GROUP 4: INSVESTMENT BANK

summary

I. History of investment banking

II. Définition
III. Investment banking: clients concerned
IV. Investment banking services
V. Particularity of investment banks
VI. Investment Banking Activities
 History of investment banking

The History of Investment Banking Investment banking is the division of a bank or financial institution that serves
governments, corporations and institutions by providing underwriting (capital raising) and mergers and acquisitions
(M&A) advisory services. Investment banks acting as intermediaries in India date back to the time when European
merchant banks established trading houses in the region in the 19th century. Since then, foreign (non-Indian) banks
have dominated investment and merchant banking activities in the country.
In the 1970s, the State Bank of India entered the business by establishing the Bureau of Merchant Banking and ICICI
Securities became the first Indian financial institution to offer merchant banking services.
By 1980, the number of merchant banks had grown to over 30. This growth in the financial services sector included a
rapid expansion of commercial banks Commercial Banking Career Profile A career path in commercial banking involves
providing customers with credit products such as term loans, revolving lines of credit, syndicated facilities, cash
management services and other fixed income products. As a credit analyst or account manager, you provide financial
advice and other financial institutions
 Définition

DEFINITION OF CONCEPTS

The bank, much more than a commercial institution, is intended to be a companion for anyone who has a need related to the sector.

Indeed, depending on the nature of your quest, you can turn to a bank offering specific services. This is why there are investment

banks. Find out here what you need to know. An investment bank is a bank, or a division of a bank, which brings together all the

advisory, intermediation and execution activities relating to so-called equity transactions (IPO, debt issuance, mergers/acquisitions)

of large corporate clients (companies, investors, but also governments, etc.). These activities are generally divided into separate

entities, usually referred to by anglicisms: Corporate Finance, Global Capital Markets and Structured Finance.

Sometimes a distinction is made between investment banking and corporate banking by attributing market activities to the former

and corporate finance activities to the latter. However, the term corporate and investment bank (CIB), which includes both activities,

is becoming more widespread. In France, Société Générale's CIB is called SGCIB, and Crédit Agricole's CIB has been called Crédit

Agricole CIB since February 2010.

 Investment banking: clients concerned

An investment bank's clients are mature companies. It provides services to large companies to assist them in
their various financial operations. It may be a specialised investment bank or a specialised division within a
"traditional" bank.
Investment banking is generally differentiated from merchant banking by the fact that it deals mainly with
market activities, whereas merchant banking deals with finance. But the distinction is very weak and banks
tend to include both types of services.
It supports them in the activities of :
Corporate finance: corporate finance and advisory;
Global capital markets: capital market operations or intermediation;
Structured finance: equity financing operations (IPO, M&A, etc.).
 Investment banking services

An investment bank's clients are mature companies. It provides services to large companies to assist them in
their various financial operations. It may be a specialised investment bank or a specialised division within a
"traditional" bank.
Investment banking is generally differentiated from merchant banking by the fact that it deals mainly with
market activities, whereas merchant banking deals with finance. But the distinction is very weak and banks
tend to include both types of services.
It supports them in the activities of :
Corporate finance: corporate finance and advisory;
Global capital markets: capital market operations or intermediation;
Structured finance: equity financing operations (IPO, M&A, etc.).
 Particularity of investment banks

The clients of investment banks are :

companies ;
investors who want to :
finance themselves ;
invest their cash.
Investment banks therefore do not receive deposits from individuals. They therefore seek
the necessary liquidity from :
other banks (interbank market) ;
money markets (financial markets dedicated to currencies and short-term investments,
very liquid, where large companies operate)
the Central Bank.
Investment banks have a high rate of return, because their activity is risky (and return is
linked to risk).
 INVESTMENT BANKING ACTIVITIES

THE BROKERAGE BUSINESS

THE COUNCIL
FINANCING
 THE BROKERAGE

Investment banks act as brokers for clients in need. In this capacity, they act as intermediaries
between investors and the various stock markets.
INVESTMENT BANKS AS BROKERS CONNECT A CLIENT WHO IS IN A POSITION TO FINANCE
WITH ONE OF THE AGENTS WHO ARE IN NEED OF FINANCING ON THE MARKET
 Financial investments

Banks organise capital increases, IPOs and bond issues, which allow companies and
governments in need of financing to acquire funds by various means

Capital increase: definition

A capital increase is an operation which consists in increasing the amount of a company's share capital. A capital
increase is a form of fundraising, the objective being to obtain additional funds to finance the company.
Forms
Increasing the nominal value of existing shares
A capital increase can be made by increasing the par value of each of the shares that make up the share capital.
This form of capital increase is preferred by family businesses or for companies whose shareholders or partners are
known to the management.

