2Chapter 1 A. Investment Banking Activities Investment Bank Revenue-Generating Activities Support Activities Primary market making Corporate finance Municipal finance Treasury and agency finance Clearing Secondary market making Dealer Activity Brokerage activities Internal finance(funding) Information services Research Trading Speculation Arbitrage Corporate Restructuring Expansion Contraction Ownership and control Financial engineering Zero coupon securities Mortgage-backed securities Asset-backed securities Derivative products Other revenue-generating activities Advisory services Investment Management Merchant banking Venture capital Consulting
3Chapter 1 B. Investment Banking v.s. Commercial Banking The Glass-Steagall Act, 1933 Gramm-Leach-Bliley Act, 1999 Banking Securities Insurance Fed funds market vs. Repo market
4Chapter 1 C. Investment Bankers Oligopoly U.S. Firms Merrill Lynch, Pierce, Fenner & Smith Inc. (Bank of America) Citigroup Salomon Smith Barney(SSB) Inc. Lehman Brothers. (Chapter 11) Goldman Sachs & Co. Morgan Stanley Dean Witter.
5Chapter 1 C. Investment Bankers Oligopoly Euro Firms UBS Warburg Credit Swissie Deutsche Bank Abn Amro (RBS) Barclays
6Chapter 1 C. Investment Bankers Oligopoly Local Firms China Development Industrial Bank Taiwan Industrial Bank Securities Firms
7Chapter 1 D. Types of Market Making Brokered Trading Dealer Trading Market Making
11Chapter 1 E. Market Making by Underwriting a. Equity financing vs. Debt financing Equity Financing Venture Capital(VC) Initial Public Offering(IPO) Seasoned Equity Offering(SEO) Deposit Receipt(DR) Debt Finance Mezzanine Finance Convertible bonds Government bonds Eurodollar bonds Junk bonds LYONs
12Chapter 1 E. Market Making by Underwriting b. Public offerings vs. Private placement Public Offerings Private placement c. Initial Public Offerings vs. Seansoned Public Offerings IPOs Seasoned Public Offerings
13Chapter 1 F. Market Making by Financial Innovation * Conversion arbitrage : The investment bank takes one (or more) financial instruments and, through a process of composition or decomposition, creates one (or more) very different financial instruments.
14Chapter 1 F. Market Making by Financial Innovation a. Mortgage Pass-through Mortgage-backed securities: a single-class whole mortgage is used to create multi-class mortgage-back securities call collateralized mortgage obligations. * GNMA collateralized Bonds * Collateralized Mortgage obligations of FHLMC * GNMA-type CMOs issued by subsidiaries of investment bankers, mortgage bankers and home builders
15Chapter 1 F. Market Making by Financial Innovation Demand side: 1. For short term issues Thrifts Commercial-bank portfolios Money-market funds Corporate treasurers 2. For intermediate term and longer term issues Insurance companies Pension funds Bank trust departments Investment advisors International investors
16Chapter 1 F. Market Making by Financial Innovation b. Zero coupon bonds a single-class conventional bond is used to create a strip of individual zero coupon bonds
17Chapter 1 Fixed-rate payer (S&L) has sold a hypothetical fixed rate security to the floating rate payer (the bank) Floating rate payer (bank) has sold a hypothetical floating rate note to the fixe rate payer (the S&L) c. Interest rate swaps
18Chapter 1 G. Market Making by Corporate Restructuring a. Expansion Mergers : horizontal, vertical, conglomerate Tender offer Joint ventures b. Sell offs Spin offs Divestitures
19Chapter 1 G. Market Making by Corporate Restructuring c. Corporate control Premium buybacks Anti-takeover amendments b. Changes in ownership structure Exchange offers Share repurchases Going private Leverage Buy out (LBO)