Documente Academic
Documente Profesional
Documente Cultură
Investment banks once contrasted sharply with commercial banks, where people mainly
deposited their money and sought commercial and retail loans. In recent years, though, the two
types of structures have become increasingly similar; commercial banks now offer more
investment banking services as they attempt to corner the market by presenting themselves as
one-stop shops.
Investment banks do differ from brokerages and broker-dealers, though, even though
those three entities are often thought of as one and the same. A brokerage firm takes a
commission for assisting in the purchase and sale of stocks, bonds, and mutual funds. A brokerdealer executes similar functions, but it also trades for its own account. An investment bank
actually is a broker-dealer that provides corporations with financial services, such as assistance
with initial public offerings, merger and acquisitions advice, and strategic planning.
Introduction:
Investment banking is a particular form of banking which finances capital
requirements of an enterprise. Investment banking assists as it performs IPOs, private placement
and bond offerings, acts as broker and carries through mergers and acquisitions. Investment
banking is a field of banking that aids companies in acquiring funds. In addition to the
acquisition of new funds, investment banking also offers advice for a wide range of transactions
a company might engage in.
Traditionally, banks either engaged in commercial banking or investment banking. In
commercial banking, the institution collects deposits from clients and gives direct loans to
businesses and individuals.
Through investment banking, an institution generates funds in two different ways. They
may draw on public funds through the capital market by selling stock in their company, and they
may also seek out venture capital or private equity in exchange for a stake in their company.
An investment banking firm also does a large amount of consulting. Investment bankers
give companies advice on mergers and acquisitions, for example. They also track the market in
order to give advice on when to make public offerings and how best to manage the business'
public assets. Some of the consultative activities investment banking firms engage in overlap
with those of a private brokerage, as they will often give buy-and-sell advice to the companies
they represent.
The line between investment banking and other forms of banking has blurred in recent
years, as deregulation allows banking institutions to take on more and more sectors. With the
advent of mega-banks which operate at a number of levels, many of the services often associated
with investment banking are being made available to clients who would otherwise be too small
to make their business profitable.
At a very macro level, Investment Banking as term suggests, is concerned with the
primary function of assisting the capital 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 generating GDP (the Issuers). Banking and financial institution on the one
hand and the capital market on the other are the two broad platforms of institutional that
investment for capital flows in economy. Therefore, it could be inferred that investment banks
are those institutions that are counterparts of banks in the capital markets in the function of
intermediation in the resource allocation.
Nevertheless, it would be unfair to conclude so, as that would confine investment
banking to very narrow sphere of its activities in the modern world of high finance. Over the
decades, backed by evolution and also fuelled by recent technologies developments, an
investment banking has transformed repeatedly to suit the needs of the finance community and
thus become one of the most vibrant and exciting segment of financial services. Investment
bankers have always enjoyed celebrity status, but at times, they have paid the price for the price
for excessive flamboyance as well.
Investment Banks:
An investment bank is a financial institution that assists corporations and governments in
raising capital by underwriting and acting as the agent in the issuance of securities. An
investment bank also assists companies involved in mergers and acquisitions, divestitures, etc.
Further it provides ancillary services such as market making and the trading of derivatives, fixed
income instruments, foreign exchange, commodity, and equity securities.
Unlike commercial banks and retail banks, investment banks do not take deposits.
Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the
promotion of securities (i.e., underwriting, research, etc.) was referred to as the "sell side".
Dealing with the pension funds, mutual funds, hedge funds, and the investing public who
consumed the products and services of the sell-side in order to maximize their return on
investment constitutes the "buy side". Many firms have buy and sell side components.
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 (both equity and debt).
Investment banks also act as intermediaries in trading for clients. Investment banks differ
from commercial banks, which take deposits and make commercial and retail loans. In recent years,
however, the lines between the two types of structures have blurred, especially as commercial banks
have offered more investment banking services. Investment banks may also differ from brokerages,
which in general assist in the purchase and sale of stocks, bonds, and mutual funds. However some
firms operate as both brokerages and investment banks; this includes some of the best known financial
services firms in the world.
Definition:
An individual or institution, which acts as an underwriter or agent for corporations and
municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets
for previously issued securities, and offer advisory services to investors. Investment banks also
have a large role in facilitating mergers and acquisitions, private equity placements and corporate
restructuring. Unlike traditional banks, investment banks do not accept deposits from and
provide loans to individuals. Also called investment banker.