Issuing new shares

A capital increase can take the form of an issue of new shares.
This form of capital increase is favoured by companies listed on the stock exchange.
The first effect of a capital increase by issuing new shares is the dilution of the capital. Indeed, the new shares
issued can be acquired by new investors and this modifies the distribution of capital and therefore the distribution
of voting rights.
 Financial investments

Different types of IPO

In order to go public, a company can use different forms of IPO. The main ones are listed below.
A. Firm Price Offer (FPO)
This is a common procedure for small stocks. With this procedure, the price of the securities is determined in
advance. Only orders corresponding to this price are deemed admissible.
If the introduction is successful, a proportional reduction of orders can be requested. Investors are then served
according to the number of shares initially requested (service rate).
B. The minimum price offer (MPO)
This procedure consists of making a certain quantity of shares available to the public at a given price. Below this
price, the shares will not be sold. It is therefore the investor who assesses the price at which he or she is prepared
to buy the share. Limit orders are the only ones accepted, provided they do not deviate too much from the asking
price.
C. Open price offer (OPO)
In this procedure, a price range for the share is offered to investors. The final price is set within this range
according to the number of orders received and the quantity of shares available. Once all orders are centralised,
only those equal to or higher than the final price will be served.
Good to know: there is also a guaranteed placement procedure for institutional investors. The share price set must
be equal to or higher than the IPO price.
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In this respect, the bank is your guide to making the most advantageous choices.
However, this service is more focused on mergers and acquisitions. As the name
suggests, this is the combination of the activities of two or more companies into one
new entity. This strengthens a company in a market or sector by offering advantages to
all parties.

Mergers and acquisitions: what are we talking about?

Mergers and acquisitions can be worth more than $100 billion.
For example, the combination of Pfizer and Allergan is worth 191 billion US dollars. The combination of
brewers AB Inbev and SAB Miller is equal to US$120 billion).
History has seen several waves of mergers and acquisitions. The last one took place in the second half
of the 1990s, but 2015 was also a record year.
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Merger or acquisition?
In practice, a distinction is made between mergers and acquisitions.
Merger
In the case of a merger, the takeover is total. The target company is swallowed up by the predatory
company. This is known as an absorption merger.
Acquisition
In the case of an acquisition, the legal structure of the target company is preserved even if adjustments
are possible. The objective is less to absorb the target than to take operational control.

What are the different types of mergers and acquisitions?

In an M&A transaction, the target company transfers its assets and liabilities to the acquiring company in
exchange for corporate rights.
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There are three types of mergers and acquisitions: horizontal mergers, vertical mergers and conglomerate
mergers.
A. Horizontal merger
The objective of the company is to increase its market share by taking over a competitor's market share.
The aim is to grow and achieve economies of scale by building on complementarities with the target. The
main difficulty in this operation is to get teams that were in competition to work in unison.
B. Vertical merger
The objective is to take control of part of an economic sector by buying the heavyweights in the sector.
This option allows the predator to reduce its production costs and to better control the distribution of its
products thanks to the possible elimination of intermediaries.
C. Conglomerate merger
This type of operation allows a conglomerate to diversify its activities into other sectors through the
purchase of the leaders.
For example, a company specialising in energy distribution may buy a telecommunications group in order
to gain a foothold in a sector
 Conclusion

To finish we have to return that contrary to traditionall banks, the

investment banks do not collect déposit, does not grant crédit either ?
However, most of its activities take place in the council of large
companies on financial market and espcially the operations of the
high balance sheet