ATHARVA INSTITUTE OF

MANAGEMENT STUDIES

A PRESENTATION ON

INVESTMENT BANKING

GROUP MEMBERS:NAME ROLL NO.

GAURAV KULKARNI 21MITHESH KUMAR 11GAURAV PATIL 28SOURABH BHAJIRAO 48AKHLAQUE SHAIKH 54AKASH PURI 33MILAN JAIN 14SUMIT KASAT 19

DEFINITION

• “An investment bank is financial institution

which raises capital, trade securities and

manages corporate mergers and acquisition”

IN SIMPLE

• It is a business of rising capital for

companies

• capital is required for growth and expansion

of business

• Investment bank sell securities to public

investors in order to raise this capital

ROLE

• Issuing and selling securities in primary

market

• Assist public,private corporation and

government agencies in rising fund

• Advisory services for mergers and

acquisition

• Intermediaries in trading for client

company Investment bank investors

INVESTMENT BANK

Investment bank focus on large public and private share offering.

Investment bank participate in trade financing activity.

Investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market.

MERCHANT BANK

Merchant bank tends to operate on small scale co. & offers creative equity financing.

Merchant bank often expand in the field of underwriting.

Merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation.

Investment banks facilitate mergers & acquisitions through share sales and provide research and financial consulting to companies.

Merchant bank is involved in issuing letters of credit, transferring funds intnly, trade consulting and co-investment in projects.

TOP 10 INVESTMENT BANK GLOBALLY

1. JP Morgan Chase

2. Goldman Sachs

3. Credit Suisse

4. Morgan Stanley

5. Citigroup

6. Barclays Capital

7. Bank of America (Bank of America Merrill Lynch)

8. Lazard

9. Deutsche Bank

10.UBS

TOP INVESTMENT BANK IN INDIA

ICICI Securities Kotak Mahindra Capital SBI Capital Bajaj Capital UTI Securities Tata Investment Corporation Limited Yes Bank Cholamandalam Investment & Finance Co. Avendus Capital Ambit Corp Finance

SELL & BUY SIDE

SELL SIDE

Newly Issued IPOs

New Bond Issues

Engaging In Market Making Services

Helping Clients Facilitate Transactions

BUY SIDE

Pension Fund

Mutual Fund

Hedge Fund

Give Maximum Return To Investor On Their

Investment

INVESTMENT BANKING ACTIVITIES

Front office

INVESTMENT BANKING

Investment Banking is the traditional aspect of

investment banks which involves helping customers

raise funds in the Capital Markets and advising on

mergers and acquisitions.

Prepare a Pitch book of financial information.

SALES AND TRADING

• Primary function is buying and selling products.

• Goal of making money on each trade.

• Primary job is to call on institutional and high-net-worth

investors to suggest trading ideas.

• Structure new products that fit a specific need.

• Quantitative analysis.

RESEARCH

• The division which reviews companies and writes

reports about their prospects, often with "buy" or "sell"

ratings.

• Sales force in suggesting ideas to customers.

• Research also serves outside clients with investment

advice.

• In recent years the relationship between investment

banking and research has become highly regulated.

MIDDLE OFFICE

Risk management:-

• Analyzing the market and credit risk.

• Setting limits on the amount of capital.

• Ensure that the above mentioned economic risks are captured

accurately correctly and on time (typically within 30 minutes

of trade execution).

Corporate treasury:-

Responsible for an investment bank's funding, capital

structure management, and liquidity risk monitoring.

Financial control:-

• Tracks and analyzes the capital flows of the firm.

• Controlling the firm's global risk exposure and profitability.

Compliance:-

Responsible for an investment bank's daily operations

compliance with government regulations and internal

regulations

BACK OFFICE

Operations:-

• It involves data-checking trades that have been

conducted.

• Involves managing the financial information of the bank

and ensures efficient capital markets through the

financial reporting function.

Technology:-

• Information technology department.

• In-house software, technical support.

• Technology has changed considerably in the last few years as

more sales and trading desks are using electronic trading.

INVESTMENT BANK IN INDIA

J P MORGAN began Investment Banking in India in 1993.

This bank primarily provided services which included loan syndication, equity raising and other advisory services.

Currently, without holding a certificate of registration granted by the Securities and Exchange Board of India, no person can act as a Investment Bank.

The categories for which merchant banking registration may be granted by SEBI: Category I : to carry on the activity of issue

management and to act as adviser, consultant, manager, underwriter, portfolio manager

Category II :to act as adviser, consultant, co-manager, underwriter, portfolio manager.

Category III :to act as underwriter, adviser or consultant to an issue

Category IV :to act only as adviser or consultant to an issue.