Ongoing Support:
Having worked on a transaction for your company, the investment bank will be
intimately familiar with your business. After the transaction, a good investment bank should
become a trusted business advisor that can be called upon informally for advice and support on
an ongoing basis.
Because investment banks are intermediaries, and generally not providers of capital,
some executives elect to execute transactions without an investment bank in order to avoid the
fees. However, an experienced, quality investment bank adds significant cant value to a
transaction and can pay for its fee many times over.
The investment banker has a vested interest in making sure the transaction closes,
that the project is completed in an efficient time frame, and with terms that provide maximum
value to the client. At the same time, the client is able to focus on running the business, rather
than on the day-to-day details of the transaction, knowing that the transaction is being handled by
individuals with experience in executing similar projects.
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. They are all rounder 0f the game.
Commercial Banks- Commercial Banks operating through Section 20 subsidiaries referring to
the subsidiaries formed under section 20 of the Glass- Steagall Act which was allowed to carry
on limited investment banking services.
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.
Analyst
Associate
Vice President
Senior Vice President/Director
Managing Director.
Some banks deviate from this hierarchy a bit, for example having the Senior Vice
President and Director be separate positions. Other banks, especially non-U.S. banks, have the
same hierarchy but with somewhat different names for each position (Associate Director for
Associate, Director for Vice President and Executive Director for SVP). One exception for U.S.
banks is that Bear Stearns calls the Senior Vice President/Director position a Managing Director,
and calls Managing Directors, Senior Managing Directors. However, regardless of the names,
the general job functions of each relative position tend to be consistent bank to bank.
to themselves as glorified admins, given all of the administrative work for which they are
responsible.
Investment Bankers:
Investment bankers are regarded as those persons who generally give consultation to
their valued clients in order to sort out any of their high level issues that may have taken place in
their financial organization.
Analysts are essential in making proposals in finance and travel in order to sit with the
clients during meetings and sessions where senior bankers discuss ideas to potential
customers.
After this comes the requirement of MBA degree holder investment banker.
Organizational structure
An investment bank is split into the so-called front office, middle office, and back office. While
large service investment banks offer all of the lines of businesses, both sell side and buy side,
smaller ones sell side investment firms such as boutique investment banks and small brokerdealers focus on investment banking and sales/trading/research, respectively. Investment banks
offer services to both corporations issuing securities and investors buying securities. For
corporations, investment bankers offer information on when and how to place their to an
investment bank's reputation, and hence loss of business. Therefore, investment bankers play a
very important role in issuing new security offerings.
generate revenue, its resources are used to assist traders in trading, the sales force in
suggesting ideas to customers, and investment bankers by covering their clients. Research
also serves outside clients with investment advice in the hopes that these clients will
execute suggested trade ideas through the Sales & Trading division of the bank, thereby
bringing in revenue for the firm. There is a potential conflict of interest between the
investment bank and its analysis in that published analysis can affect the profits of the
bank.
Other businesses that an investment bank may be involved in:
Global transaction banking is the division which provides cash management,
custody services, lending, and securities brokerage services to institutions. Prime
brokerage with hedge funds has been an especially profitable business.
Investment management is the professional management of various securities
(shares, bonds, etc.) and other assets (e.g. real estate), to meet specified investment
goals for the benefit of the investors. Investors may be institutions (insurance
companies, pension funds, corporations etc.) or private investors (both directly via
investment contracts and more commonly via collective investment schemes e.g.
mutual funds). The investment management division of an investment bank is
generally divided into separate groups, often known as Private Wealth Management
and Private Client Services.
Merchant banking is a private equity activity of investment banks.
Commercial banking sees article commercial bank.
Middle Office:
Risk management involves analyzing the market and credit risk that traders are
taking onto the balance sheet in conducting their daily trades, and setting limits on
the amount of capital that they are able to trade in order to prevent 'bad' trades
having a detrimental effect to a desk overall. Another key Middle Office role is to
ensure that the above mentioned economic risks are captured accurately, correctly
and on time. In recent years the risk of errors has become known as "operational
risk" and the assurance Middle Offices provide now includes measures to address
this risk.
