this is a presentation on an introduction to investment banking highlighting the key functions of an investment bank, comparing commercial bank and Investment Bank, highlighting the organizational structure of Investment banks, and Investment banking scenario in india.

1. Investment Banking

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Introduction to Investment Banking
► A financial intermediary that performs a variety of services.
► Investment banks help companies and governments and their
agencies to raise money by issuing and selling securities in
the primary market.
► They assist public and private corporations in raising funds in
the capital markets as well as in provide strategic advisory
services.
► Investment banks specialize in large and complex financial
transactions such as underwriting, acting as an intermediary
between a securities issuer and the investing public,
facilitating mergers and other corporate reorganizations, and
acting as a broker and/or financial adviser for institutional
clients.

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Importance of Investment Banking
• Helps the corporations in raising capital. It facilitates the trading of securities thereby, increasing the
liquidity of the securities.
• It provides investment opportunities to the individuals or entities.
• Most of the corporations get advisory services from the investment banks regarding the mergers,
acquisitions and divestiture.

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Types Of Players In Investment Banking
• Full-Service Firms
These are type of investment banks who have significant
presence in all areas like underwriting, distribution,
M&A, brokerage, structured instruments, asset
management etc.
• Commercial Banks
Commercial Banks operating through “Section 20”
subsidiaries referring to the subsidiaries formed under
section 20 of the Glass- Steagall Act which were allowed
to carry on limited investment banking services.

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Types Of Players In Investment Banking
• Boutique Firms
These are the type of players which specialist in particular areas of investment banking.
• Brokerage Firms
These firms offers only trading services to retail & institutional clients. They have huge investor base
which is also used by underwriters to place issues
• Asset Management Firms
These firms offer on investment services. This includes activities like fund management, wealth
management, cash management, portfolio management depending on the type of investors, tenure of
corpus, purpose of investments, type of instrument invested in etc.

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Comparison between Commercial Bank and Investment Bank
Basis for
Comparison
Investment Banks Commercial Banks
Meaning
Investment bank refers to a financial institution, that
offers services like underwriting of securities,
brokerage services and so on.
Commercial bank is a bank that provides
services like accepting deposits, lending money,
payment on standing order and many more.
Offers Customer specific service Standardized service
Associated with Performance of financial market. Nation's economic growth and demand for credit
Customer base Few hundreds only Millions
Banker to Individuals, government and corporations. All citizens
Income Fees, commissions or profit on trading activities. Fees and interest income

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Functions of an Investment Bank

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Functions of an Investment Bank
Raising Capital & Underwriting
An investment bank can assist a firm in raising funds to
achieve a variety of objectives, such as
• To acquire another company
• Reduce its debt load
• Expand existing operations
• For specific project financing.

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Functions of an Investment Bank
• Capital can include some combination of debt, common equity, preferred equity, and
hybrid securities such as convertible debt or debt with warrants.
• Underwriting is the process by which investment banker raise investment capital from
investors on behalf of corporations and governments that are issuing either equity or
debt securities.
• Unsubscribed portion of the issue is subscribed by the underwriting investment banks.

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Functions of an Investment Bank
Mergers and Acquisitions
Investment banks often represent firms in mergers,
acquisitions, and divestitures.
Example projects include
• The acquisition of a specific firm,
• The sale of a company or a subsidiary of the
company
• Assistance in identifying, structuring, and
executing a merger or joint venture.

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Functions of an Investment Bank
Project Advisory Services
Project Advisory Services of IB can generate
significant cost savings by minimizing:
► poor selection decisions
► costly overruns
► misalignment with business needs
► poor quality deliverables
► failed projects

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Functions of an Investment Bank
General Advisory Services
General Advisory services include assignments such as
► Strategic planning
► Business valuations
► Assisting in financial restructurings
► Providing an opinion as to the fairness of a
proposed transaction.

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Functions of an Investment Bank
Sales and Trading, Equity Research
► Client Trading
► Sells and trades securities and other
financial assets as intermediary on behalf of
investing clients.
► Proprietary Trading Investment activity by
the firm that affects the firm’s accounts, but
does not involve investing clients
► Investment banks assess issues influencing
key financial investment decisions such as
the stock market performance, currency
market positions, various industry
performances, inflation rates, economic
environment and other such factors.

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Functions of an Investment Bank
Credit Syndication
• Credit syndication involves multiple lenders and a
single borrower, the term is generally reserved for
loans involving international transactions, different
currencies and a necessary banking cooperation to
guarantee payments and reduce exposure.
• A credit syndication is headed by a managing bank
that is approached by the borrower to arrange credit.
The managing bank is generally responsible for
negotiating conditions and arranging the syndicate.
In return, the borrower generally pays the bank a
fee.

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Other Features
Pre-Underwriting
counseling
Distribution of
Securities
Post issuance
advisory
These banks have their own trading desks. Because they have external clients but also trade their own
accounts, a conflict of interest can occur if the advisory and trading divisions don’t maintain their
independence.

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Corporate Finance
► Helping customers raise funds in the capital
markets and giving advice on Mergers and
Acquisition.
► Enable investors to subscribe a security
issuance, coordinating with bidders, or
negotiating with a merger target.
Sales and Trading
► Sales is the term for the investment banks
sales force, whose primary job is to call on
institutional and high-net-worth investors to
suggest trading ideas and take orders.
► Strategists advise external as well as internal
clients on the strategies that can be adopted
in various markets.
Organizational Structure of Investment Banks
Front Office
Front Office
ResearchSales and Trading
Products
► Capital Markets
► Leveraged Finance
► Project Finance
► Asset Financing and
Leasing
► Structured Finance
► Restructuring
► Equities
► High-grade Debt
► Derivatives
► Commodities
► Private Equity
Industries
► Health
► Technology Communication and media
► Energy
► Consumer/Retail

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Organizational Structure of Investment Banks
Mid Office
Risk management
• Involves analyzing the market and credit risk
that traders are taking onto the balance sheet in
conducting their daily trades
• Ensure economic risks are captured accurately,
correctly and on time.
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
Mid Office
Corporate StrategyCorporate Treasury
ComplianceFinancial Control
Risk Management

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Organizational Structure of Investment Banks
Back Office
Back Office
TechnologyOperations
Operations
• Involve data-checking trades that have been
conducted, ensuring that they are not inaccurate,
and transacting the required transfers.
Technology
• Every major investment bank has considerable
amounts of in-house software, created by the
technology team, who are also responsible for
technical support.
• Technology has changed considerably in the last
few years as more sales and trading desks are using
electronic trading.

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Investment Banking in India
• SBI was the first Indian public sector bank to set up its division in 1972 followed by
Bank of India, Central Bank of India, Bank of Baroda and many more.
• SBI Caps and IDBI Caps are two prime examples of investment banks in India today.
• Currently, there are 300 investment banks registered with SEBI.
• Without holding a certificate of registration granted by the Securities and Exchange
Board of India, no person can act as a investment banker.

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Top 10 Investment Banks
• JPMorgan Chase
• Goldman Sachs
• Bank of America Merrill Lynch
• Morgan Stanley
• Citigroup
• Deutsche Bank
• Credit Suisse
• Barclays Capital
• UBS
• Wells Fargo

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Problems of Investment Banking In India
• Diversification Towards Capitals Markets
• No Proper System Of Investment Banking In India
• Lack Of Institutional Financing
• Lack Of Depth In The Secondary Markets, especially In the Corporate Debt Segment.

22. Thank you