AMITY UNIVERSITY

MADHYA PRADESH

FINANCIAL SERVICES
(BBA 507)

INVESTMENT BANKS

Submitted to: Submitted By:

Naresh Kedia sir Krish Shivhare
Amity Business School BBA – V (C)
 INTRODUCTION

An Investment Bank is a financial intermediary that

mediates between companies that issue securities and
the individuals or entities wishing to purchase them.
Investment banking deals primarily with raising money
for companies, governments, and other entities.
Investment banking is a type of banking that
organizes large, complex financial transactions
such as mergers or initial public offering
(IPO) underwriting. These banks may raise money for
companies in a variety of ways, including underwriting
the issuance of new securities for a corporation,
municipality, or other institution. They may manage a
corporation’s IPO. They will provide advice in mergers,
acquisitions, and reorganizations.
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 act as intermediaries
between investors (who have money to invest)
and corporations (who require capital to grow and run
their businesses)

For example - Bank of America, Barclays Capital,

Citigroup Investment Banking, Deutsche Bank, and JP
Morgan are some of the largest investment banks in India.
Major Players of Investment banks in the Indian Industry
Several big investment banks have set many group
entities in which the core and non-core business
segments are distributed. SBI, IDBI, ICICI, IL&FS, Kotak
Mahindra, Citibank and others offer almost all of the
investment banking activities permitted in the country.

An overview of the regulatory framework is

furnished below:
All investment banks incorporated under the
Companies Act, 1956 are governed by the provisions of
that Act.
Those investment banks that are incorporated under a
separate statute are regulated by their respective
statute. Ex: SBI, IDBI.
Universal banks that function as investment banks are
regulated by RBI under the RBI Act, 1934.
All Non-banking Finance Companies that function as
investment banks are regulated by RBI under RBI Act,
1934.
SEBI governs the functional aspects of Investment
banking under the Securities and Exchange Board of
India Act, 1992.
Those investment banks that carry foreign direct
investments either through joint ventures or as fully
owned subsidiaries are governed by Foreign Exchange
Management Act, 1999 with respect to foreign
investment.
 COMPONENTS

A) Front Office
 The front office is the most visible part of the investment
bank. This is the department which is in charge of
finding new clients. Investment bankers are often known
for having extensive information networks in the industry
they operate. This is the reason that they get prior
knowledge of any impending mergers, acquisitions,
buyouts, or other opportunities to raise capital.
Investment bankers often stay in touch with the top
finance officials of companies so as to be able to pitch
important opportunities to them.
The front office of investment banks also provides buy-
side as well as sell-side services to large investors. This
is because many times, treasury departments of big
companies have excess money which they need to
invest. The finance departments of these companies are
constantly in touch with the front office of investment
banks so as to take advantage of any opportunity
whenever it arises.

B) Middle Office
 The middle office of an investment bank is like a
laboratory. This is where all the financial experiments
are done. The middle office creates many financial
instruments that are then used in the open market.
Financial instruments like complex derivates are
designed here. Also, instruments like mortgage-backed
securities and credit default swaps were designed here.
The concept of tranching in order to enhance the credit
of underlying securities was also developed here.
The middle office is constantly in touch with the front
office in order to understand the needs of the clients.
Based on these needs, they design products that meet
the stated risk-return profile. These products are used
by front office investment bankers to sell over the
counter as well as standardized products. This is the
part where financial innovation takes place. Hence,
investment banks are known for hiring people with
advanced math degrees and quantitative skills

C) Back Office
The back office is the part of the investment bank where
administrative tasks related to trades are done. This part
of the bank is engaged in settlement and clearing of the
trades being undertaken by the front office. They are
also engaged in record maintenance as well as internal
accounting of the firm. The back office also does
important tasks such as ensuring regulatory compliance
with various laws. Lastly, the back office also does the
important work of preparing presentations for the
meetings where the front office is taking part. Investment
banks generally employ people with advanced degrees
in corporate law as well as corporate accounting in this
part of the organization.The middle office and back
office have been sent to the developing countries where
they can be done for a lower price.
D) Proprietary Trading
It is also important to note that there is often a
department within the investment bank that does not
deal with any external parties. Investment banks are
often cash-rich bodies since they generate huge
amounts of cash from their operations. They, too, need
to invest this money in various securities. They often
have proprietary trading desks wherein they employ a
bunch of traders and equity research analysts. In the
recent past, investment banks have also been in the
news for the use of high-frequency trading.
Investment banks have been increasingly turning
towards technology in order to manage their operations
better. This includes the use of bots. There have been
some cases where investment banks have been
infamously blamed for algorithmic trading, which has
crashed the entire market. Other scandals have also
taken place wherein investment banks have co-located
to the location of the exchange. This has been done in
order to obtain information faster than their peers since it
would give them a competitive edge.
 FUNCTIONS OF INVESTMENT BANKING

 Equity Research
This investment banking capital research function is
one of the most important functions of investment
banking. This research helps provide a company rating
to assist investors in their investment decisions.
Research reports tell you whether to buy, sell or hold
based on a company's rating This allows you to
determine the value of the company The research is
carried out by analyzing and comparing various
company reports and performance reports The main
function of investment banks is research and this
research comes in different types like stock research,
fixed income research, macroeconomic research,
qualitative research etc. This stock research function of
investment banks is one of the most important functions
of investment banking. to learn.