Operations involve data-checking trades that have been conducted, ensuring that they
are not erroneous, and transacting the required transfers. While some believe that
operations provide the greatest job security and the bleakest career prospects of any
division within an investment bank, many banks have outsourced operations. It is,
however, a critical part of the bank.
or
for
combination
securities
such
as
specific
of
debt,
project
common
convertible
debt
financing.
equity,
or
debt
Capital
preferred
with
can
equity,
include
and
hybrid
warrants. Although
many
people associate raising capital with public stock offerings, a great deal of
capital
is
actually
raised
through
private
placements
with
institutions,
specialized investment funds, and private individuals. The investment bank will work with the
client
to
structure
the
transaction
to
meet
specific
of
projects
a
identifying,
include
company
structuring,
or
the
a
and
acquisition
subsidiary
executing
of
a
of
the
merger
specific
company,
or
and
joint
firm,
assistance
venture.
In
the
in
each
case, the investment bank should provide a thorough analysis of the entity
bought or sold, as well as a valuation range and recommended structure.
3. Sales and Trading:
These services are primarily relevant only to publicly traded firms, or firms,
which plan to go public in the near future. Specific functions include making
a market in a stock, placing new offerings, and publishing research reports.
4. General Advisory Services:
Advisory services include assignments such as strategic planning, business valuations,
assisting in financial restructurings, and providing an opinion as to the fairness of a proposed
transaction.
Policies of Firm:
The firms have different policies to overview the following aspects:
Growth:
The investment banks are freshly enjoying an almost extraordinary stage of strong
economic conditions and growth, which has enabled them to bring record gain. The industry has
greatly stabilized in current years around a handful number of major players, and there have been
few latest mergers and acquisitions.
Performance:
The prime attention in the investment banking industry has always been on top-line
growth, rather than decreasing cost and efficiency. Focus on people and cost control in the
current has a very positive phase that suggests that investment banks are learning to control
through good times and bad.
Governance:
Good quality governance, domestic controls, and reporting are decisive in an industry
that thrives on risk. Although there continues to be examples of disastrous breakdowns in
controls, leading to major trading sufferings, these tend to turn up more in the hedge funds, as
new entities to the market. Many of the more veteran players have implemented policies and
initiatives that guard against these losses. The control device continues to claim high values of
governance and control.
Struggle for investment banking jobs is severe. Investment banks and financial services
firms are hiring, but competition for jobs is fierce.
Knowledge & financial skills are crucial. In particular, greater financial skills and
Investment banking companies generally help their clients to access capital through
equity, debt and other kinds of investment products. These firms also trade 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 closure. Even a few
firms in India were affected by this global downturn. This led to many skeptics writing off the
revival of these firms.
Price Fixing Once all the bids are collected, the lead managers decide the final issue price, and
inform the stock exchange and SEBI.
Processing of IPO Applications by Registrar This is the clerical stage, wherein the forms
are collected, checks are processed, share allotment is completed, shares are transferred to the
demat accounts and any excess money is refunded.
Listing in the Stock Exchange Once the date of listing is decided, the shares of the issuer
company are listed on the stock exchange shares.
Advantages of IPO:IPO has a number of advantages. IPO helps the company to create a public awareness about the
company as these public offerings generate publicity by inducing their products to various
investors.
The increase in the capital: An IPO allows a company to raise funds for utilizing in various
corporate operational purposes like acquisitions, mergers, working capital, research and
development, expanding plant and equipment and marketing.
Liquidity: The shares once traded have an assigned market value and can be resold. This is
extremely helpful as the company provides the employees with stock incentive packages and the
investors are provided with the option of trading their shares for a price.
Valuation: The public trading of the shares determines a value for the company and sets a
standard. This works in favor of the company as it is helpful in case the company is looking for
acquisition or merger. It also provides the share holders of the company with the present value of
the shares.
Increased wealth: The founders of the companies have an affinity towards IPO as it can
increase the wealth of the company, without dividing the authority as in case of partnership.
Disadvantages of IPO:
Increased disclosure
When a company moves from private ownership to public, it vastly increases the number of
people who have access to its financial records. This can be a huge shock to the existing owners,
not just the reporting of the companys results, but the disclosure of management salaries and
perks that often piques the interest of newspaper editors on a slow day.
Companies are required by stock exchanges, securities commissions and regulators to disclose
information on a regular basis so that investors and potential investors can make buy, sell or hold
decisions. A much greater amount of information is required at the time of the IPO and is
included in the offering prospectus.
Disclosure requirements vary by country. Those countries with the largest stock markets, relative
to the economy, typically have the highest disclosure requirements (e.g. Australia, Canada, UK,
USA).
