to-day financial activities. A bank holding company holding the

deposits and providing credit lines to an institution will have already conducted evaluations

of the firm that can then be transferred into underwriting activities without repeat of the

initial sunk costs independent investment banks must endure. Recent studies have shown a

modest risk diversification benefits in the post-GLBA era (2009 Geyfman & Yeager) and

significant revenue synergies between IB and commercial banking (2005 Yasuda). On the

other hand, now banks are participating in a significantly riskier world of securities dealing

with the downside of the risks to be felt by those seeking safety in simple depository

transactions with the bank. Geyfman and Yeager found that universal banks had similar

systemic risk but sharply higher total and unsystematic risk than more traditional banks

(2009). This finding points to the inherent risks in securities dealing and the possible spill

over disruptions these activities could have on traditional commercial banking activities. The

GLBA led to significant changes in the investment banking industry. The five largest

independent investment banks that had operated under implicit cooperation were forced to

produce earnings elsewhere as many new competitors entered the market. Previously an

unhindered oligopoly, the top five independent investment banks found themselves

competing for securities deals with the new so -called universal banks, major players like JPMorgan, Citigroup and Bank of America. Every banking institution was now allowed in on

the deal-making turf and held significant sway over firms making securitization decisions

because of the existing relationship with banks holding depository funds. A study in 2005

showed that companies having existing banking relationships will more often choose that

particular bank as their underwriter in securities deals (2005 Yasuda). This poses a great

challenge to investment banks that do not hold deposits because customers that were

previously forced to seek out an independent investment bank were now choosing the bank

holding companies they already had established relationships with for securities deals. After

five years of competing with all other firms in the banking world for securities deals,

investment banks needed a new way to make money. The new solution included employing

a great deal of leverage. One of the most crucial elements of the financial industry collapsewas the major change the SEC passed in legislation in 2004. Since 1975, the SEC had limited

broker dealers a debt-to-net capital ratio of 12-to-1. Most banks exhibit leverage ratios

between 9 and 12 percent depending on the managements appetite for risk. Investment

banks though, have always found ways to exceed those ratios but the 2004 SEC rules gave

them free reign. The SEC now allowed the top five investment banks to leverage up 30, even

40 to 1. (2008 Para Pundit)One of the most striking elements of the leverage equation is

that it does not include many off-balance sheets obligations and does not account for the



implicit leverage in derivatives contracts. Unhinged positions in credit default swaps and

options can produce catastrophic losses in an extremely short amount of time. American

International Group is a prime example of the riskiness of CDS contracts with the asset

values of their books plummeting as fear of counterparty bankruptcy skyrocketed after

Lehman Brothers collapse. Yet, even without the inclusions of these pieces of the equation,

the leverage seen on investment banking balance sheets struck market participants as

showing astounding arrogance and extreme recklessness. At first, leverage was a great boon

to the industry as evidenced by the 109.7 percent growth in revenues from 2002 to 2007.

Investment banks increased their principal trading throughout this period rising from 16% of

revenue generation in 2002 to 23% by 2007 (2009 IBIS). Average leverage ratios skyrocketed

in a short time after the 2004 enactment at the major five investment banks. On average

from 1999 to 2003 the top banks had leverage ratios of: Bear Stearns, 27.6 percent;

Goldman Sachs, 19.2 percent; Lehman Brothers, 25.8 percent; Merrill Lynch, 18.5 percent;

and Morgan Stanley, 21.7 percent. By 2007 every bank had large increases in their debt to

capital ratios: Bear Stearns, 21.5 percent increase to 33.5 percent; Goldman Sachs, 16.6

percent increase to 22.4 percent; Lehman Brothers, 19.2 percent increase to 30.7 percent;

Merrill Lynch, 73.2 percent increase to 32.0 percent; and Morgan Stanley, 53.8 percent

increase to 33.4 percent (2008 Epicurean). These banks took advantage of the SEC rule

change to the fullest extent pushing their balance sheets to the limit, and then over the

limit. While the top four investment banks had market share totalling 39.1 percent in 2002,

the leverage fueled large gains and by 2007, the top four firms had combined market share

of 69.0 percent (2009 IBIS).Leverage is a great bonus in boom times as seen in the housing

market throughout the early 2000s as real estate prices soared. But, leverage is much more

of a zero-sum game than most would like to admit and the fall in housing demand towards

the end of 2007 caused losses in banking portfolios and ultimately resulted in billions of

dollars in writedowns. In the end, none of the top five investment banks existed in its

