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Flashcards in Test 1 Deck (51)
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1

Boutique banks

Principally M&A, also financial restructuring and money management

2

Retail brokerage firms

Compete with large investment banks in relation to retail client investments and stocks and bonds (also securities firm)

3

Sections of an Investment Bank

a. Investment banking business managed by the Investment Banking Division that principally focuses on capital raising and M&As
b. A sales and trading division managed by the Trading Division that provides investing, intermediating, and risk-management services.
c. An asset management business managed by the Asset Management Division that is responsible for managing the money for individual and institutional investing clients

4

Key product groups

M&A (specialize in a specific industry within the division) and Capital Markets

5

Capital Markets groups

Debt capital markets or equity markets

6

Client coverage bankers

Part of the investment banking division that works directly with the company and focuses on raising capital for a company. They have to become very familiar with the company so that they can optimize the amount of cash and debt on their balance sheet

7

Components of a M&A

Client coverage bankers work with product bankers to execute the transaction. They act as a trusted advisor for the corporate clients in terms of strategic financial decisions

8

M&A Group

Sometimes own separate entity in bank, sometimes combined with client coverage bankers. Parts: sell side, buy side, restructurings or acquisitions that all try to increase shareholder value

9

Trading Division

Contains two parts: Fixed income, currencies, and commodities; and equities

10

Trading Division: FICC

Trades government bonds, corporate bonds, mortgage-related securities, asset-back securities, currency, and commodities (sometimes participate in proprietary trading as well)

11

Trading Division: Equities

Makes markets in and trades equities, equity-related products, and derivatives. Also engage in proprietary trading as well.

12

Capital Markets: Equity Capital Markets

Comprised of bankers who specialize in common stock, convertible security issuance, and equity derivatives. *This group acts as the intermediary between Investment Banking's Division and the Trading Division, which creates competing interests because one side is trying to sell high while the other buy low.*

13

Capital Markets: Debt Capital Markets

Focus on debt financing for corporate and government clients. Divided into investment grade (high rating) and non-investment grade issuers (low rating). They stand between corporate or government issuers and investors.

14

Prime Brokerage business

Most investment banks have this in their business and they provide bundled services such as securities borrowing and lending, etc. They provide investors with a centralized location to clear their securities and finances, while also allowing them to trade with brokers.

15

Principal Investing

The portion of an investment banks that trades their firm's capital to raise money. However, the Dodd-Frank Act only allows banks to have a 3% or less stake in the fund they are investing in within one year.

16

LBO (Leveraged Buyout)

Also known as taking a company private... A form of principal investment where they buy a public company with their capital.

17

Proprietary Trading

Function of the non-client investing portion of an investment bank. This is where banks use large amounts of their capital to invest in the market, competing with large hedge funds. However, the Dodd-Frank act will severely limit their ability to use capital.

18

Asset Management Division

Offers equity, fixed income, alternative investments (hedge funds, real estate, etc.) and money market investment products. They are offered in the forms of mutual funds, private investment funds or separately managed funds. Their is usually a Private Wealth Management team alongside this division as well.

19

Asset Management: Alternative assets

Includes private equity (LBOs and other equity), hedge-fund type investments, and real estate. They often invest some of their own capital alongside their clients.

20

The Securities Act of 1933

Requires that investors receive information about public companies that they are investing in and makes sure that the companies are not deceiving their investors and other fraud

21

Glass Steagall Act (1933)

Limited the underwriting capabilities of commercial banks and separated commercial and investment banks. The FDIC was also created to insure your funds

22

Securities and Exchange Act of 1934

Requires the filing of quarterly and annual reports, that exchanges are overseen by self-regulatory organizations (SROs), created the SEC to look over the public markets, and insider trading is prohibited

23

Gramm-Leach-Bliley Act (1999)

Overturned the separation of investment banks and commercial ones

24

Dodd-Frank Act (2010)

Established warning system for emerging market risks (liquidation/bailout plans), created Consumer Protection Agency to protect consumers and investors, regulates over-the-counter derivatives (CDOs, etc), and restrains proprietary trading by investment banks and limits their stake in directly investing in fund (hedge and private equity)

25

Equity vs. debt financing

Equity financing looks better on the balance sheet, which helps their credit rating, but it may dilute their EPS. Debt financing looks poor on a balance sheet, but has a lower cost of capital.

26

Debt financing options

Investment and non-investment grade bonds, investment grade loans, low-grade loans, asset-back securities, and commercial paper.

27

Asset-backed securities

Debt securities that have interest and principal payments that are backed by underlying cash flows from other assets such as mortgage/auto/student loans or leases.

28

Special purpose vehicles

Third parties who buy banks' asset-backed securities and then resell them to insulate investors from credit risk

29

Equity financing options

IPOs, Follow-on offerings, and convertible securities

30

Follow-on offerings

Companies that want to issue more shares after the IPO has originally been sold