Specialization Project

INTRODUCTION
An investment bank is a financial institution that assists individuals,corporations, and

governments in raising capital by underwriting or acting asthe client& agent in the issuance of
securities (or both). An investment bankmay also assist companies involved in mergers and
acquisitions and provideancillary services such as market making, trading of derivatives and
equity securities, and FICC services (fixed income instruments, currencies, and
commodities).Unlike commercial banks and retail banks, investment banks do not take deposits.
From 1933 (Glass–Steagall Act) until 1999 (Gramm–Leach–Bliley Act), the United States
maintained a separation between investment banking and commercial banks. Other industrialized
countries, including G8 countries, have historically not maintained such a separation. As part of
the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act of
2010), Volcker Rule asserts full institutional separation of investment banking services from
commercial banking.There are two main lines of business in investment banking.
The "sell side" involves trading securities for cash or for other securities (e.g.
facilitating transactions, market-making), or the promotion of securities (e.g. underwriting,
research, etc.).
The "buy side" involves the provision of advice to institutions concerned with
buying investment services. Private equity funds, mutual funds, life insurance companies, unit
trusts, and hedge funds are the most common types of buy side entities.
An investment bank can also be split into private and public functions with a information barrier
which separates the two to prevent information from crossing. The private areas of the bank deal
with private insider information that may not be publicly disclosed, while the public areas such
as stock analysis deal with public information.
An advisor who provides investment banking services in the United States must be a licensed
broker-dealer and subject to Securities & Exchange Commission (SEC) and Financial
Industry Regulatory Authority (FINRA) regulation.
DEFINITION
Investment Banking’
A specific division of banking related to the creation of capital for other companies. Investment
banks underwrite new debt and equity securities for all types of corporations. Investment banks
also provide guidance to issuers regarding the issue and placement of stock.
Investopedia explains Investment Banking’
In addition to the services listed above, investment banks also aid in the sale of securities in some
instances. They also help to facilitate mergers and acquisitions, reorganizations and broker trades
for both institutions and private investors. They can also trade securities for their own accounts.
CHAPTER 2
THE HISTORY OF INVESTMENT BANKING
JP Morgan
Undoubtedly, investment banking as an industry in the United States has come a long way since
its beginnings. Below is a brief review of the history
1896-1929
Prior to the great depression, investment banking was in its golden era, with the industry in a
prolonged bull market. JP Morgan and National City Bank were the market leaders, often
stepping in to influence and sustain the financial system. JP Morgan (the man) is personally
credited with saving the country from a calamitous panic in 1907. Excess market speculation,
especially by banks using Federal Reserve loans to bolster the markets, resulted in the market
crash of 1929, sparking the great depression.
1929-1970
During the Great Depression, the nation’s banking system was in shambles, with 40% of banks
either failing or forced to merge. The Glass-Steagall Act (or more specifically, the Bank Act of
1933) was enacted by the government with the intent of rehabilitating the banking industry by
erecting a wall between commercial banking and investment banking. Additionally, the
government sought to provide the separation between investment bankers and brokerage services
in order to avoid the conflict of interest between the desire to win investment banking business
and duty to provide fair and objective brokerage services (i.e., to prevent the temptation by an
investment bank to knowingly peddle a client company’s overvalued securities to the investing
public in order to ensure that the client company uses the investment bank for its future
underwriting and advisory needs). The regulations against such behavior became known as the &
quot;Chinese Wall.
1970-1980
In light of the repeal of negotiated rates in 1975, trading commissions collapsed
and trading profitability declined. Research-focused boutiques were squeezed
out and the trend of an integrated investment bank, providing sales, trading,
research, and investment banking under one roof began to take root. In the late
70’s and early 80’s saw the rise of a number of financial products such as
derivatives, high yield an structured products, which provided lucrative returns
for investment banks. Also in the late 1970s, the facilitation of corporate
mergers was being hailed as the last gold mine by investment bankers who
assumed that Glass-Steagall would someday collapse and lead to a securities
business overrun by commercial banks. Eventually, Glass-Steagall did crumble,
but not until 1999. And the results weren’t nearly as disastrous as once
speculated.
M.D.COLLEGETYFMINVESTMENT BANKING
B.COM (FINANCIAL MARKETS) 6 | Page
1980-2007
In the 1980s, investment bankers had shed their stodgy image. In its place was a
reputation for power and flair, which was enhanced by a torrent of mega-deals
during wildly prosperous times. The exploits of investment bankers lived large
even in the popular media, where author Tom Wolfe in “Bonfire of the
Vanities” and movie-maker Oliver Stone in “Wall Street” focused on
investment banking for their social commentary. Finally, as the 1990s wound
down, an IPO boom dominated the perception of investment bankers. In 1999,
an eye-popping 548 IPO deals were done – among the most ever in a single year
-- with most going public in the internet sector.
The enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999
effectively repealed the long-standing prohibitions on the mixing of banking
with securities or insurance businesses under the Glass-Steagall Act and thus
permitted “broad banking.” Since the barriers that separated banking from other
financial activities had been crumbling for some time, GLBA is better viewed as
ratifying, rather than revolutionizing, the practice of banking
INVESTMENT BANKING HISTORY IN THE 20TH CENTURY
In the mid-20th century, large investment banks were dominated by the
dealmakers. Advising clients on mergers and acquisitions and public offerings
was the main focus of major Wall Street partnerships. These “bulge bracket”
firms included Goldman Sachs, Morgan Stanley, Lehman Brothers, First Boston
and others.
That trend began to change in the 1980s as a new focus on trading propelled
firms such as Salomon Brothers, Merrill Lynch and Drexel Burnham Lambert
into the limelight. Investment banks earned an increasing amount of their profits
from proprietary trading. Advances in computing technology also enabled banks
to use more sophisticated model driven software to execute trades and generate
a profit on small changes in market conditions.
In the 1980s, financier Michael Milken popularized the use of high yield debt
(also known as junk bonds) in corporate finance and mergers and acquisitions.
This fueled a boom in leverage buyouts and hostile takeovers (see History of
Private Equity). Filmmaker Oliver Stone immortalized the spirit of the times
with his movie, Wall Street, in which Michael Douglas played the role of
corporate raider Gordon Gekko and epitomized corporate greed.

Investment banks profited handsomely during the boom years of the 1990s and
into the tech boom and bubble. When the tech bubble burst, it precipitated a
string of new legislation to prevent conflicts of interest within investment banks.
Investment banking research analysts had been actively promoting stocks to
investors while privately acknowledging they were not attractive investments. In
other instances, analysts gave favourable stock ratings to corporate clients in the
hopes of attracting them as investment banking clients and handling potentially
lucrative initial public offerings.
These scandals paled by comparison to the financial crisis that has enveloped
the banking industry since 2007. The speculative bubble in housing prices along
with an overreliance on sub-prime mortgage lending trigged a cascade of crises.
Two major investment banks, Bear Stearns and Lehman Brothers, collapsed
under the weight of failed mortgage-backed securities. In March, 2008, the
Federal government began using a variety of taxpayer-funded bailout measures
to prop up other firms. The Federal Reserve offered a $30 billion line of credit
to J.P. Morgan Chase to that it could acquire Bear Sterns. Bank of America
acquired Merrill Lynch. The last two bulge bracket investment banks, Goldman
Sachs and Morgan Stanley, elected to convert to bank holding companies and be
fully regulated by the Federal Reserve.