independent investment banking form by the end of 2008. Bear Stearns collapsed and was

sold off to JP Morgan at a pittance of its former stock price. Lehman Brothers found the

government unwilling providers of bailout monies and claimed bankruptcy in September2008. Merrill Lynch, seen as the next domino in a falling cascade, was forced into an

acquisition by Bank of America to salvage the company. Goldman Sachs and Morgan Stanley

soon converted into bank holding companies to receive access to the Federal Reserve

discount window. This conversion dictates a major reduction in leverage for the two banks

to comply with regulation. The underlying regulatory structure created economic incentives

that fueled the boom and bust in the investment banking industry. A naturally oligopolistic

industry that would fall victim to ruinous competition under a perfectly competitive market

found itself in a state of implicit cooperation. Investment banks chose no t to compete on

price for securities deals as evidenced by clustering of spreads on corporate bonds offerings

and initial public offerings in equities sold by banks. The repeal of Section 20 from the Glass -

Steagall Act of 1933 allowed a new field of entran ts into the investment banking arena. Therise of the universal bank allowed institutions that held depository accounts to now be the

one-stop shop for all a firms financial needs. As studies have shown, firms are more likely to

use the bank they already have a relationship with in going forward on securities deals. So,

the independent investment bank found itself in a tough spot. Its oligopoly was invaded by a

swath of new competitors and it had to find a new competitive advantage. The solution was

disastrous in the long-run even while providing five years of record-setting growth rates.

Investment banks leveraged up their mortgage dealings and engaged in a variety of high-risk



derivative bets. It is interesting to note that the two banks with persistently highest leverage

ratio prior to the 2004 SEC rule change were the first to collapse in the 2008 panic. Goldman

Sachs, the best-surviving member of the top five, exhibited the lowest leverage ratio directly

resulting in lessening the blow from the mortgage fallout. It is unclear whether the

investment banking industry will ever be the same again. What is clear is that an underlying

regulatory framework that encourages perverse economic incentives can easily cause

collapse.

Key Industry StatistiB

s

Key Industry Figures 2010

Industry Revenue *28,323.8 $Mi

Revenue Growth *162.6 %

Industry Gross Product *18,035.5 $Mi

Number of Establishments *14,579 Units

Number of Enterprises *10,752 Units

Employment *153,695 Units

Exports --

Imports --

Total Wages *13,135.4 $Mi

ProduB

ts & SerC

iB

es

Product/Services Share

Fixed interest, currency andcommodity trading

60%

Underwriting services 17%

Equities trading commissions 15%

Financial advisory services 08%

Key Competitors in this Industry

Ma jor Player Market Share

The Goldman Sachs Group Inc. XX.XX

J.P. Morgan Chase & Co. XX.XX

Bank of America Corporation XX.XX

Morgan Stanley XX.XX

Citigroup, Inc XX.XX



Global Finance names the World¶s Best Investment Banks 2010

New York, April 19, 2010 ² Global Finance announces its selection of the World¶sBest Investment Banks 2010 to be published in its June 2010 issue.

Global Finance editors, with input from industry experts, used a series of criteria to

arrive at their selections. These included market share, number and size of deals,service and advice, structuring capabilities, distribution network, efforts to addressmarket conditions, innovation, pricing, after -market performance of underwritings andmarket reputation. Deals announced or completed in the last three quarters of 2009or the first quarter of 2010 were considered.

³The last 12 months were decidedly mixed for investment bankers,´ said GlobalFinance publisher Joseph D. Giarraputo. ³But many institutions continue to providethe best possible services to their clients, and we salute them.´

For editorial information please contact: Dan Keeler, Editor, email: [email protected]

