The Business of Investment Banking E-Book

K. Thomas Liaw

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2011

Beschreibung

A comprehensive overview of investment banking for professionals and students The investment banking industry has changed dramatically since the 2008 financial crisis. Three of the top five investment banks in the United States have disappeared, while Goldman Sachs and Morgan Stanley have converted to commercial banking charters. This Third Edition of The Business of Investment Banking explains the changes and discusses new opportunities for students and professionals seeking to advance their careers in this intensely competitive field. The recent financial regulation overhaul, including the Dodd-Frank legislation, is changing what investment banks do and how they do it, while the Volcker rule has shaken up trading desks everywhere. * This new edition updates investment banking industry shifts in practices, trends, regulations, and statistics * Includes new chapters on investment banking in BRIC countries, as Brazil, Russia, India, and China now account for a quarter of the global economy * Explains the shift in the listing of securities away from New York to various financial centers around the world, and how major exchanges compete for the same business This new edition, reflecting the current state of the investment banking industry, arrives in time to better serve professionals wanting to advance their careers and students just beginning theirs.

Leseprobe

Contents

Cover

Contents

Title Page

Copyright

CHAPTER 1: INTRODUCTION TO INVESTMENT BANKING: HOW THE FINANCIAL CRISIS AND REFORMS CHANGED THE INDUSTRY

THE NEW INVESTMENT BANKING

CAUSES OF THE FINANCIAL CRISIS

THE DODD-FRANK ACT AND THE VOLCKER RULE

CONCLUSIONS

CHAPTER 2: NEW INVESTMENT BANKING STRUCTURE: FINANCIAL HOLDING COMPANIES, FULL-SERVICE, AND BOUTIQUE INVESTMENT BANKS

TYPES OF INVESTMENT BANKS

FINANCIAL HOLDING COMPANIES

FULL-SERVICE INVESTMENT BANKS

BOUTIQUE INVESTMENT BANKS

CONCLUSIONS

CHAPTER 3: THE STRUCTURE OF INVESTMENT BANKS: DIVISIONS AND SERVICES

MORGAN STANLEY

GOLDMAN SACHS

CONCLUSIONS

CHAPTER 4: INVESTMENT BANKING STRATEGIES: HOW THEY COMPETE AND PROFIT

FINANCIAL PERFORMANCES AND SUCCESS FACTORS

INVESTMENT BANK REVENUES AND EXPENSES

INVESTMENT BANK FINANCIAL PERFORMANCE

RISK MANAGEMENT

CONCLUSIONS

CHAPTER 5: EMPLOYMENT OPPORTUNITIES IN INVESTMENT BANKING

OVERVIEW OF CAREER PATHS

CAREER OPPORTUNITIES IN INVESTMENT BANKING FUNCTIONS

CAREERS IN INVESTMENT MANAGEMENT AND MERCHANT BANKING

CAREERS IN RELATED FUNCTIONS

CAREERS IN INVESTMENT BANK SUPPORTING FUNCTIONS

INTERVIEW PROCESS

ADVICE FROM GOLDMAN SACHS RECRUITERS

CONCLUSIONS

CHAPTER 6: VENTURE CAPITAL AND PRIVATE EQUITY: DIRECT INVESTING IN COMPANIES

INTRODUCTION TO PRIVATE EQUITY

VENTURE CAPITAL

CHARACTERISTICS OF VC INVESTING

SETTING UP VENTURE CAPITAL OPERATIONS

INVESTING STRATEGY

VENTURE CAPITAL TRANSACTIONS