Moving forward, the recent financial crisis has weakened both the reputation
and the dominance of U.S. investment banking organizations throughout the
world. The growth of foreign capital markets along with an increase in pools of
sovereign capital is changing the landscape of the industry.
The growing international flow of capital has also opened up opportunities for
investment banking in new financial centers around the world, including those
in developing countries such as India, China and the Middle East.
EVOLUTION OF INVESTMENT BANKING IN INDIA
The origin of investment banking in India can be traced back to the 19 th century
when European merchant banks set-up their agency houses in the country to
assist in the setting of new projects. In the early 20 th century, large business
houses followed suit by establishing managing agencies which acted as issue
house for securities, promoters for new projects and also provided finance to
Greenfield ventures. The peculiar feature of these agencies was that their
services were restricted only to the companies of the group to which they
belonged. A few small brokers also started rendering Merchant banking
services, but theirs was limited due to their small capital base.
In 1967, ANZ Grind lays bank set - up a separate merchant banking division to
handle new capital issues. It was soon followed by Citibank, which started
rendering these services. The foreign banks monopolized merchant banking
services in the country. The banking committee, in its report in 1972, took note
of this with concern and recommended setting up of merchant banking
institutions by commercial banks and financial intuitions. State bank of India
ventured into this business by starting a merchant banking bureau in 1972. In
1972, ICICI became the first financial institution to offer merchant banking
services. JM finance was set-up by Mr. Nimesh Kampani as an exclusive
merchant bank in 1973. The growth of the industry was very slow during this
period. By 1980, the number of merchant banks rose to 33 and was set-up by
commercial banks, financial institutions and private sector. The capital market
witnessed some buoyancy in the late eighties. The advent of economic reforms
in 1991 resulted in sudden spurt in both the primary and secondary market.
Several new players entered into the field. The securities scam in may, 1992
was a major setback to the industry. Several leading merchant bankers, both in
public and private sector were found to be involved in various irregularities.
Some of the prominent public sector players involved in the scam were can
bank financial services, SBI capital markets, Andhra bank financial services,
etc. leading private sector players involved in the scam included Fair growth
financial services and Champaklal investments and finance (CIFCO).
The market turned bullish again in the end of 1993 after the tainted shares
problem was substantially resolved. There was a phenomenal surge of activity
in the primary market. The registration norms with the SEBI were quite liberal.
The low entry barriers coupled with lucrative opportunities lured many new
entrants into this industry. Most of the new entrants were undercapitalized with
little or no expertise in merchant banking. These players could hardly afford to
be discerning and started offering their services to all and sundry clients. The
market was soon flooded with poor quality paper issued by companies of
dubious credentials. The huge losses suffered by investors in these securities
resulted in total loss of confidence in the market. Most of the subsequent issues
started failing and companies started deferring their plans to access primary
markets. Lack of business resulted in a major shake out in the industry. Most of
the small firms exited from the business. Many foreign investment banks started
entering Indian markets. These firms had a huge capital base, global distribution
capacity and expertise. However, they were new to Indian markets and lacked
local penetration. Many of the top rung Indian merchant banks, who had string
domestic base, started entering into joint ventures with the foreign banks. This
energy resulted in synergies as their individual strength complemented each
other.

CHAPTER 3
TYPES OF PLAYERS IN INVESTMENT BANKING
Players in
Investment
Banking
Full-Service
Firms
Commercial
Banks
Boutique FirmsBrokerage
Firms
Asset
Management
Firms
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 were 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.
CHAPTER 4
SKILLS SUGGESTED FOR INVESTMENT BANKERS
Technical Skill
Academic Background
In the early days of investment banking, not much importance was attached to
academic background. Today, the business has become very complicated and
the skill requirements have multiplied. Consequently, investment banks find it
important to recruit people with the right academic credentials. Typically, for
most of the important jobs, an MBA is a must. Investment banks rely heavily on
campus recruitments
Conceptual Soundness
One of the major benefits for a professional in an investment bank is the

learning associated with work. The financial skills of an expert are tested to the
core while handling a complicated deal. Comprehensive and in-depth
knowledge of financial and business concepts are essential to sustain business.
Multiple relationships between various factors render decision-making difficult.
Financial solutions can be provided to the clients only when the advisor is
competent to understand all or at least a majority of them. Before practical
solutions emerge, the tools for decision-making will give greater choice to the
solution provider. A strong grounding in theory and concepts facilitates this.
Product Specialization
One way to specialize in an investment bank is through products. An expert in a
particular product, say hybrid instruments, can work out financial solutions for
any client across the industries. Each client has his or her individual risk taking
ability. To cater to the client on an in basis, appropriate products that would suit
their risk profile should be identified. The clients will also feel at home while
dealing with a product specialist.
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.
Knowledge of Regulatory Bodies involved in the Various
Operations
It is necessary for an investment banker to be aware of all the regulatory bodies
that govern the activities in which he/she is involved. A thorough knowledge of
all such bodies is absolutely essential to perform extraordinarily. In India, the
SEBI & central bank acts as a watchdog and regulator of market related
activities.
Knowledge of International Business Scenario and
Economic Trends
Though a researcher is primarily involved in economic and business cycle
studies, it is the duty of all the investment bankers to have a general overview of
these affairs. Salespersons, who also act as financial consultants/advisors,
should essentially be 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.
Knowledge of Software Tools, Developments in the Field of
Information Technology
One of the most important technical skills is the usage of computers, tools and
internet technologies. Marketing, brokerage, research and capital mobilization
have all undergone sweeping changes owing to technology.
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.
Communication Skills
Ability to Cater to the Audience According to its Awareness
Levels
Communication 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
layman’s 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.
Negotiation Skills
Negotiation skills is important at a variety of places. Institutional clients have to
be convinced about the prospects of the investments that are solicited 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.
Other Skills
Marketing Skill
The marketing skills would be an application of skills mentioned above. One
of the important marketing skill would be relationship management. Unlike
most other industries where relationship plays a facilitating role in
conducting business, it is fundamental issue in the investment banking
industry. An attitude for creating, establishing & maintaining relationships,
during boom & down period, is of utmost importance in getting mandates.
Inter-Personal Skills
Inter-personal skills are basically blended from communication skills, and
personality traits. They include interactions with superiors, subordinates,
colleagues, clients, competitors, team members and even politicians and
public office bearers. Inter-personal skills come to the fore during team
exercises where diplomacy and manners become essential. Team exercises
can also include dealing with members from other departments or even with
other firms. Such situations call for greater application of team skills and an
element of mutual respect towards each other.
Networking Skills
Networking refers to the process of developing a web of contacts and
acquaintances. Some of the special attributes required to develop networking
abilities would include:
Knowledge of human psychology;
Presence of mind to apply the appropriate skills as situation demands;
Approaching through proper channels that would lend credibility
respectability to contacts;
Persuasion skills;
Highest standards of professionalism.