The development of efficient capital markets in Central and Eastern Europe has been hindered
partially by the reticence of corporate executives to disclose information about their firms
operations and performance.
Its not all bad though. Botosan (1997) has found that increased disclosure on the part of the
company can reduce its cost of equity. By reducing its cost of equity, a company is able to invest
in more projects, raise capital more cheaply, and enhance its valuation.
Costs of IPOs:
Initial public offerings arent cheap. Investment bankers take commissions of between 2 and 7
per cent of the total amount raised; lawyers and accountants bill by the hour, and many hours are
required. The ancillary costs, such as public relations, printing, corporate advertising and others
can add several hundred thousand more dollars, euros or pounds.
In addition to the upfront costs of the IPO, there are the costs of maintaining a quote on the stock
exchange (stock exchange fees, management time, more extensive audits and reporting,
reconciliation of accounts to US GAAP if listed on a US exchange, etc.).
However, the direct costs of an IPO can pale beside the indirect cost of underpricing. Because no
cash is coming directly out of the issuers pocket, underpricing can sometimes be ignored as a
cost. It should not be. IPOs around the world are under priced compared with their short-term
performance. On average, an IPO will close at a price that is 15 to 20 per cent above its issue
price, although this varies by market and industry and over time. This means that selling
shareholders and the company are leaving significant sums of money on the table when they go
public.
The amount of money left on the table is calculated by subtracting the offer price from the first
day closing price and multiplying by the number of shares offered. For example, many analysts
believe Google left too much money on the table in its 2004 IPO.
Avendus Capital:
Avendus Group (Avendus) is a leading provider of financial services with an emphasis on
customized solutions in the areas of financial advisory, capital markets, wealth management and
alternative asset management to its clients that include institutional investors, corporates and
high net worth families. These services are provided through varied delivery channels and
specialized subsidiaries.
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 Bajaj 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. Bajaj
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, Bajaj provides an extensive range
of investment schemes such as general insurance, life insurance, mutual funds, etc to both public
and private institutions.
Bajaj Capital Limited ("Bajaj Capital") is India's premier "Investment Services" Company, with
nearly 50 years of experience in helping people protect and grow their wealth. We've helped to
create more millionaires than any other firm in India. But it's our deep personal relationships
with clients that truly sets us apart.
No other firm can match the depth of our experience and our dedication to personal service. The
markets may fluctuate, but our dependability never does.
3.
A combined fiscal service provider of three firms namely Cholamandalam DBS Finance
Limited (CDFL), DBS Cholamandalam Distribution Limited and DBS Cholamandalam
Securities 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.
Cholamandalam Investment and Finance Company Limited was incorporated in 1978 as the
financial services arm of the Murugappa Group. Chola commenced business as an equipment
financing company and has today emerged as a comprehensive financial services provider
offering vehicle finance, home loans, home equity loans, SME loans, investment advisory
services, stock broking and a variety of other financial services to customers.
Chola operates from over 579 branches across India with assets under management above INR
25,000 Crores. The subsidiaries of Cholamandalam include Cholamandalam Securities Limited
(CSEC) and Cholamandalam Distribution Services Limited (CDSL).
4.
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.
ICICI Securities Ltd is an integrated securities firm offering a wide range of services including
investment banking, institutional broking, retail broking, private wealth management, and
financial product distribution.
ICICI Securities sees its role as 'Creating Informed Access to the Wealth of the Nation' for its
diversified set of client that include corporates, financial institutions, high net-worth individuals
and retail investors.
Headquartered in Mumbai, ICICI Securities operates out of 66 cities and towns in India and
global offices in Singapore and New York.
5.
IDFC:
6.
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 record of controlling various sectors and has played
a major role in the government's milestone disinvestments.
Kotak Investment Banking is a leading full-service investment bank in India, offering
integrated solutions encompassing high-quality financial advisory services and financing
solutions. Our services include Equity and Debt Capital Market issuances, M&A Advisory,
Private Equity Advisory and Infrastructure Advisory & Fund Mobilization. As a specialist Indian
investment bank, our aim is to offer our expertise and strategic advice on all India-related
transactions
Kotak Investment Banking is a subsidiary of Kotak Mahindra Bank Limited, one of Indias
leading banking and financial services organizations with a consolidated net worth of Rs 17,228
crore (approx US$ 2.9 billion)
7.