GLOBAL AWARDS

Best Investment Bank J.P. Morgan

Best Equity Bank J.P. Morgan

Best Debt Bank J.P. Morgan

Best M&A Bank Morgan Stanley

Best Up-and-Comer GulfMerger

Most Creative Bank of America Merrill Lynch

SECTORS

Consumer Lazard



Financial Institutions Bank of America Merrill Lynch

Health Care Barclays Capital

Infrastructure Scotia Capital

Industrial/Chemicals J.P. Morgan

Media/Entertainment Bank of America Merrill Lynch

Metals & Mining BMO Capital Markets

Oil & Gas Bank of America Merrill Lynch

Power Morgan Stanley

Real Estate UBS Investement Bank

Technology Barclays Capital

Telecom Credit Suisse

REGIONAL AWARDS

NORTH AMERICA

Best Investment Bank J.P. Morgan






WESTERN EUROPE

Best Investment Bank Deutsche Bank


Best Debt Bank Deutsche Bank


ASIA

Best Investment Bank Morgan Stanley

Best Equity Bank UBS Investement Bank

Best Debt Bank Nomura


CENTRAL & EASTERN EUROPE

Best Investment Bank Bank of America Merrill Lynch

Best Equity Bank Bank of America Merrill Lynch


Best M&A Bank Bank of America Merrill Lynch

NORDIC

Best Investment Bank Handelsbanken Capital Markets

Best Equity Bank Handelsbanken Capital Markets



Best Debt Bank DnB NOR

Best M&A Bank Rothschild

LATIN AMERICA

Best Investment Bank Citi

Best Equity Bank Citi

Best Debt Bank Citi

Best M&A Bank BTG Pactual

MIDDLE EAST

Best Investment Bank SambaCapital

Best Equity Bank SambaCapital

Best Debt Bank HSBC

Best M&A Bank UBS Investment Bank

AFRICA

Best Investment Bank Standard Bank

Best Equity Bank RMB Morgan Stanley

Best Debt Bank Standard Bank

Best M&A Bank J.P. Morgan



COUNTRY AWARDS

NORTH AMERICA

Canada Scotia Capital

United States J.P. Morgan

EUROPE

France BNP Paribas

Germany Deutsche Bank

Italy Mediobanca

Netherlands ING

Portugal Caixa BI

Russia Troika Dialog

Spain Santander

Switzerland Credit Suisse

Turkey Garanti Securities

United Kingdom Barclays Capital

ASIA

Australia UBS Investment Bank

China/Hong Kong China International



Capital Corporation (CICC)

India Kotak Mahindra Bank

Indonesia Mandiri Sekuritas

Japan Nomura

South Korea Samsung Securities

Taiwan Fubon Financial Holding

LATIN AMERICA

Argentina Citi

Brazil BTG Pactual

Mexico Citi

MIDDLE EAST

Bahrain Unicorn Investment Bank

Egypt EFG-Hermes

Israel HSBC Bank

Jordan Arab Bank

Kuwait NBK Capital

Lebanon BankMed

Oman BankMuscat

Qatar QNB Capital

Saudi Arabia SambaCapital

United Arab Emirates Abu Dhabi Investment

Company (Invest AD)



AFRICA

Nigeria Standard Bank

South Africa Standard Bank

LEGAL ADVISERS

Global Skadden

North America Skadden

Western Europe Freshfields Bruckhaus Deringer

Asia Baker & McKenzie

Central & Eastern Europe Clifford Chance

Latin America Pinheiro Neto Advogado

Mddle East & Africa Shearman & Sterling

DEALS OF THE YEAR

Best Equity Deal

Lead underwriters

Lloyd's Banking Group

$22.5 billion rights issue

Bank of America Merril Lynch, UBS Investment Bank,

Citi, Goldman Sachs, HSBC and J.P. Morgan Cazenova

Best Debt Deal $7 Billion Qatar bond



Lead Managers Credit Suisse, QNB Capital,Barclays Capital,

Goldman Sachs, and J.P. Morgan

Best M&A Deal Berkshire Hathaway-Burlington

Northern Santa Fe

Advising target Goldman Sachs

WHAT ARE THE MAIN DIFFERENCES BETWEEN COMMERCIAL BANKING AND INVESTMENT

BANKING?

An Investment bank is financial intermediary that performs a variety of services including

underwriting (guarantees the purchase of securities if the market fails to purchase them),

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.

-A ma jor function of investment banks is the provision (underwriting) of long term equity

and debt to corporations and governments (debt raising for business banks and institutions

- derivatives, bonds, corporate paper or IPO). Private placement (of equities) occurs where

an investment bank offers large holdings in a company coming to the market to its top 10 or

so stock holders; usually large hedge funds. Investment banks also mediate M&A (mergers

and acquisitions), which can include hostile takeovers or joint ventures.

Commercial banks traditionally deal in basic loans and deposit taking within the corporate

business sector. However, this has changed rapidly over the last 10 years as large

commercial business has been able to offer their own debt (corporate bonds). Now

commercial banks are less about lending to multinational companies and more about

advising them, which has blared line between Commercial Banking and Investment banking.

Although, in times of financial hardship like the GFC when corporate debt dries up (i.e. theliquidity crisis), firms still require commercial banking for funds.