CHAPTER 5
FUNCTIONS OF INVESTMENT BANKS
Investment bankers play an important role in the issue management process.
Lead managers (category I merchant bankers) have to ensure correctness of the
information furnished in the offer document. They have to ensure compliance
with SEBI rules and regulations as also guidelines for disclosures and investor
protection. To this effect, they are required to submit to SEBI a due diligence
certificate conforming that the disclosures made in the draft prospectus or letter
of offer are true, fair and adequate to enable the prospective investors to make a
well informed investment decision. The role of merchant bankers in performing
their due diligence functions has become even more important with the
strengthening of the disclosure requirements and with the SEBI giving up the
vetting up of prospectus. SEBIs various operational guidelines issued during the
year to merchant bankers primarily addressed the need to enhance the standard
of disclosures.
It was felt that a further strengthening of the criteria for registration of merchant
bankers was necessary, primarily through an increase in the net worth

requirements, so that the capital would be commensurate with the level of
activities undertaken by them. With this in view, the net worth requirement or
category I merchant bankers was raised in 1995-96 to Rs.5 crore. In 1996-96,
the SEBI (merchant bankers) regulations, 1992 were amended to require the
payment of fees for each letter of offer or draft prospectus that is filed with
SEBI.
MAJOR FUNCTIONS OF THE INVESTMENT BANK
Raising Capital
& Security
Underwriting
Mergers &
Acquisitions
Sales & Trading
and Equity
Research
Retail and
Commercial
Banking
Raising Capital & Security Underwriting
Banks are middlemen between a company that wants to issue new
securities and the buying public.
Mergers & Acquisitions
Banks advise buyers and sellers on business valuation, negotiation,
pricing and structuring of transactions, as well as procedure and
implementation.
Sales & Trading and Equity Research
Banks match up buyers and sellers as well as buy and sell securities out
of their own account to facilitate the trading of securities.
Retail and Commercial Banking
Investment banks now offer traditionally off-limits services like
commercial banking.
CHAPTER 6
SCOPE OF INVESTMENT BANKS
Following are activities of investment banks. They can be allocated into

categories such as “Corporate Finance,” “Capital Markets,” “Wealth
Management / Private Client,” “Alternative Investments,” and the like.
Public Offerings of Debt and Equity Securities
There are four general types of public offerings: 1) Initial public offerings
(IPOs) of securities issued by companies that have never before issued any
public securities (normally common stock is the first security to be issued in an
IPO); 2) Initial public offerings of new securities that companies that are
already public have not before issued (e.g., a new class of convertible debt
security); 3) Further public offerings of securities that are already publicly
traded (e.g., the issuance of additional common stock when its price is
sufficiently high so that cost of capital is sufficiently low); 4) Public offerings
by company shareholders of securities that are already publicly traded (e.g.,
when an original large shareholder, say a private equity fund, wants to cash out
its position).In the past we could cleanly differentiate debt and equity securities
and put them into separate categories. Investment grade corporate bonds were
distinct from high-yield (“junk”) bonds. Today the old distinctions are fuzzy.
Debt and equity are more points on a continuum than boxes on a chart. Junior
subordinated zero-coupon convertible debentures can be thought more equity
than debt and dutch-auction preferred stock can be thought more debt than
equity. Geography, as well, is no longer a constraint: Companies can reach
anywhere in the world to lower their cost of capital.
Private Placements of Debt and Equity Securities
Private placement is the selling of securities to investors without the regulatory
requirements of public offerings. The regulations defining private placements
are complex and the securities and investment vehicles offered are numerous.
Ranging from corporate equities to real estate interests, privately placed
securities carry a higher return than similarly structured securities that can
trade in the public markets. The loss of liquidity enhances risk and therefore
requires a proportionally higher return.
Mergers and Acquisitions (M&A)-
This is the front-page stuff – the huge acquisitions, takeover battles, hostile
attacks and fierce defences. But it’s not all war. The vast majority of M&As
are friendly. Investment bankers seek to optimize price and terms, so that the
“best price” may not be the highest price for client sellers (all cash or
confidence in closing may be more important) nor the lowest price for client
buyers (certainty of getting the deal done may be more vital). Investment banks
find, facilitate, price, and finance mergers and acquisitions. Also included in
M&A are leverage buyouts by private equity, the restructuring and
recapitalization of companies, and the reorganization of troubled companies.

Financial Advisory / Sponsor Group Finance-
Financial advisory services have grown dramatically as investment banks work
with the large number of private funds – hedge funds and private equity – that
have mushroomed in recent years and control hundreds of billions of dollars.
Services include (i) raising of capital for general funds, (ii) M&A acquisitions,
(iii) financing acquisitions, (iv) IPOs of portfolio companies owned by the
funds (when appropriate) and (v) M&A of these companies (when IPOs are not
appropriate). Investment banks like to involve themselves with hedge funds
and private equity since they are transaction oriented, generate huge fees and
are in perpetual deal mode-.
Fairness Opinions
Fairness opinions support M&A, leveraged buyouts and restructurings for
public companies. Providing an independent, defensible, expert statement on
values and the “fairness” of those values is an essential part of any such public
transaction. Investment banks command what may seem to be exorbitantly
high fees for giving fairness opinions, considering the number of hours worked
(and the amount of paper produced). The reason is the significant liability the
investment bank assumes, which can be realized both in the courts via
shareholder suits and in industry reputation. In fact, major investment banks do
not like to provide fairness opinions – the risks are too high for the fees – but
generally do so only to serve important clients.
Risk Management
Hedging positions in interest rates, foreign currency exchanges and commodity
positions through swaps, options and futures are an essential building block of
financial markets. Swaps are the mechanism by which two or more parties
exchange their debt obligations in order to control more precisely each party’s
desired risk/return profile. Swaps work because different entities have different
comparative advantages when pricing different categories of debt in different
financial markets. Parties of dissimilar credit ratings or financing needs can
exchange their obligations (e.g., from shorter term to longer term and vice
versa) in order to optimize their financial strategy and structure. Risk
management groups combine expertise in diverse hedging instruments to
develop a complete hedging strategy for enterprises.
Merchant Banking
Merchant banking is the commitment of an investment bank’s own capital to

equity-level investments and participations, seeking very high returns. Such
commitment of capital is made for two general purposes: 1) to facilitate a client
transaction (i.e., a bridge loan until permanent financing is obtained); or 2) to
purchase securities in an operating company for the firm’s own account (i.e.,
whether 100% ownership by the investment bank, in partnership with a client,
or as the manager of an LBO[BP1] fund). Bridge loans are highly profitable,
combining commitment fees, placement fees, high interest rates,and equity
kickers.
Finance / Securitization
The creation of synthetic financing mechanisms and structures makes possible
allocations of capital with better risk-return features for both issuers and
investors. This is generally achieved by instruments that (i) pool assets, (ii)
allocate liabilities into different “trenches” (with different risk-return profiles),
and (iii) are contained within an independent legal entity.
Securitization is the process by which formerly illiquid assets, mostly small
consumer receivables of all kinds (e.g., home mortgages, automotive loans,
credit card receivables), can be liquefied by their being “rolled up” into large,
publicly tradable securities with improved risk-return for both issuers and
investors. (Such innovations exemplify investment banking’s contribution to