TOP 10 INVESTMENT BANKS OPERATING IN INDIA

 1. JP Morgan

2. UBS AG

3. Goldman Sach

4. Deutsche Bank

5. HSBC

6. Morgan Stanley

7. ICICI Securities

8. Kotak Mahindra

9. SBI Capital Markets

10. Ambit Corp Finance

• J.P. Morgan has a long and successful legacy of investment banking in India.  J.P. Morgan was a founding shareholder of one of India's largest financial institutions and also established the country's first international investment bank in 1993 as a joint venture between J.P. Morgan and a leading Indian financial institution.

• During the balance of payments crisis in 1991, J.P. Morgan played a key role in advising the Reserve Bank of India on liquidity management and facilitated measures to avoid debt rescheduling. J.P. Morgan is currently one of the leading investment banks in India and has a market leading position across the spectrum of services it offers.

Recent Trends in Investment Banking

• Service small as well as large customers

• International transactions

• Over industries investment banks changing the

merchant trend, growth and potential growth

• Outsourcing and Offshoring

• Investment banking operation process reengineering

• Scale through integrated delivery operation,

technology and infrastructure

Cont...

• Implications of FASB Financial Instruments Accounting

Standard Update

• Auditors Likely to Expand Scrutiny of Fair Value Estimates

• Fair Value Measurement

• Cost of Capital

• Debt Exchange Offers: A Refinancing Alternative in

Challenging Markets

• The Credit Crisis

Cont…

• Underwater Option Exchanges: Meeting Employee,

Shareholder and Company Concerns

• Global IPO

• Launching green investment bank to fund renewable

energy power plants

• Take over code :-boost M & A

• Japan M & A in India seen 40% up

Mergers & Acquisitions

• JP Morgan :- IPO - Essar Energy ($1b); NTPC ($1.8b);

Power Grid ($1b) and Convertible Bonds – Vedanta

Resources ($833m); Tata Motor’s ($345m); HDIL

($250m)

• UBS :- 2007 – 2009, 28 deals in equity capital raising

in excess of $11b

• Goldman Sachs :- $9b deals

• Deutsche bank :- $3b deals

34

Key Changes in take over code

1• Higher threshold for ‘Open Offer’ trigger – 15% to 25%

2• Creeping Acquisition up to 75%

3• Increase in ‘Open Offer’ Size from 20% to 26

4• Voluntary Offer – New Thought

5• Value based classification of ‘Indirect Acquisitions’

6• Other Stipulations

Why investment bank fails?

• In the past there are many instances where the investment bank had failed.

• The most notable Banks that failed wereACQUISITION DATE

ACQUIRED COMPANY

ACQUIRER COMPANY

VALUE

APRIL 1 2008 BEAR STEARNS JP MORGAN AND CHASE

$2.2 BILLION

SEPTEMBER 14 2008

MERRIL LYNCH BANK OF AMERICA

$44 BILLION

SEPTEMBER 17 2008

LEHMAN BROTHERS

BARCLAYS PLC $1.3 BILLION

Reasons of failure for investment banks are• High leverage ratio• Low capital reserve ratio• Non Diversified currency base• High exposure to derivatives and complex

structured financial products• Non diversified business model• Operation in single market

High Leverage ratio• In finance, leverage is a general term for

any technique to multiply gains and losses.

• Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.

• If leverage ratio is 30:1 it means that– You can borrow 30 times the assets you have.– For example for every $10 you can borrow $300

and total new capital is $310– If the rate of interest on borrowing is 5% and

earning is 6%. The total profit that can be gained is $3.60 ($18.60-$15.0 interest) on every $10. which is 36% returns.

– But if there is 5% loss in investment, after paying interest you have $279.5 + you still owe $300 to lender, to pay back loan you have to borrow $21.5 and you have lost initial $10 capital.

Low capital reserve ratio• The capital ratio is the percentage of a

bank's capital to its risk-weighted assets.• Lower ratio means less investment bank

capital.• Capital reserve ratio should be high to

avoid failure.

Non Diversified currency base• Diversified currency base helps in hedging

forex risks. Enhances liquidity and security.

• The more diversified the currency base less is the forex risk.

High exposure to derivatives and complex structured financial products

• Derivatives products inherently carries high risks, products include– Property (mortgage) derivatives– Economic derivatives– Freight derivatives– Inflation derivatives – Weather derivatives – Insurance derivatives– Emissions derivatives

Operations in single markets• If a investment bank operates in a single

market or region then there is greater economic risk.

• For example If a bank is limited to business in the U.S. or Europre for example, it is at greater risk at suffering a loss from an economic downturn.