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.
SBI Capital Markets Ltd. (SBICAP) is Indias largest domestic Investment Bank, offering
the entire gamut of investment banking and corporate advisory services. These services
encompass Project Advisory and Loan Syndication, Structured Debt Placement, Capital Markets,
Mergers & Acquisitions, Private Equity and Stressed Assets Resolution.
We are a complete solutions provider offering diversified financial advisory and
investment banking services, innovative ideas and unparalleled execution to our client base
across all stages of the business cycle. Our services range from venture capital advisory, project
advisory, buy and sell-side advisory, accessing financial markets to raise capital and even
restructuring advisory in their turn-around phases.
8.
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.
Tata Investment Corporation Limited (TICL) is a non-banking financial company. Earlier
named The Investment Corporation of India, the company is primarily involved in investing in
long-term investments such as equity shares and equity-related securities.
The original inspiration for launching Tata Investment Corporation Limited was to help set
up and nurture small and medium-sized enterprenuers and their companies. For many years after
its inception, the Company played a role of a catalyst in promoting long term investments in the
country and was instrumental in the promotion of projects with new Indian entrepreneurs and
foreign collaborators whilst simultaneously taking minority equity stakes in such new projects.
9.
Yes Bank:
10.
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.
The UTI Asset Management Company has its registered office at: UTI Tower, Gn Block,
Bandra Kurla Complex, Bandra (East), Mumbai - 400 051.It has over 70 schemes in domestic
MF space and has the largest investor base of over 9 million in the whole industry. It is present in
over 450 districts of the country and has 100 branches called UTI Financial Centres or UFCs.
About 50% of the total IFAs in the industry work for UTI in distributing its products! India
Posts, PSU Banks and all the large Private and Foreign Banks have started distributing UTI
products
Investment banking in India is regulated in its various facets under separate legislations or
guidance issued under statute. The regulatory powers are also distributed between different
regulators depending upon the constitutions & status of the investment bank. Pure investment
banks which do not presence in the lending or banking business are governed primarily by the
capital market regulator i.e. SEBI. However universal banks & NBFC investment banks are
regulated primarily by the RBI 9in their core business of banking or lending & so far as the
investment banking segment is concerned, they are also regulated by SEBI. An overview of the
regulatory framework is furnished below:1. At the constitutional level, all investment banking companies incorporated under the
Companies Act 1956 are governed by the provision of the act.
2. Investment banks that are incorporated unde4r a separate statute such as the SBI or the IDBI
are regulated by their respective statue. IDBI is in the process of being converted into
Companies Act.
3. Universal Banks are regulated by RBI of India under the RBI Act 1934 & the Banking
Regulation Act which put restrictions on the investment banking exposures to be taken by the
banks. The RBI has relaxed the exposure limits for merchant banking subsidiaries of the
commercial banks. Till now, such companies were restricting their exposure to a single entity
through the underwriting business & other fund based commitments such as standby facilities
etc. to 25% of their net owned funds. Therefore these companies are now on par with other
investment banks which can do so up to 20 times their net owned fund.
4. Investment banking companies that are constituted as non-banking financial companies are
regulated operationally by the RBI under Chapter IIIB section 45H & 45QB of the RBI Act,
1934. Under these sections RBI is empowered to issue directions in the area of resources
mobilization, accounts & administrative controls. The following directions have been issued
by the RBI so far:
5. Functionally, different aspects of investment banking are regulated under the securities &
Exchange Board of India Act, 1992 & the guidelines & regulations issued under. These are
listed below:
1993.
The activity of secondary market operations including stock broking are regulated under
the relevant by-law of the stock exchange & the SEBI (stock broker & sub broker) Rules
& Regulations, 1992. Besides for restricting unethical trading practices, SEBI has issued
the SEBI (Prohibition of fraudulent & unfair trade practices relating to securities markets)
Regulations 1995& also SEBI prohibited insider trading under regulations, 1992.
The business of asset management as mutual funds is regulated under the SEBI (Mutual
Regulations,2000.
The business of institutional investing by foreign investment banks & other investors in
Indian Secondary markets is governed by the SEBI (Foreign Institutional Investors)
Regulations 1995.
6. Investments banks that are set up in India with foreign direct investment either as joint
ventures with Indian partners or as fully owned subsidiaries of the foreign entities are
governed in respect of the foreign investment by the Foreign Exchange Management Act,
1999& Foreign Exchange Management (Transfer or issue of a person resident outside India)
Regulations 2000 issued there under as amended from time to time through circulars issued
by the RBI.