financial markets.)
Securitized obligations are sophisticated in design and often require statistical
analysis and sensitivity testing of key criteria (e.g., default rates, prepayment
profiles, interest rate sensitivity, tax changes, etc.). For example, a change from
forecasted rates of prepayment (e.g., due to interest rate declines and the
resulting refinancing of older, higher-rate mortgages) can result in shocking
differences in returns from initial expectations. (Principal itself can suffer
significantly.)
Other kinds of structure finance include project finance, which is used to fund
large-scale enterprises such as power plants and infrastructure.
Wealth Management
The accumulation of vast wealth by institutional investors (i.e., pension and
insurance funds), and by rich and super-rich individuals, has made money
management a vital business. (For individuals, the departments are called
“private banking” or “private client.” ) Investment banks compete with one
another, and with large commercial banks and specialized money management
firms in accumulating assets under management. Hundreds of billions of
dollars are at stake.

Alternative Investments
The investments in financial products other than exchange-traded stocks and
bonds have become a huge business, such as private equity, real estate,
arbitrage, international, and the like. The development of funds under
management, including private equity and hedge funds, has increased
dramatically, and investment banks both develop their proprietary products and
sell others.
Public / Government Finance The raising of money for governments
(“sovereigns”) at all levels: national governments, state governments, county
and municipal governments. Also included is working with national
governments in the privatization of government assets.
Public Trading of Debt and Equity Securities
Most large investment banks maintain strong trading capabilities, which is a
significant though volatile profit centre – profits are made both from
commissions generated by trading for clients and from capital appreciation
generated by trading for the firm’s own account. Investment banks act as
brokers, dealers, and market makers (which can differ for different securities).
In addition to traditional stocks and bonds, money market instruments and

commodities (e.g., gold, silver, coffee, crude oil, various metals, various
foods), investment banks create “synthetic securities” (e.g., striped Treasuries,
interest only and principal only instruments), which by appealing to different
investors, enhance the risk-return for all.
Brokers are commissioned agents who represent either buyers or sellers and
work much as do real estate agents; they carry no securities in inventory and
therefore assume no risk in price variation or interest-charge. Dealers set bid-
and-ask prices for each security they offer for trade; by maintaining an
inventory of securities, dealers assume a price risk since the market may go up
or down during the time they hold the securities. Market Makers establish (and
support) the entire market for a security on either side of a transaction. Brokers
and dealers are regulated by the various exchanges of which they are members
and the National Association of Securities Dealers (NASD), which is the self-
regulating organization to which they all belong.
Investment Research and Security Analysis For decades, the research
capabilities of an investment bank’s security analysts were often the firm’s
most prestigious and visible strength. (More recently, M&A, IPOs, LBOs, and
private equity / hedge funds have usurped the limelight.) Indeed, many
investment banks used the reputation derived from their investment analysis
expertise to develop underwriting and money management businesses. Typical

subdivisions are Global Equities and Fixed-Income. Today, after various
scandals and prosecutions, investment banks must enforce strict
compartmentalization between their corporate finance and investment research
departments (the so-called “Chinese Wall”).
CHAPTER 7
CORE INVESTMENT BANKING ACTIVITIES
Investment banking has changed over the years, beginning as a partnership
form focused on underwriting security issuance, i.e. initial public offerings
(IPOs) and secondary offerings, brokerage, and mergers and acquisitions, and
evolving into a "full-service" range including securities research, proprietary
trading, and investment management. In the modern 21st century, the SEC
filings of the major independent investment banks such as Goldman Sachs and
Morgan Stanley reflect three product segments:
Investment banking (fees for M&A advisory services and securities
underwriting);
Asset management (fees for sponsored investment funds), and Trading and
principal investments (broker-dealer activities including proprietary trading
("dealer" transactions) and brokerage trading ("broker" transactions).

In the United States, commercial banking and investment banking were
separated by the Glass–Steagall Act, which was repealed in 1999. The repeal
led to more "universal banks" offering an even greater range of services. Many
large commercial banks have therefore developed investment banking
divisions through acquisitions and hiring. Notable large banks with significant
investment banks include JPMorgan Chase, Bank of America, Credit Suisse,
Deutsche Bank, Barclays, and Wells Fargo. After the financial crisis of
2007–2008 and the subsequent passage of the Dodd-Frank Act of 2010,
regulations have limited certain investment banking operations, notably with
the Volcker Rule's restrictions on proprietary trading.
The traditional service of underwriting security issues has declined as a
percentage of revenue. As far back as 1960, 70% of Merrill Lynch's revenue
was derived from transaction commissions while "traditional investment
banking" services accounted for 5%. However, Merrill Lynch was a relatively
"retail-focused" firm with a large brokerage network.

I. FRONT OFFICE
Front office is generally described as a revenue generating role.
There are two main areas within front office:
Investment Banking and Markets, which includes: Sales; Trading; Research;
Structuring. Investment Banking involves advising the world's largest
organizations on mergers, acquisitions, as well as a wide array of fund raising
strategies. This is, on average, the most prestigious and highest paid
department in the bank with first year analysts typically making £60,000
upwards (depending on individual, team and firm performance).
Markets are then split into further divisions; sales, trading, some research and
also structuring. Though the average investment banker will make considerably
more than the average trader, the best trader will make significantly more than
the best investment banker.
INVESTMENT BANKING
Corporate finance is the traditional aspect of investment banks which also

involves helping customers raise funds in capital markets and giving advice
on mergers and acquisitions (M&A). This may involve subscribing investors to
a security issuance, coordinating with bidders, or negotiating with a merger
target. Another term for the investment banking division is corporate finance,
and its advisory group is often termed "mergers and acquisitions". A pitch
book of financial information is generated to market the bank to a potential
M&A client; if the pitch is successful, the bank arranges the deal for the client.
The investment banking division (IBD) is generally divided into industry
coverage and product coverage groups. Industry coverage groups focus on a
specific industry – such as healthcare, public finance (governments), FIG
(financial institutions group), industrials, TMT (technology, media, and
telecommunication) – and maintains relationships with corporations within the
industry to bring in business for the bank. Product coverage groups focus on
financial products – such as mergers and acquisitions, leveraged finance,
public finance, asset finance and leasing, structured finance, restructuring,
equity, and high-grade debt – and generally work and collaborate with industry
groups on the more intricate and specialized needs of a client. The Wall Street
Journal, in partnership with Dialogic, publishes figures on investment banking
revenue such as M&A in its Investment Banking Scorecard.
SALES AND TRADING