LEGAL DOCUMENTATION

EXIT STRATEGIES

BUYOUT FUNDS

CONCLUSIONS

CHAPTER 7: MERGERS AND ACQUISITIONS

MARKET OVERVIEW

MOTIVATIONS

STRATEGIC PLANNING AND INTERMEDIARY

VALUATION AND FINANCING

CLOSING AND REGULATORY ISSUES

TAKEOVER DEFENSES

LEGAL CONSIDERATION IN BUYING PUBLIC TARGETS

POSTACQUISITION INTEGRATION

RISK ARBITRAGE

CONCLUSIONS

CHAPTER 8: EQUITY UNDERWRITING AND IPOS

MARKET OVERVIEW

MOTIVATIONS OF ISSUERS

ASSEMBLING THE IPO TEAM

MECHANICS AND PROCESS

TIMETABLE SUMMARY

VALUATION AND PRICING

UNDERWRITING RISK AND COMPENSATION

THE COST OF GOING PUBLIC

SUMMARY OF SEC REGULATIONS

AFTERMARKET TRADING AND RESEARCH

OPENIPO

EXEMPT OFFERINGS

CONCLUSIONS

CHAPTER 9: DEBT UNDERWRITING: ISSUING BONDS

GOVERNMENT SECURITIES MARKETS

TREASURY ISSUING PROCESS AND AUCTION

TRADING AND CLEARING OF TREASURY SECURITIES

AGENCY SECURITIES

MUNICIPAL BOND MARKET

CORPORATE DEBT UNDERWRITING

PRIVATE PLACEMENTS

CONCLUSIONS

CHAPTER 10: ASSET SECURITIZATION: TURNING INCOME STREAMS INTO NEW INVESTMENT VEHICLES

MARKET OVERVIEW

SECURITIZATION STRUCTURE

BENEFITS AND COSTS

MORTGAGE-BACKED SECURITIES

ASSET-BACKED SECURITIES

CONCLUSIONS

CHAPTER 11: LISTING IN NEW YORK, LONDON, AND OTHER MARKETS

AMERICAN DEPOSITARY RECEIPTS

ISSUANCE AND CANCELLATION

TYPES OF DEPOSITARY RECEIPTS FACILITIES

ADVANTAGES OF AMERICAN DEPOSITARY RECEIPTS

U.S. SECURITIES REGULATION OF DEPOSITARY RECEIPTS

LISTING IN LONDON

LISTING IN OTHER MARKETS

CONCLUDING SUMMARY

CHAPTER 12: TRADING: MARKET MAKING, ARBITRAGE, AND BROKERING

INTRODUCTION

MARKET MAKING AND DAY TRADING

ARBITRAGE TRADING

TECHNICAL ANALYSIS

CONCLUSIONS

CHAPTER 13: REPURCHASE AGREEMENTS AND PRIME BROKERAGE

FIXED-INCOME REPURCHASE AGREEMENTS

HISTORICAL DEVELOPMENT OF DELIVERABLE AND TRIPARTY REPOS

MECHANICS OF REPOS AND MARKET PRACTICES

BROKERING AND MATCHED BOOK

CLEARING OF REPOS AND REVERSES

PRIME BROKERAGE

CONCLUSIONS

CHAPTER 14: DERIVATIVES AND FINANCIAL ENGINEERING: FOREIGN EXCHANGE, COMMODITIES, AND INTEREST RATES

OVERVIEW

HIGH-YIELD BONDS

ASSET-BACKED MARKETS

STRUCTURED NOTES

REPURCHASE AGREEMENTS

SWAPS

CREDIT DERIVATIVES

OTHER FINANCIAL ENGINEERING PRODUCTS

CONCLUSIONS

CHAPTER 15: INVESTMENT MANAGEMENT FOR PENSION FUNDS, ENDOWMENTS, AND WEALTHY FAMILIES

INVESTMENT BANKS AND INVESTMENT MANAGEMENT

TYPES OF INVESTMENT MANAGEMENT OPERATIONS

MUTUAL FUNDS

EXCHANGE-TRADED FUNDS

HEDGE FUNDS

REAL ESTATE INVESTMENT TRUSTS

CONCLUSIONS

CHAPTER 16: SECURITIES REGULATION AND ETHICS: THE DODD-FRANK BILL AND OTHER KEY LAWS

INTRODUCTION TO SECURITIES REGULATION

ISSUANCE OF SECURITIES

EXEMPT OFFERINGS

SECONDARY TRADING

INVESTMENT COMPANY AND INVESTMENT ADVISERS

ANALYST CONFLICTS OF INTEREST

SARBANES-OXLEY ACT OF 2002

THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT 

ETHICS

CONCLUSIONS

CHAPTER 17: THE BRICS: INVESTMENT BANKING IN BRAZIL, RUSSIA, AND INDIA

THE BRICS

BRAZIL

RUSSIA

INDIA

CONCLUSIONS

CHAPTER 18: THE BRICS: INVESTMENT BANKING IN CHINA