Basic Functions of Commercial Banks

-Domestic lending from domestic deposits

-Large amounts of cross border lending - trade/finance, specifically currency exchange, is

bread and butter of commercial banking: Global risk due to subsidiaries, currencies, and

sovereign (foreign government) risk.



-Revolving line of credit - firms borrowing against their assets (value of company) - used to

be large and generous before the subprime crisis. Now a lot more reporting required, but an

important part of funding that a company would go to a commercial bank for.

RECENT TRENDS IN INVESTMENT BANKING

In the early 1980s, the SEC introduced and made law a rule that permits well-known

companies to register securities without a set sale date and delay the sale of the securities

until the issuers expect their securities will have strong prices in the market. Th ese

registrations are known as "shelf registrations and have become an important part of

investment banking.

Shelf financing also contributed to the decline of the historic connections between specific

corporations and investment banks. Nevertheless, it did not change the basic structure of

the industry, which has retained the pyramid shape. The apex investment houses before the

introduction of shelf financing by and large remained the apex houses afterwards.

Contemporary investment banking is also influenced by the growth of institutional investors

as key players in the securities market. Whereas institutional investors accounted for 25

percent of securities trade in the 1960s, they accounted for over 75 percent in the 1990s. In

addition, the securities market has become more global. For example, U.S. companies raised

more money in London in the early 1980s than in New York. Moreover, U.S. investors are

buying more European and Asian securities than in previous decades.

New technologyincluding telecommunications technology, computers, and computer

networkshas enabled investment bankers to receive, process, organize, and circulate

large amounts of diverse information. This technology has helped investment banks becomemore efficient and complete transactions more quickly.

The increased competition within the investment banking arena has further quelled the

establishment of long-term relationships between corporations and investment houses.

Company executives receive offers from a variety of investment banks and they compare

the offers, choosing the ones they believe will benefit their company the most. Large

corporations generally have transactions with four or more investment banks. Nevertheless,

corporations still favour their traditional investment banks and about 70 percent of the

executives surveyed in a study said they do most of their business with their traditional

investment banks, according to T he Investment Banking Handbook.

In the 1980s and 1990s, the investment banking industry continued to consolidate. As a

result, a few investment banks with large amounts of capital dominated the industry and

offered a wide array of services, earning the name "financial supermarkets." This trend also

altered the structure of the industry, affecting the size and roles of syndicates. Syndicates

became dependent on the type and volume of the securities being offered as a result. For

small offerings, syndicates are usually small and the managing banks sell the majority of the



securities. In contrast, for large offerings, the managing banks may create a syndicate

including more than 100 investment banks.

Investment houses continued to be innova tive and introduce new financial instruments for

both issuers and investors. Some of the most significant innovations include fixed -income

and tax-exempt securities, which have grown in popularity since their inception in the

1980s. Some key fixed-income securities have been debt warrants, which are bonds sold

with warrants to buy more bonds at a specific time; and debt -equity swaps, where

companies offer stock to existing bondholders.

With a growing number of mergers and acquisitions as well as corporate restructurings,

investment banks have become increasingly involved in the process of arranging these

transactions as part of their primary services. Because of changing economic, competitive,

and market conditions, several thousand small and mid-sized companies as well as a handful

of large corporations agree to merger and acquisition deals each year. Investment banks

facilitate this process by providing advice on such transactions, negotiating on behalf of

their clients, and guaranteeing the purchase of bonds for acquisitions that rely on debt,

known as leveraged buyouts.

The rapid expansion of the Internet in the mid-to-late 1990s provided an impetus for

stockbrokers to begin offering trading services through the Internet. Because of the

popularity of online trading, brokers began offering investment banking services. Early in

1999, E-Trade established the online investment bank "E-Offering," which provides online

initial public offering services.

Since the passage in 1933 of the Glass-Steagall Act, the U.S. banking industry has been

closely regulated. This act requires the separation of commercial banking, investment

banking, and insurance. In contrast to investment banks, commercial banks focus on taking

deposits and lending. Nevertheless, there have been recent endeavours to repeal the actand to relax its measures. While the act has not been overturned even with efforts

continuing in 1999, the Federal Reserve, which oversees commercial banking, has allowed

commercial banks to sell insurance and issue securities. Consequently, investment banks

and insurers support the latest round of activity to overturn the act. Japan and the United

States are the only major industrial countries that require the separation of commercial and

investment banking.

FUTURE OF INVESTMENT BANKING IN INDIA

Investment banking India has always been very crucial for the smooth flow of market

transactions between various investors, companies, firms and the government. These banks

will have a role to play even in the future, irrespective of the economic conditions in the

country.