On behalf of the bank and its clients, a large investment bank's primary
function is buying and selling products. In market making, traders will buy
and sell financial products with the goal of making money on each trade. Sales
is the term for the investment bank's sales force, whose primary job is to call
on institutional and high-net-worth investors to suggest trading ideas (on a
caveat emptor basis) and take orders. Sales desks then communicate their
clients' orders to the appropriate trading desks, which can price and execute
trades, or structure new products that fit a specific need. Structuring has been a
relatively recent activity as derivatives have come into play, with highly
technical and numerate employees working on creating complex structured
products which typically offer much greater margins and returns than
underlying cash securities. In 2010, investment banks came under pressure as a
result of selling complex derivatives contracts to local municipalities in Europe
and the US. Strategists advise external as well as internal clients on the
strategies that can be adopted in various markets. Ranging from derivatives to
specific industries, strategists place companies and industries in a quantitative
framework with full consideration of the macroeconomic scene. This strategy
often affects the way the firm will operate in the market, the direction it would
like to take in terms of its proprietary and flow positions, the suggestions
salespersons give to clients, as well as the way structures create new products.
Banks also undertake risk through proprietary trading, performed by a special
set of traders who do not interface with clients and through "principal
risk"—risk undertaken by a trader after he buys or sells a product to a client
and does not hedge his total exposure. Banks seek to maximize profitability for
a given amount of risk on their balance sheet. The necessity for numerical
ability in sales and trading has created jobs for physics, computer science,
mathematics and engineering Ph.D.’s who act as quantitative analysts.
RESEARCH
The equity research division reviews companies and writes reports about their
prospects, often with "buy" or "sell" ratings. Investment banks typically

have
sell-side analysts which cover various industries. Their sponsored funds or
proprietary trading offices will also have buy-side research. While the research
division may or may not generate revenue (based on policies at different
banks), 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 (such as
institutional investors and high net worth individuals) in the hopes that these
clients will execute suggested trade ideas through the sales and trading
division of the bank, and thereby generate revenue for the firm. Research also
covers credit research, fixed income research, macroeconomic research, and
quantitative analysis, all of which are used internally and externally to advise
clients but do not directly affect revenue. All research groups, nonetheless,
provide a key service in terms of advisory and strategy. There is a potential
conflict of interest between the investment bank and its analysis, in that
published analysis can affect the bank's profits.
RISK MANAGEMENT
Risk management involves analyzing the market and credit risk that an
investment bank or its clients take onto their balance sheet during transactions
or trades. Credit risk focuses around capital markets activities, such as loan
syndication, bond issuance, restructuring, and leveraged finance. Market risk
conducts review of sales and trading activities utilizing the VaR model and
provides hedge-fund solutions to portfolio managers. Other risk groups include
country risk, operational risk, and counterparty risks which may or may not
exist on a bank to bank basis. Credit risk solutions are key part of capital
market transactions, involving debt structuring, exit financing, loan
amendment, project finance, leveraged buy-outs, and sometimes portfolio
hedging. Front office market risk activities provide service to investors via
derivative solutions, portfolio management, portfolio consulting, and risk
advisory. Well-known risk groups in JPMorgan Chase, Goldman Sachs and
Barclays engage in revenue-generating activities involving debt structuring,
restructuring, loan syndication, and securitization for clients such as corporate,

governments, and hedge funds. J.P. Morgan IB Risk works with investment
banking to execute transactions and advise investors, although its Finance &
Operation risk groups focus on middle office functions involving internal, non-
revenue generating, operational risk controls. Credit default swap, for
instance, is a famous credit risk hedging solution for clients invented by J.P.
Morgan's Blythe Masters during the 1990s.The Loan Risk Solutions group
within Barclays' investment banking division and Risk Management and
Financing group housed in Goldman Sach's securities division are client-driven
franchises. However, risk management groups such as operational risk, internal
risk control, legal risk, and the one at Morgan Stanley are restrained to internal
business functions including firm balance-sheet risk analysis and assigning
trading cap that are independent of client needs, even though these groups may
be responsible for deal approval that directly affects capital market activities.
Risk management is a broad area, and like research, its roles can be client-
facing or internal.
II. MIDDLE OFFICE

This area of the bank includes treasury management, internal controls, and
internal corporate strategy.
Corporate treasury is 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 the
finance division is the principal adviser to senior management on
essential areas such as controlling the firm's global risk exposure and the
profitability and structure of the firm's various businesses via dedicated
trading desk product control teams. In the United States and United
Kingdom, a financial controller is a senior position, often reporting to
the chief financial officer. Internal corporate strategy tackling firm
management and profit strategy, unlike corporate strategy groups that
advise clients, is non-revenue regenerating yet a key functional role
within investment banks.
This list is not a comprehensive summary of all middle-office functions
within an investment bank, as specific desks within front and back
offices may participate in internal functions.

III. BACK OFFICE
OPERATIONS
This involves data-checking trades that have been conducted, ensuring
that they are not wrong, and transacting the required transfers. Many
banks have outsourced operations. It is, however, a critical part of the
bank.
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. Some
trades are initiated by complex algorithms for hedging purposes.
Firms are responsible for compliance with government regulations and
internal regulations.
OTHER BUSINESSES
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, as well as risky, as seen in the "run on the

bank" with Bear Stearns in 2008.
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 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 can be called "very personal banking"; merchant
banks offer capital in exchange for share ownership rather than loans,
and offer advice on management and strategy. Merchant banking is also
a name used to describe the private equity side of a firm. Current
examples include Defoe Fournier & Cie. and JPMorgan's One Equity
Partners and the original J.P. Morgan & Co. Rothschild’s, Barings,
Warburg’s and Morgan’s were all merchant banks. (Originally,
"merchant bank" was the British English term for an investment bank.)
ORGANIZATIONAL STRUCTURE
Investment banking is split into front office, middle office, and back
office activities. While large service investment banks offer all lines of
business, both "sell side" and "buy side", smaller sell-side investment
firms such as boutique investment banks and small broker-dealers 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 securities on the open
market, an activity very important to an investment bank's reputation.
Therefore, investment bankers play a very important role in issuing new
security offerings
CHAPTER 8
INDUSTRY PROFILE
There are various trade associations throughout the world which represent the
industry in lobbying, facilitate industry standards, and publish statistics. The
International Council of Securities Associations (ICSA) is a global group of
trade associations.
In the United States, the Securities Industry and Financial Markets Association
(SIFMA) is likely the most significant; however, several of the large
investment banks are members of the American Bankers Association
Securities Association (ABASA)[13] while small investment banks are
members of the National Investment Banking Association (NIBA).
In Europe, the European Forum of Securities Associations was formed in 2007
by various European trade associations. Several European trade associations
(principally the London Investment Banking Association and the European
SIFMA affiliate) combined in 2009 to form Association for Financial Markets
in Europe (AFME).
In the securities industry in China (particularly mainland China), the
Securities Association of China is a self-regulatory organization whose
members are largely investment banks.