MARKET OVERVIEW

INVESTMENT BANKS IN CHINA

BOND MARKETS

STOCK MARKETS

INVESTMENT MANAGEMENT

CONCLUSIONS

CHAPTER 19: INVESTMENT BANKING TRENDS AND CHALLENGES

THE INVESTMENT BANKING MARKET TRENDS

CHALLENGES AND OPPORTUNITIES

CONCLUSIONS

INDEX

End User License Agreement

List of Illustrations

Chapter 9: Debt Underwriting: Issuing Bonds

Figure 9.1 A Typical Yield Curve

Figure 9.2 Treasury Issuance Process

Chapter 10: Asset Securitization: Turning Income Streams into New Investment Vehicles

Figure 10.1 Securitization Structure

Figure 10.2 Illustrative Timetable for a Securitization Transaction

Figure 10.3 Annual Prepayment Rates and PSA Benchmark

Chapter 11: Listing in New York, London, and Other Markets

Figure 11.1 ADR Structure

Chapter 12: Trading: Market Making, Arbitrage, and Brokering

Figure 12.1 Support and Resistance

Figure 12.2 Elliott Waves

Chapter 13: Repurchase Agreements and Prime Brokerage

Figure 13.1 Structure of a Typical Deliverable Repo

Figure 13.2 A Triparty Repurchase Agreement Structure

Chapter 14: Derivatives and Financial Engineering: Foreign Exchange, Commodities, and Interest Rates

Figure 14.1 An Interest Rate Swap

Figure 14.2 A Currency Swap

Figure 14.3 A Credit Default Swap

Chapter 15: Investment Management for Pension Funds, Endowments, and Wealthy Families

Figure 15.1 Hedge Fund Structure

List of Tables

Chapter 2: New Investment Banking Structure: Financial Holding Companies, Full-Service, and Boutique Investment Banks

Table 2.1 Business Categories of Financial Holding Companies

Table 2.2 Business Categories of Full-Service Investment Banks

Table 2.3 Specializations of Boutique Investment Banks

Chapter 4: Investment Banking Strategies: How They Compete and Profit

Table 4.1 Revenues from Underwriting and M&A Advisory

Table 4.2 Global Equity Ranking in 2010

Table 4.3 Global IPOs in 2010

Table 4.4 Global Debt Ranking in 2020

Table 4.5 Global M&A Volume Ranking in 2010

Table 4.6 Investment Bank Sources of Revenue ($ Millions)

Table 4.7 Compensation and Benefits ($ Millions)

Table 4.8 Financial Performance of Full-Service Investment Banks

Chapter 6: Venture Capital and Private Equity: Direct Investing in Companies

Table 6.1 U.S. Venture Capital Investments

Table 6.2 U.S. Venture Capital Fundraising

Table 6.3 Venture-Backed Liquidity Events

Chapter 8: Equity Underwriting and IPOs

Table 8.1 IPO Volume

Table 8.2 Main Items Included in the Final Prospectus for Goldman Sachs

Table 8.3 Completed OpenIPO Deals (OpenIPO as Lead Manager)

Table 8.4 Regulation D Exempt Offerings

Chapter 9: Debt Underwriting: Issuing Bonds

Table 9.1 Issuance of Treasury Securities ($ Billions)

Table 9.2 Auction Frequency

Table 9.3 Yield and Quantity of Competitive Bids

Table 9.4 The Municipal Issuance

Table 9.5 U.S. Corporate Bond Issue

Table 9.6 Credit Ratings

Chapter 10: Asset Securitization: Turning Income Streams into New Investment Vehicles

