2. Introduction
● Financial institution that assists individuals, corporations
and governments .
● Assists companies in mergers & acquisitions
● Investment banks do not take deposits.
● Informative barrier which separates the two to prevent
information.
● The private areas & the public areas(types of IB).
3. EVOLUTION
•Emerged In Early 16th Century
•18th Century
Emerged In Us During American Civil War
Birth Of Famous J.P. Morgan, Goldman Sachs
•19th Century Saw Prominent Banking Partnerships
•20th Century, Dramatic Expansion
4. EVOLUTION IN INDIA
• Emerged In The 19th Century
• Early 20th Century Witnessed,
Agency Houses
1967, ANZ GRINDLAYS, Citibank
1972, SBI, ICICI
1973, JM FINANCE
5. ROLE OF INVESTMENT BANK
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•
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Raising capital
M&A
Advisory services.
Brokerage services
Financial research
Underwriting and distributing security issues
Bridge financing
Currency exchange
7. Front Office
•Helps customers to raise funds in the Capital
Markets.
•Advise on mergers and acquisitions.
•Known As “Revenue Generating Role”
•Two Main Areas Of Front Office
Investment Banking
Markets
8. INVESTMENT BANKING
• Advising Big Organizations On Mergers, Acquisitions
• Helps In Wide Array Of Fund Raising Strategies
• This Is, On Average, The Most Prestigious And Highest
Paid Department In The Bank
• They Also Help In Negotiating With A Merger Target
And Coordinating With Bidders.
9. MARKETS
• Markets Include The Following:
Sales & Trading
a. Traders Buy And Sell Securities Or Financial
Products.
b. Calling On Institutional And High-net-worth Investors
To Suggest Trading Ideas And Take Orders.
Research
a. Reviews Companies And Makes Reports About Their
Prospects, Often With "Buy" Or "Sell" Ratings.
b. May Or May Not Generate Revenue.
c. Helps In Assisting Traders In Trading, Sales Force In
Suggesting Ideas To Customers & Investment
Bankers By Covering Their Clients.
10. Middle Office
•It Focus On Identifying And Managing The Level Of
Risk That The Company Assumes In Order To Do
Business.
•This Requires Not Only Assessing Risk In Terms Of
Purchasing Investments, But Also Working With The
Front Office To Identify The Risk Of Doing Business
With Certain Clients.
•The Middle Office Relies Heavily On Data Collected By
The Back Office In Terms Of Profits And Losses, And
The Underlying Reasons For Those Activities.
15. ASSOCIATION OF INVESTMENT
BANKERS OF INDIA
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It is an association of India‟s investment banks.
Was earlier called the Association of Merchant
Bankers of India.
Functions:
Help members
Engage members
Participate in policy making.
16. TOP 10 BANKS
RANK
COMPANY
FEES($m)
1.
J. P. Morgan Chase.
$5517.62
2.
Bank of America.
$4945.45
3.
Morgan Stanley.
$4066.30
4.
Goldman Sachs.
$3852.95
5.
Credit Suisse.
$3434.32
6.
Deutsche Bank.
$3178.15
7.
Citigroup.
$3166.33
8.
Barclays.
$2793.70
9.
UBS.
$2362.69
10.
Wells Fargo.
$1597.19
World's biggest banks are ranked for M&A advisory, syndicated loans, equity capital
markets and debt capital markets.
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18. Investment banks Earnings
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By advising corporate clients on the creation of
stocks, bonds and other securities .
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By underwriting securities.
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By facilitating mergers and acquisitions.
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By brokering (or selling) securities to investors.
20. SHIFT NEEDED IN INVESTMENT
BANKING INDUSTRY
• LOW INTEREST RATES,
• ABUNDANT LIQUIDITY,
• LOW BARRIERS TO ENTRY,
• RAPID PRODUCT INNOVATION. `
21. Results of Shift
●Rationalization
Of Investment Banks Cost Bases,
Capital Usage And Balance Sheets.
●
Risk Aversion Is Now Suppressing Higher-margin
Businesses.
●
Job Cuts.
22. CHALLENGES FACED BY
INVESTMENT BANKERS
• MANAGING CAPITAL
• VALUING CLIENT RELATIONSHIP
• BUSINESS INNOVATION
• SUSTAINING VOLATALITY
23. PROBLEMS FACED BY
INDIAN BANKS
• INTENSE COMPETITION FROM FOREIGN
RIVALS
• LACK OF FINANCIAL CLOUT
• RBI RULES & LACK OF PROPER SYSTEM
24. Financial crisis of 2008
●
Notable collapse of several banks.
●
Entire financial services industry was rescued by
government loans.