GLOBAL SIZE AND REVENUE MIX
Global investment banking revenue increased for the fifth year running in
2007, to a record US$84.3 billion, which was up 22% on the previous year and
more than double the level in 2003. Subsequent to their exposure to United
States sub-prime securities investments, many investment banks have
experienced losses. As of late 2012, global revenues for investment banks were
estimated at $240 billion, down about a third from 2009, as companies pursued
less deals and traded less. Differences in total revenue are likely due to
different ways of classifying investment banking revenue, such as subtracting
proprietary trading revenue.
In terms of total revenue, SEC filings of the major independent investment
banks in the United States show that investment banking (defined as M&A
advisory services and security underwriting) only made up about 15-20% of
total revenue for these banks from 1996 to 2006, with the majority of revenue
(60+% in some years) brought in by "trading" which includes brokerage
commissions and proprietary trading; the proprietary trading is estimated to
provide a significant portion of this revenue.
The United States generated 46% of global revenue in 2009, down from 56%
in 1999. Europe (with Middle East and Africa) generated about a third while
Asian countries generated the remaining 21%. The industry is heavily
concentrated in a small number of major financial centers, including City of

London, New York City, Frankfurt, Hong Kong and Tokyo.
According to estimates published by the International Financial Services
London, for the decade prior to the financial crisis in 2008, M&A was a
primary source of investment banking revenue, often accounting for 40% of
such revenue, but dropped during and after the financial crisis. Equity
underwriting revenue ranged from 30% to 38% and fixed-income underwriting
accounted for the remaining revenue.
Revenues have been affected by the introduction of new products with higher
margins; however, these innovations are often copied quickly by competing
banks, pushing down trading margins. For example, brokerages commissions
for bond and equity trading is a commodity business but structuring and
trading derivatives has higher margins because each over-the-counter contract
has to be uniquely structured and could involve complex pay-off and risk
profiles. One growth area is private investment in public equity (PIPEs,
otherwise known as Regulation D or Regulation S). Such transactions are
privately negotiated between companies and accredited investors.
Banks also earned revenue by securitizing debt, particularly mortgage debt
prior to the financial crisis. Investment banks have become concerned that
lenders are securitizing in-house, driving the investment banks to pursue

vertical integration by becoming lenders, which is allowed in the United States
since the repeal of the Glass-Steagall Act in 1999
CHAPTER 9
TOP 10 BANKS
List of investment banks
The ten largest investment banks as of are as follows (by total fees from all
advisory). The list is just a ranking of the advisory arm of each bank and does
not include the generally much larger portion of revenues from sales and
trading and asset management.
Rank Bank Name Founded Headquarter Revenue
1 J.P. Morgan &
Co.
2000 270 Park Avenue, Manhattan, New
York, New York, U.S.
US$ 94.20 billion

2 Bank of
America
Merrill Lynch
2009 Bank of America Tower, New
York City, United States
US$ 85.11 billion
3 Goldman
Sachs
1869 200 West Street, New York, New
York, U.S.
US$ 40.08 billion
4 Morgan
Stanley
1935 Morgan Stanley Building, New
York City, New York, U.S.

US$ 34.3 Billio
5 Citigroup 1812 399 Park Avenue, Manhattan, New
York City, New York, U.S.
US$ 76.88 billion
6 Deutsche
Bank
1870 Deutsche Bank Twin Towers,
Taunusanlage 12 Frankfurt
Hesse, Germany
EUR 31.95 billion
7 Credit Suisse 1856 Paradeplatz 8 Zurich, Switzerland CHF 25.22 billion
8 Barclays 1690 Canary Wharf, London, United
Kingdom
EUR 25.288
billion
9 Wells Fargo 1852 San Francisco, California, U.S. US$ 84.3 billion
10 UBS 1854 Bahnhofstrasse 45 Zürich,
Switzerland
CHF63.526 billion
World's biggest banks are ranked for M&A advisory, syndicated loans, equity
capital markets and debt capital markets.
The Financial Times, The Wall Street Journal and Bloomberg often cover
mergers and acquisitions and capital markets. League tables are also available:
Investment Banking Review, The Financial Times.
Investment Banking Scorecard, The Wall Street Journal.
Global M&A Financial Advisory Rankings, Bloomberg.
Global Capital Markets League Tables, Bloomberg.
CHAPTER 10
FINANCIAL CRISIS OF 2008
The 2008 financial credit crisis led to the notable collapse of several banks,
notably including the bankruptcy of large investment bank Lehman Brothers
and the hurried sale of Merrill Lynch and the much smaller Bear Stearns to
banks which effectively rescued them from bankruptcy. The entire financial
services industry, including numerous investment banks, was rescued by
government loans through the Troubled Asset Relief Program (TARP).
Surviving U.S. investment banks such as Goldman Sachs and Morgan Stanley
converted to traditional bank holding companies to accept TARP relief. Similar
situations occurred across the globe with countries rescuing their banking
industry. Initially, banks received part of a $700 billion TARP intended to
stabilize the economy and thaw the frozen credit markets. Eventually, taxpayer
assistance to banks reached nearly $13 trillion, most without much scrutiny,
lending did not increase and credit markets remained frozen.
The crisis led to questioning of the business model of the investment bank
without the regulation imposed on it by Glass-Steagall. Once Robert Rubin, a
former co-chairman of Goldman Sachs, became part of the Clinton
administration and deregulated banks, the previous conservatism of
underwriting established companies and seeking long-term gains was replaced

by lower standards and short-term profit. Formerly, the guidelines said that in
order to take a company public, it had to be in business for a minimum of five
years and it had to show profitability for three consecutive years. After
deregulation, those standards were gone, but small investors did not grasp the
full impact of the change.
A number of former Goldman-Sachs top executives, such as Henry Paulson
and Ed Liddy were in high-level positions in government and oversaw the
controversial taxpayer-funded bank bailout. The TARP Oversight Report
released by the Congressional Oversight Panel found that the bailout tended to
encourage risky behaviour and "corrupted the fundamental tenets of a market
economy".
Under threat of a subpoena, Goldman Sachs revealed that it received $12.9
billion in taxpayer aid, $4.3 billion of which was then paid out to 32 entities,
including many overseas banks, hedge funds and pensions. The same year it
received $10 billion in aid from the government, it also paid out multi-million
dollar bonuses; the total paid in bonuses was $4.82 billion. Similarly, Morgan
Stanley received $10 billion in TARP funds and paid out $4.475 billion in
bonuses.
CHAPTER 11
MAJOR INVESTMENT BANKS IN INDIA
An investment bank is a financial institution that assists individuals,
Corporations and governments in raising capital by underwriting and/or acting
as the client’s agent in the issuance of securities eg: IPO/ FPO work is handled
by investment banks. An investment bank also assist companies in mergers and
acquisitions, and provide ancillary services such as market making, trading of
derivatives, fixed income instruments, foreign exchange, commodities, and
equity securities.
The following is the list of major indian investment banks based out of India.
Avendus
Avendus is an investment bank based in India with offices in Mumbai and
Bangalore. The firm was founded in 1999 by three investment bankers Ranu
Vohra, Gaurav Deepak and Kaushal Kumar, who had worked for large global
financial institutions and wanted to offer knowledge and research oriented
capital raising and M&A solutions to international firms with a strong India
connection.
Website url: http://www.avendus.com