2010

Kotak Mahindra Bank

LEADING INVESTMENT BANKING

2.4 BILLION DOLLAR REVENUE(11893 CRORE RS) IN 2011

16.6% MARKET SHARE IN INVESTMENT BANKING IN INDIA BY BLOOMBERG IN 2010(31.2 bn dollar)

BEST INVESTMENT BANKING AND EQUITY HOUSE IN INDIA BY ASIA MONEY

SERVICES OF KOTAK INVESTMENT BANK

• EQUITY AND DEBT CAPITAL FUND

• MERGER AND ACQUISITIONS ADVISORY

• RESTRUCTURING AND RECAPITALIZATION

• INFRASTRUCTURE ADVISORY

• PRIVATE EQUITY ADVISORY

• ChetanSavla, executive director and co-head of equity product group at

Kotak Investment Bank, said that firms such as his have the ability to service capital needs of small and large companies alike. “There was a time when we were doing five to seven transactions in a year and now we tend to close one transaction every week,” he added.

Page 49

TradeFinance

1985 1986

1990 2003200119981996199519921991

Ford Credit JVs

Mutual Fund

StockBroking

GoldmanSachs JVs

IPOInvestment

BankingAutoFinance

Life InsuranceOld Mutual JV

BANK

In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by Ford Credit International (FCI) and FCI acquired the stake in Ford Credit Kotak Mahindra (FCKM) held by Kotak Group.In May 2006, Kotak Group bought 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities

Restructuring Ford& Goldman JVs

2006

Journey so far…

Page 50

Leadership in the Indian Market

Award for ExcellenceAward for Excellence

∞ In the Annual Euromoney Private Banking Survey Poll for 2006,2011 for India, Kotak Mahindra Bank was ranked no. 1 in six categories∞ Topped the Bloomberg India M&A Financial Advisory League table (India announced deals) for the calendar year 2005

∞ Topped the India Advisory Partners Indata League table for the calendar year 2005

∞ 'Kotak Bond Regular Plan' was ranked ICRA-MFR1 and was the recipient of the Silver Award

∞ Best Bond Fund House 2006

∞ Kotak Bond Regular Plan was ranked the best debt fund over 3 years 2006

ACHIEVEMENTACHIEVEMENTAWARDSAWARDS

20012003

ACHIEVEMENTACHIEVEMENTAWARDSAWARDS

20012003

∞ Winner in 33 categories in the Asiamoney Private Banking Poll 2006,2008,2009,2010,2011 including the Best Private Bank award in Southern Asia

∞ Best Investment Bank in India 2003, 2004, 2006,2009,2010

Page 51

Leadership in the Indian Market

∞ Best Equity House in India: 2002,2003,2004,2008,2010,2011

∞ Best Domestic Equity house: 2003-2005,2008-2011

∞ Best Investment Bank in India 2004,2008,2009,2010

∞ IFR Asia's India Equity House Award for the year 2004,2008

∞ Best Broker - Kotak Securities : 2005

∞ # 1 Book runner/ Lead Manager in terms of value of Indian equity offerings (PRIME Database) 2006, 2005, 2004, 2003

Page 52

Best Equity House in India 2005,2004,2003

Best Domestic Equity House in India 2004, 2003,2008-2011

Best Investment Bank in India 2006-2011

Best Equity House in India 2004,2008

Topped league tables for book running equity offerings for last four years in a row

Topped Bloomberg M&A league tables for CY2005

International Subsidiaries Registered with

∞ International Offerings

∞ Investment Management

∞ Kotak Mahindra (UK) ∞ FSA, SEBI

∞ Kotak Mahindra Inc ∞ NASD

∞ Kotak Mahindra (International)

∞ FSC(financial service comm)

Investment BankingIndustry Awards & Rankings

(Rs mn)

352 354

1,049

239

118 132

563

71

2007 2008 2009 2010

Revenue PBT

KMCC - Investment Banking segment

(Rs mn)

Page 54

Strong presence in retail and

institutional segments

Institutional sales team in New York

and London

Network of 1400 and more offices

(own & franchisees) across 435

cities(2011)

2011

India’s leading securities brokerage firm 8.5% market share in FY10 (6.3% in FY09)

Best Broker2005,2010,2011

Best Equity House 2005, 2011

Best Equity House 2004

Securities

Securities

Strong research team

Wide coverage

Institutional research 117 companies

Retail research 150 companies

Awarded Best Provider of Portfolio Management –

Equities by Euromoney Private Banking Poll 2006

Over 2,45,000 secondary market customers

FUTURE PLANNING ANF INVESTMENT BANKING

• Role In Economy• What Awaits In Future?• Estimated Investment Guidelines • Overall Economy In The Economy• Future Investment Planners• Future Investment Banking Firms

FUTURE OF INVESTMENT BANKING

• More Stringent Laws And Restrictions• Claw-Back Provision• Emphasis On Equity Derivatives And

Currency Trading• Fewer Big Banks And More Small

Boutiques• Lesser Dependence Upon Short-Term

Funding

SCOPE AND OPPORTUNITIESS IN INDIA

• Commencement Of New Business

• Business Expansion

• Financial Investment Planning

THANK YOU