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Similar situations occurred across the globe.
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Crisis led to the questioning of investment bank .
25. The Collapse of Lehman
Brothers (2008)
A Colossal Failure of Common
Sense: The Inside Story of the
Collapse of Lehman Brothers
Author: Lawrence G. McDonald
The Devil‟s Casino: Friendship,
Betrayal, and the High Stakes
Games Played Inside Lehman
Brothers
Author: Vicky Ward
26. Brief History of Lehman
• Founded in 1850 by brothers Henry,
Emanuel, and Mayer
• Lehman survived many challenges
throughout the years.
• In 1984 Lehman was acquired by
American Express in 1984.
• Regained independence by 1994.
• Lehman became the 4th largest
investment bank in the US by
the time it collapsed in 2008 in the
wake of the fall of the sub-prime
mortgage market.
Lehman HQ at 745 Seventh Ave, NYC
27. Key Players
• Richard (Dick) Fuld
• CEO and Chairman of
the board from 1994
until the collapse of
Lehman in 2008.
• Joe Gregory
• President of Lehman
• Fuld‟s right hand
man until he was
forced out during
Lehman‟s last gasps.
• David Goldfarb
• Former CFO
• Former global head
of principal investing
• Chief strategy officer
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28. Key Players
• Herbert (Bart) McDade
• Managing director and
global head of fix income
• Global head of equities
• President in 2008.
• Henry Paulson
• Former CEO of
Goldman Sachs
• Secretary of the US
Treasury
• Made the final call not
to offer Lehman a bail
out.
• New Century Mortgage
Corporate HQ
• Major lender of sub-prime
mortgages during the
US housing boom.
• Collapsed with the
housing market.
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29. The Culture Inside Lehman
Brothers
• Two groups of people made up the
culture inside Lehman Brothers.
• The first group was the working
class of Lehman.
• This group worked in an
environment that was always
hectic and fast paced.
• Working with global markets and
the demands of their positions
required these employees to
constantly be operating at full
capacity and on the top of their
game.
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30. The Culture Inside Lehman
Brothers
• The second group of people
was the executive committee.
• Detached from the real
operations of the firm.
• Superiority – their decisions
were not to be questioned.
• Large returns on risky
practices got the best of them.
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31. Risky Business
• There were many types of trades going on inside
Lehman, some with high
risk and some with low risk.
• The trade that got Lehman into trouble was the
Collateralized Debt
Obligation (CDO)
• Began out in the front lines with lenders like New Century
with no doc and NINJA mortgages that were adjustable
rate mortgages.
32. Cont..
• They packaged up $millions worth of these mortgages at a
time and they were bought up by Lehman.
• Lehman had them rated and then sold them overseas to
banks in China and Japan.
• When the housing market bubble burst, Lehman kept
buying, suddenly they had billions in debt they could not
sell.
33. Reasons behind the collapse
Subprime boom
1. Subsidiary subprime lenders: Neuberger Berman Inc.,
Aurora Loan Services, Inc., SIB Mortgage Corporation
adopted risky lending methods
2. Relaxation of lending practices:
3. Ninja and Non-Doc loans became common place
across the industry. Lehman via its subprime lenders
was obtaining massive portfolio of loans
4. Repackaging and Reselling bundles of subprimemortgages via their subsidiaries as well as invest on
them.
34. Reasons behind the collapse
The Real state Bubble
1. Slash of the interest rates from the Fed
2. Demand for credit derivatives and relaxed mortgage
lending practices fueled the bubble
3. High demand for real estate mortages
4. Lehman property investment was near 50 $billion so
depreciation of the real estate market led to loss of
capital for the bank.
5. CDOs and ABS values were based on housing prices
as a result they lost their value when the housing
bubble burst and the subprime borrowers defaulted.
35. Reasons behind the collapse
● Asset-backed securities (ABS) and Collateral debt
obligations(CDOs)
● Lehman underwrote mortage-backed securities
more than any other firm, accumulating an $85-billion
portfolio, or four times its shareholders' equity
● Leverage levels up to 20-35 percent of their equity
capital in order to invest on securitized products using
debt capital
36. ● Excessive risk-taking
● Passing the investment risks through unregulated „credit
default swaps‟ (CDS) where they didn‟t have any
adequate capital behind them.(AIG case)
● Weakness of the FED to recognize the economic
catastrophe that Lehman Brothers bankruptcy would
cause.
37. Present Day
• Lehman Brothers has been gone since September
of 2008.
• The housing market is still flat on its face.
• The rest of the world is slowly recovering from the
most devastating financial crisis since the Great
Depression of the 1930s.
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