Bajaj Capital
Bajaj Capital’s Investment Banking Service is a step ahead in that direction.
Bajaj Capital offers you unparalleled capital raising solutions for your
business. With over 120 offices in 50 cities all over the country and a network
of over 10,000 Advisor Associates, we can connect you to potential investors
all over the country.
Barclays India
Barclays unveiled its Global Retail and Commercial Banking division in India
over the past year as part of its plan to be a leading global bank. In a very short
time, Barclays is already making waves in one of the world’s fastest growing
countries.
web site url: http://www.barclays.in
Cholamandalam Investment & Finance Company
Cholamandalam Investment & Finance Company Limited is the financial
services arm of the USD 880 million Murugappa Group. Incorporated in 1978,
it is one of the leading Financial Services Company in the country. The

products and services include vehicle finance, capital market finance, mutual
funds, securities broking, depository services, and insurance and distribution
services. web site url: http://www.cholamandalam.com/
ICICI Securities Ltd
A subsidiary of ICICI Bank – the largest and most recognized private bank in
India ICICI Securities Ltd is premier Indian Investment Bank, with a dominant
position in its core segments of its operations – Corporate Finance including
Equity Capital Markets Advisory Services, Institutional Equities, Retail and
Financial Product Distribution.
Website url: http://www.icicisecurities.com/
ICRA Limited
ICRA Limited (an Associate of Moody’s Investors Service) was incorporated
in1991 as an independent and professional company. ICRA is a leading
provider of investment information and credit rating services in India. ICRA’s
major shareholders include Moody’s Investors Service and leading Indian
financial institutions and banks.\
Website url: http://www.icra.in

IDFC
IDFC’s mission is to be the financier and advisor of choice for infrastructure in
India. IDFC is positioned as a special financial institution which is focused on
project finance and investment banking activities in infrastructure. Going
forward, IDFC will focus on establishing stable fee revenues from innovative
infrastructure initiatives in financial markets, asset management, project
development and advisory along with growing its balance sheet at a significant
pace. Website url: http://www.idfc.com/
IDFC Private Equity.
IDFC Private Equity (IDFC PE) was set up in 2002 as a 100% subsidiary of
the Infrastructure Development Finance Company (IDFC). IDFC PE manages
two funds with a current corpus of INR 1,734 crore (USD 400 million). – India
Development Fund and IDFC Private Equity Fund II. Both these funds provide
growth capital to promising enterprises in the area of infrastructure in India.
web site url: http://www.idfcpe.com/
Industrial Development Bank of India

The Industrial Development Bank of India (IDBI) was established in 1964
under an Act of Parliament. It was initially set up as a wholly owned subsidiary
of the Reserve Bank of India (RBI) with a mandate of providing credit and
other facilities for balanced industrial development. In 1976, the ownership of
IDBI was transferred to the Government of India and it was accorded the status
of principal financial institution in the country for co-ordinating the working of
institutions, engaged in financing, promoting and developing industry, and also
assisting in the development of such institutions. Following amendment to
IDBI Act in October 1994 to permit public ownership up to 49% of its issued
capital, IDBI went in for a public issue in July 1995. The shareholding of
Government of India in IDBI currently stands at 58.47%. web site url:
http://www.idbi.com
Tata Investment Corporation Limited (TICL)
TICL is a non-banking financial company (NBFC) registered with the Reserve
Bank of India under the ‘Investment Company’ category. The company’s
activities comprise primarily of investing in long-term investments in equity
shares and other securities of companies in a wide range of industries. The
major sources of income for the company consist of dividend income and
profit on sale of investments.
web site url: http://www.tata.com/tata_investment
Kotak Mahindra Capital Company
As a full service Investment Bank, Kotak Investment Baking’s core business
areas include Equity Issuances, Mergers & Acquisitions, Advisory Services
and Fixed Income Securities and Principal Business.
web site url: http://www.kmcc.co.in/
Industrial Finance Corporation of India (IFCI)
IFCI, the first Development Finance Institution in India, was set up in 1948, as
a Statutory Corporation, to pioneer institutional credit to medium and large
industries IFCI was also the first institution in the financial sector to be
converted into a Public Limited Company. IFCI’s record of performance has
broadly run parallel to the course of industrial and economic development of
the nation. IFCI’s principal operations include – Project financing, Financial
services & Comprehensive corporate advisory services web site url:
http://www.ifciltd.com/
Kotak Investing Banking
Kotak Mahindra Capital Company (KMCC) helps leading Indian corporations,
banks, financial institutions and government companies access domestic and

international capital markets. KMCC has the most current understanding of
investor appetite, having been the leading book runner/lead manager in public
equity offerings in the period FY 2002-06.web site url: http://www.kmcc.co.in
SBI Capital Markets
SBI Capital Markets Ltd. is amongst the oldest players in the Indian Capital
Market, offering an entire range of Investment Banking Services. With strong
fund mobilization strengths, we are one of the leading players in the areas of
fund raising through Capital Market Issues / Private Placement.
web site url: http://www.sbicaps.com/
Yes Bank
Yes Bank’s Investment Banking group is involved in the identification,
structuring and execution of transactions for our clients in diverse industries
and geographies. Some of the typical transactions include mergers &
acquisitions, divestitures, private equity syndication and IPO advisory.
S.E Investments Limited

SEIL’s philosophy on corporate governance envisages commitment to ensure
customer satisfaction through better services. The company is committed to
good corporate governance & continuously reviews various relationship
measures with a view to enhance shareholder’s value. SEILprovides detailed
information on various issues concerning the company’s business and financial
performance. SEIL respects the rights of its share holders to information on
performance of the company and believes that the best corporate governance
promotes transparency and helps mitigate the risks associated with the
business. web site url: http://www.seil.in
SSKI Group
SSKI is a leading India-based financial services group that offers Institutional
Equities and Investment Banking services. SSKI Investment Banking is a full-
service investment bank with a strong research bias. Our team members bring
deep domain knowledge, spanning a number of sectors, that we are able to
leverage to meet the varied corporate finance needs of our clients. We provide
a full range of services, from private placements of equity and debt, public
offerings, project advisory to mergers and acquisitions.
web site url: http://www.sski.co.in/

Small Industries Development Bank of India
Small Industries Development Bank of India (SIDBI) was established in April
1990 under an Act of Indian Parliament. SIDBI has completed 12 years of
service to the small scale sector. Consequent upon, amendment in the SIDBI
Act, the Bank has been delinked from SIDBI with effect from March 27, 2000.
The SIDBI (Amendment) Act, 2000 has changed the provisions relating to
capital structure, share holding pattern, management, business, borrowings, etc.
The amended Act provides for divesting of 51% of the equity share capital of
Rs.4.5 billion Subscribed and held by IDBI in favour of Life Insurance
Corporation of India, General Insurance Corporation of India, Public Sector
Banks and other Institutions owned or controlled by the Government of India.
web site url: http://www.sidbi.com/
UTI Securities Ltd
UTI Securities Ltd., was promoted as an independant professional entity in
June 1994. With the repealing of Unit Trust of India (UTI) Act, the entire share
capital of UTISEL is now held by Administrator of specified undertaking of
Unit Trust of India since 1st February 2003. UTISEL has been providing all
kinds of Investment related activities which include investment banking and

corporate advisory services.
web site url: http://www.usectrade.com/
CHAPTER 12
ROLE/CHALLANGES OF INVESTMENT BANKING
COMPANISE IN INDIA
Investment banking companies generally help their client’s to access capital
through equity, debt, and others kinds of investment products. These firm also
trade in equity and derivative products and also help companies with merger
and acquisition deals.
About a couples of years back, when a world economy was reeling under a
recession, many investment banking 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 skeptices writing off the revival of those firms.
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 may have theorized that all investment banking product and
services would be commoditized. New product with higher margin are
constantly invented and manufactured by bankers in hopes of winning over
clients and developing trading known-who 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 and trading derivatives retains 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-the-counter 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 banking industry has come from
proprietary trading, where size creates a positive network of benefit. The fast
growing segments of the investment banking industry are private investment in
public companies. Such transactions are privately negotiated between
companies and accredited investors.