 Risk Management
There are various risks such as business risk,
investment risk, legal and compliance risk, and
operational risk that are controlled internally by an
investment bank Investment banks manage risk at all
levels by highlighting risks and showing how to manage
them. An investment bank helps a company manage
financial risk related to currency, credit, liquidity, etc This
bench helps a company identify a losing area.
  IPO (Initial Public Offer)
An initial public offering (IPO) refers to the process of
offering shares of a private corporation to the public in a
new stock issuance. Public share issuance allows a
company to raise capital from public investors.
Companies hire investment banks to underwrite their
IPOs. The underwriters are involved in every aspect of
the IPO due diligence, document preparation, filing,
marketing, and issuance. When a company holds its
initial public offering (IPO), an investment bank will buy
all or much of that company's shares directly from the
company. Subsequently, as a proxy for the company
launching the IPO, the investment bank will sell the
shares on the market.

 Mergers & Acquistions Advisory Services

Mergers and acquisitions (M&A) advisory is the process
of helping corporations and institutions find, evaluate,
and complete acquisitions of businesses. This is a key
function in i-banking. Banks use their extensive
networks and relationships to find opportunities and help
negotiate on their client’s behalf. Bankers advise on both
sides of M&A transactions, representing either the “buy-
side” or the “sell-side” of the deal.
M&A company hires a bank for mergers and
acquisitions.There are two types of roles in M & M&A of
an investment bank: seller representation and buyer
representation.
 A critical role in M&A is the valuation of a company. The
investment bank also does financial provisioning for a
company as M & M&A companies will need lots of
funds. It helps a company in raising funds for M&A.

 Merchant Banking
This investment banking function is one of the personal
activities of the investment bank where the bank also
does consultancy for their clients. It acts as a financial
engineer for business. They provide consultancy in
financial, marketing, legal, and managerial matters.
Merchant banking has the below functions:-
 Raising finance for a client
 Broker in Stock exchange
 Project management
 Money market operations
 Leasing service
 Portfolio management
 Handling government consent for industrial projects
 Managing public issue of a company
 Special assistance to small companies and
entrepreneurs
Investment banks provide multiple other services to their
clients. This bank charges consultancy fees from
investors.
  Investment management
Based on the customer segment, investment
management is divided into Private clients, Private
wealth management, wealth management. Here, an
investment bank manages a portfolio of customers and
provides tips to investors on whether to sell stocks, buy
stocks, or hold stocks.
This investment banking function is a core job of an
investment bank to guide the investor to purchase,
manage his portfolio and to trade various securities.
Investment bank prepares reports based on company
performance and through this it investment bank makes
a decision on financial securities.
 Recent News & Analysis

Investment banking activity generates $222

million in fees, Axis Bank bags 8.3% share
India generated $222 million from investment banking activities
in Q1FY20, down by 33.6 percent from Q1FY19, as per a
report by Refinitiv titled India’s Investment Banking Review for
First Quarter 2020.
This number is also the lowest Q1 activity fee since $122.9
million generated in Q1FY16, it noted.

Axis Bank took the biggest sum of $18.5 million in related fees

– an 8.3 percent share of the pie. ICICI Bank came in second
with 8.1 percent share and State Bank of India (SBI) was
placed third with 8 percent.
Specifically, merger and acquisition (M&A) advisory fees
generated $35.5 million, also down, by 66.1 percent compared
to the same quarter last year. Fees for underwriting equity
capital market (ECM) deals generated $55.3 million – up by
30.3 percent since Q1FY19.
Goldman plans to cut several hundred jobs
starting this month
Goldman Sachs Group Inc. is embarking on its biggest round of
jobs cuts since the start of the pandemic.

The Wall Street titan plans to eliminate several hundred roles

starting this month, according to people with knowledge of the
matter. While the total number is less than some previous
rounds, the reductions are a resumption of Goldman’s annual
culling cycle that it had largely paused during the pandemic.

The move from the banking bellwether is the surest sign yet of
a chill that has set in across the industry amid a slump in
revenue after record-breaking years. Analysts expect the bank
to post a more than 40% drop in earnings this year, according
to data compiled by Bloomberg. The New York-based
firm said in July that it planned to slow hiring and reinstate
annual performance reviews -- foreshadowing the job cuts it
planned to undertake later in the year. It’s an effort to rein in
expenses amid what it called a “challenging operating
environment.”
 Conclusions

Investment is important to achieve individual goal.

Investment means we have money, then weneed
to make analysis to invest the money, and
expected get return in future. If the investmentare
run early, then we will make a lot of profit if the
investment run well, if not we will lose all ofthe
investment need to start from earlier. Apart
from that, first thing first we must set
aninvestment plan to make the investment run
well. From that, we can know what we will face
infuture, what the risk need counter, what
economy is going and many more.

As we also know, there are also specific place

for investment to be done. It will involve
capitalmarket, Bursa Malaysia, equity market,
debt market and many more. So, we need to
knowwhere we should invest our money whether
to invest in high risk market or lower risk market
togain return in future. Usually, high return will
associated with high risk.