7. Apart from the above specific regulations relating to investment banking, investment banks
are also governed by the other laws applicable to all other underwriting support on
government securities issue & participate in auctions held by the RBI.
1.
Technical Skill
Legal Knowledge- While clear cut guidelines can be issued to the traders regarding
their market related activities that are governed by the law, the complexity multiplies
for an M&A deal. The regulators guidelines have to be strictly followed, even while
envisaging a combination. Legal knowledge is also important for structuring such
deals, which will help identify the constraints associated with proposed solution. The
situation gets more intense when the deal is a cross-border M&A proposal. Apart
from the knowledge of the inland laws, foreign laws also have to be considered. Any
regulation by the foreign government can make an otherwise desirable deal, unviable.
Knowledge of Capital Markets and Functioning- More than any other industry, it
is the investment banking industry that has a direct bearing on the way capital
markets function. Any changes in the capital market regulations affect the brokerage
side of the business, along with the trade clearing and settlement houses. The trading
personnel should be conversant with the regulations, guidelines, procedural
formalities and actual trade execution processes involved in capital market. E.g.
Trading system involves a lot of additional skills than online trading. He has to be
conversant with the codes, symbols and conventions followed by the market. Quick
signaling and accurate interpretation are of utmost significance. Any mistake in these
would lead to faulty execution of orders and might entail additional costs to the firm
in correcting the errors.
aware with economic and business cycles, lest they lose the respect and trust of the
client. The requirement for global perspective and international exposure is becoming
increasingly important. The firm should offer services across the national borders to
the corporate clients and informed services are possible only when the employee is
well-equipped with international business information.
The securities trader has changed into a tech-savvy professional, executing online orders &
maintaining databases. The technology helps management and other departmental
professionals and even the clients to disseminate such data in negligible time. Asset managers
have now complicated tools for scientific and in-depth valuation of portfolios. Comp
frameworks can be solved with minimum effort using technology.
2.
Communication Skills
Ability to Cater to the Audience According to its Awareness LevelsCommunication skills include both the means of communication written and oral.
However, the audiences vary extensively, and hence, the requisite communication
skills also differ widely. A marketer handling individual investors will necessarily
have to keep the content very simple and express t in laymans terms. Usage of
financial terms & jargons will not fetch results. Cash flows, the characteristics of the
instruments & the risk class to which the investment belongs to must be explained in
simple & easily understandable terms.
by the firm. Investors in syndicated debt must be satisfied with the payment streams
and interest rate terms. M&A transactions are the toughest assignments for
negotiations. Even a friendly transaction would be difficult if not for patient and
mutually negotiations. The common issues that pertain to negotiation are terms of
offer, offer price, post merger integration, organization and reporting structure,
business lines to be developed above all dealing with the overlapping functions.
While negotiating, the banker should always keep the prime object in the mind &
quickly evaluate the various counter offers & suggestions made by other party.
Personality Traits- Personality Traits plays an important role in developing the skill
set of an investment banker. Creativity is an important feature. It comes in use while
handling prospectus, clients & team members. It is essential when solutions are to be
identified for complex problem. Innovations & creativity are required structure deals.
3. Other Skills
Challenges:
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 markets.
Throughout the history of investment banking, it is only known that many have theorized that all
investment banking products and services would be commoditized. New products with higher
margins are constantly invented and manufactured by bankers in hopes 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
structuring and trading derivatives retains higher margins in good times - and the risk of large
losses in difficult market conditions, such as the credit crunch that begin in 2007. Each over-thecounter contract has to be uniquely structured and could involve complex pay-off and risk
profiles.
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. The fastest growing segments of the investment banking industry are private
investments into public companies. Such transactions are privately negotiated between
companies and accredited investors.
Conclusion:
Investment banking is a field of banking that aids companies in acquiring funds. In
addition to the acquisition of new funds, investment banking also offers advice for a wide range
of transactions a company might engage in.
Traditionally, banks either engaged in commercial banking or investment banking. In
commercial banking, the institution collects deposits from clients and gives direct loans to
businesses and individuals.
Investment banking is a particular form of banking which finances capital requirements
of an enterprise. Investment banking assists as it performs IPOs, private placement and bond
offerings, acts as broker and carries through mergers and acquisitions.