CHAPTER 13
FUTURE OF INVESTMENT BANKING
Investment banking has always been very crucial for smooth flow of market
transaction between various investors, companies, firms and the government.
These banks will have a role to play even in future, irrespective of the
economic conditions in the country.
1.Claw-backProvisions
In order to make the volatile market of investment banking more secured from
crashes caused by imprudent individual traders or groups, banks may tighten
up the claw-back provisions. This provision requires those whose trades cause
subsequent losses, to pay back all or part of their bonuses. However, this might
result in the transition of traders from big names to less well-known boutiques,
in order to avoid scrutiny.
2. Emphasis on Equity Derivatives and Currency trading
An equity derivative is an instrument used by investors to hedge the risks

associated with taking a position in stocks. It consists of underlying assets
based on equity securities and limits the losses incurred by either a short or
long position in a company's shares. In order to derive more benefits,
investment banks will be emphasizing more on currency trading, interest-rate
products, equity derivatives and corporate restructuring.
3. Fewer big banks and more small boutiques
As the giant investment banks faced heavy losses, which in turn affected the
government and investors, in future there will be fewer big banks and more
boutiques. This will force the big shot investment banks to be careful about
their position, as they will face stiff competition from small firms. In any case,
the charm of investment banks is something which will not decrease in near
future.
4. Lesser Dependence on Short-Term Funding
Considering the negative impact of the aggressive strategies of investment
banks, in future, there might be lesser dependence on short-term funding and
high leverage. As the investment banks are largely financed with short-term
funding, a massive asset/liability mismatch is created which is difficult to

manage. It is also probable that more investment banks will be pushed into the
arms of banking acquirers with large and stable deposit bases. This will
provide solution to the investment banks which are generally financed for the
good times, not the bad ones.
CHAPTER 14
CONCLUSION
The investment banker plays a vital role in channelizing the financial surplus
of the society into productive investment avenues. Hence before selecting a
investment banker, one must decide what the services for which he is being
approached are. Selecting the right Intermediary who has the necessary skills
to meet the requirements of the client will ensure success.
It can be said that this project helped me to understand every details about
Investment Banking and in future how it’s going to get emerged in the Indian
economy. Hence, Investment Banking can be considered as essential financial
body in Indian financial system.
Market development is predicated on a sound, fair and transparent regulatory

framework. To sustain the growth of the market and crystallize the growing
awareness and interest into a committed, discerning and growing awareness
and interest into an essential to remove the trading malpractice and structural
inadequacies prevailing in the market, and provide the investors an organized,
well regulated market place in future.
CHAPTER 15
BIBLIOGRAPHY
PRINCIPLES OF INVESTMENT – VIPUL PRAKASHAN
WEBILOGRAPHY
www.economictimes.com
www.wikipedia.com
www.sebi.com
www.managementparadise.com
www.scribd.com
www.indiastat.com
www.jpmorgan.com
www.wallstreetprep.com/knowledge/about-investment-banking
www.investopedia.com
www.morganstanley
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INTRODUCTION

An investment bank is a financial institution that assists individuals,corporations, and

Investopedia explains Investment Banking’

THE HISTORY OF INVESTMENT BANKING

In light of the repeal of negotiated rates in 1975, trading commissions collapsed

and trading profitability declined. Research-focused boutiques were squeezed

derivatives, high yield an structured products, which provided lucrative returns

business overrun by commercial banks. Eventually, Glass-Steagall did crumble,

B.COM (FINANCIAL MARKETS) 6 | Page

Vanities” and movie-maker Oliver Stone in “Wall Street” focused on

down, an IPO boom dominated the perception of investment bankers. In 1999,

-- with most going public in the internet sector.

The enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999

effectively repealed the long-standing prohibitions on the mixing of banking

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INVESTMENT BANKING HISTORY IN THE 20TH CENTURY

In the mid-20th century, large investment banks were dominated by the

dealmakers. Advising clients on mergers and acquisitions and public offerings

from proprietary trading. Advances in computing technology also enabled banks

a profit on small changes in market conditions.

corporate raider Gordon Gekko and epitomized corporate greed.

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string of new legislation to prevent conflicts of interest within investment banks.

Investment banking research analysts had been actively promoting stocks to

investors while privately acknowledging they were not attractive investments. In

hopes of attracting them as investment banking clients and handling potentially

lucrative initial public offerings.

with an overreliance on sub-prime mortgage lending trigged a cascade of crises.

under the weight of failed mortgage-backed securities. In March, 2008, the

Federal government began using a variety of taxpayer-funded bailout measures

fully regulated by the Federal Reserve.

and the dominance of U.S. investment banking organizations throughout the

sovereign capital is changing the landscape of the industry.

in developing countries such as India, China and the Middle East.

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EVOLUTION OF INVESTMENT BANKING IN INDIA

houses followed suit by establishing managing agencies which acted as issue

belonged. A few small brokers also started rendering Merchant banking

rendering these services. The foreign banks monopolized merchant banking

of this with concern and recommended setting up of merchant banking

institutions by commercial banks and financial intuitions. State bank of India

ventured into this business by starting a merchant banking bureau in 1972. In

services. JM finance was set-up by Mr. Nimesh Kampani as an exclusive

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public and private sector were found to be involved in various irregularities.

problem was substantially resolved. There was a phenomenal surge of activity

little or no expertise in merchant banking. These players could hardly afford to

dubious credentials. The huge losses suffered by investors in these securities

energy resulted in synergies as their individual strength complemented each

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TYPES OF PLAYERS IN INVESTMENT BANKING

areas like underwriting, distribution, M&amp;A, brokerage, structured

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.

B.COM (FINANCIAL MARKETS) 12 | Page

These are the type of players which specialist in particular areas of

Asset Management Firms

These firms offer on investment services. This includes activities like

management depending on the type of investors, tenure of corpus,

purpose of investments, type of instrument invested in etc.

B.COM (FINANCIAL MARKETS) 13 | Page

SKILLS SUGGESTED FOR INVESTMENT BANKERS

the skill requirements have multiplied. Consequently, investment banks find it

One of the major benefits for a professional in an investment bank is the

core while handling a complicated deal. Comprehensive and in-depth

knowledge of financial and business concepts are essential to sustain business.

areas like underwriting, distribution, M&A, brokerage, structured

investment belongs to must be explained in simple & easily understandable

to be identified for complex problem. Innovations & creativity are required

industry. An attitude for creating, establishing & maintaining relationships,

during boom & down period, is of utmost importance in getting mandates.