Role of Investment banking companies in India

Investment banking companies generally help their clients to access capital through equity,

debt and other kinds of investment products. These firms also tra de in equities and

derivative products and also help companies with merger and acquisition deals. About a

couple of years back, when the world economy was reeling under a recession, many

investment banking firms either collapsed or were on the brink of clo sure. Even a few firms

in India were affected by this global downturn. This led to many sceptics writing off the

revival of these firms.

What is in store for the future?

The economic downturn revealed that only the strong can swim against the tide and still

remain afloat. Those sceptical must realize that the market has its own upheavals anddownturns. When you look at the financial strength of these companies, you just cannot

ignore them. No wonder, most of these firms bounced back once again. However, the future

of Investment banking companies in India looks good, even though we may see new

investment guidelines.

Expected Investment Guidelines

Considering what is happening after the economic crash in the United States, even our

policy makers may be tempted to bring in some stringent guidelines for investment bankingservices in India. This may be done with a view to ensure better risk management. Another

option which the law makers may think of is tinkering with the claw back option. This will

certainly protect the investment companies against fraudulent and unethical traders and

companies who might trigger a market crash, thereby causing huge losses. This provision

will ensure recovery of their profits. Lastly, banks may be advised to go slow on short term

funding in order to reduce mismatch between assets and liabilities.

CONCLUSION

The industrial investment bank of India is one of oldest banks in India. The Industrial

Reconstruction Corporation of India Ltd., set up in 1971 for rehabilitation of sick industrial

companies, was reconstituted as Industrial Reconstruction Bank of India i n 1985 under the

IRBI Act , 1984. With a view to converting the institution into a full -fledged development

financial institution, IRBI was incorporated under the Companies Act , 1956, as Industrial



Investment Bank of India Ltd. (IIBI) in March 1997. IIBI of fers a wide range of products and

services, including term loan assistance for project finance, short duration non -project

asset-backed financing, working capital/ other short-term loans to companies, equity

subscription, asset credit, equipment finance as also investments in capital market and

money market instruments.

In view of certain structural and financial problems adversely impacting its long-term

viability, IIBI submitted a financial restructuring proposal to the Government of India on 25

July 2003. IIBI has since received certain directives from the Government of India, which,

inter alias, include restricting fresh lending to existing clients approved cases rated

corporates, restrictions on fresh borrowings, an action plan to reduce the overhead

expenditure, disposal of fixed assets and a time-bound plan for asset

recovery/reconstruction. The Government of India had also given its approval for the

merger of IIBI with IDBI and the latter had already started the due diligence process.

But on 17 December 2005 the IDBI rejected any such merger.

SiD

e of industry

Global investment banking revenue increased for the fifth year running in 2007, to a record

US$84.3 billion,[5]

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 since this time.

The United States was the primary source of investment banking income in 2007, with 53%of the total, a proportion which has fallen somewhat durin g the past decade. Europe (with

Middle East and Africa) generated 32% of the total, slightly up on its 30% share a decade

ago. Asian countries generated the remaining 15%. Over the past decade, fee income from

the US increased by 80%. This compares with a 217% increase in Europe and 250% increase

in Asia during this period. The industry is heavily concentrated in a small number of major

financial centres, including London, New York City, Hong Kong and Tokyo.

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 mark ets.

New products with higher margins are constantly invented and manufactured by bankers in

the hope of winning over clients and developing trading know -how 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,[citation

needed ]but structuring and trading derivatives retains higher margins in good timesand the

risk of large losses in difficult market conditions, such as the credit crunch that began in

2007. Each over-the-counter contract has to be uniquely structured and could involve



complex pay-off and risk profiles. Listed option contracts are traded through major

exchanges, such as the CBOE, and are almost as commoditized as general equity securities.

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

within investment banks has come from proprietary trading, where size creates a positive

network benefit (since the more trades an investment bank does, the more i t knows about

the market flow, allowing it to theoretically make better trades and pass on better guidance

to clients).

The fastest growing segment of the investment banking industry are private investments

into public companies (PIPEs, otherwise known as Regulation D or Regulation S). Such

transactions are privately negotiated between companies and accredited investors. These

PIPE transactions are non-rule 144A transactions. Large bulge bracket brokerage firms and

smaller boutique firms compete in this sector. Special purpose acquisition companies

(SPACs) or blank check corporations have been created from this industry.

retail banking and wealth management

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