Table 10.1 Value Added through Securitization

Table 10.2 Issuance of Agency Mortgage Securities (in $ Billions)

Table 10.3 Single Monthly Mortality Rate and PSA Benchmark

Table 10.4 U.S. ABS Issuance ($ Billions)

Chapter 11: Listing in New York, London, and Other Markets

Table 11.1 Capital Raised through, and Trading Value of, DRs

Table 11.2 Trends of Sponsored and Listed ADRs

Table 11.3 ADR Filing Requirements and Trading

Chapter 13: Repurchase Agreements and Prime Brokerage

Table 13.1 Average Daily Amount Outstanding for Repos and Reverses ($ billions)

Chapter 14: Derivatives and Financial Engineering: Foreign Exchange, Commodities, and Interest Rates

Table 14.1 Summary of Derivative Market Outstanding Data ($ Trillions)

Chapter 15: Investment Management for Pension Funds, Endowments, and Wealthy Families

Table 15.1 Types of Mutual Funds

Table 15.2 Mutual Fund Industry Net Assets ($ Billion)

Table 15.3 Mutual Fund Investment Strategy Matrix

Table 15.4 Hedge Fund Investment Styles

Chapter 18: The BRICs: Investment Banking in China

Table 18.1 QFIIs

Table 18.2 QFII Custodians

Table 18.3 SSE Number and Sector Distribution of Listed Companies

Table 18.4 Foreign Invested Fund Management Companies

Table 18.5 Domestic Fund Management Companies with Branches in Hong Kong

Guide

Cover

Table of Contents

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THE BUSINESS OF INVESTMENT BANKING

A Comprehensive Overview

Third Edition

K. THOMAS LIAW

Copyright © 2012 by Dr. K. Thomas Liaw. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

Liaw, K. Thomas. The business of investment banking : a comprehensive overview / K. Thomas Liaw. – 3rd ed.    p. cm. Includes index. ISBN 978-1-118-00449-4 (cloth); ISBN 978-1-118-12765-0 (ebk); ISBN 978-1-118-12764-3 (ebk); ISBN 978-1-118-12763-6 (ebk) 1. Investment banking. I. Title.    HG4534.L528 2012    332.66–dc22

2011015864

CHAPTER 1INTRODUCTION TO INVESTMENT BANKING: HOW THE FINANCIAL CRISIS AND REFORMS CHANGED THE INDUSTRY

The investment banking market has experienced dramatic changes since 2008. Three of the top five investment banks in the United States have disappeared, while Goldman Sachs and Morgan Stanley have converted to commercial banking charter. The bankruptcy of Lehman Brothers has also brought about unprecedented quantitative easing in monetary policies in many countries. Recent financial regulation overhaul will have significant impact on what investment banks do and how they operate those activities. The Volcker rule will shake up trading desks. Investment banks such as Goldman Sachs, Morgan Stanley, JPMorgan, Deutsche Bank, and Credit Suisse have reshuffled proprietary trading. Therefore, the investment banking market is very different today.

THE NEW INVESTMENT BANKING

One important lesson from the financial crisis is the need for more effective regulation. The recent financial reform legislation, most notably the Dodd-Frank bill, aims at setting standards for financial operations and preventing another crisis. The reforms focus on several essential areas. The first is to end ``too big to fail.'' Taxpayers should not be protecting the shareholders and bondholders of even the most systemically important financial firms. Instead, these firms should be required to structure themselves so that they can be recapitalized without taxpayer money, and before local problems can spiral into a systemic crisis. Second, financial firms are required to practice consistency. Regulators should require that all assets across financial institutions be similarly valued. Within each financial firm, there needs to be greater consistency and rigor in the way assets are valued and accounted for. Firms should no longer be allowed to move risk around to areas where it will be less rigorously monitored or more generously valued. Third, the regulatory system has more dynamic regulation. Across the board, the regulatory system should be comprehensive and strong enough to identify and constrain excesses in markets, before they can threaten the broader economy.