ppt on investment banking project

8/4/2019 Ppt on Investment Banking Project

1/26

INVESTMENTBANKING


2/26

Compiled by:-

Name Roll No.

Sonam Gehi 6

Chiranjiv karkera 16

Vrushali 26

Apurva Shende 46


3/26

Introduction

An investment bank is a financial institution that assists

individuals, corporations and governments in raising capital. An investment bank may also assist companies involved in

mergers and acquisitions, and provide services such as market

making, trading of derivatives, foreign exchange, commodities,

and equity securities.

Unlike commercial banks and retail banks, investment banks donot take deposits.

From 1933 to1999, the United States maintained a separation

between investment banking and commercial banks.


4/26

There are two main lines of business in investment banking:

Trading securities for cash & the promotion of securities is the"sell side.

Dealing with pension funds, mutual funds and the investing

public constitutes the "buy side".

An investment bank can also be split into private and public

functions with a Chinese wall which separates them. The private

areas of the bank deal with private insider information that may

not be publicly disclosed, while the public areas deal with public

information.


5/26

Organizational Structure

Main Activities Investment banking is split into

- front office

- middle office

- back office


6/26

Front office

Investment banking 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).

Another term for the investment banking division is corporate

finance.

The investment banking division (IBD) is generally divided into:

-industry coverage group

-product coverage group.

Sales And Trading

On behalf of the bank and its clients, a large investment bank'sprimary 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.


7/26

Research

Research is the division which reviews companies and writesreports about their prospects, often with "buy" or "sell" ratings.

While the research division may or may not generate revenue, its

resources are used to assist traders in trading.

Research also serves outside clients with investment advice.


8/26

Middle Office

Risk management involves analyzing the market and credit riskthat traders are taking in order to prevent bad trades. It also

ensure that the economic risks are captured accurately, correctly

and on time.

In recent years the risk of errors has become known as

"operational risk. Corporate treasury is responsible for an investment bank's

funding, capital structure management, and liquidity risk

monitoring.

Financial controltracks and analyzes the capital flows of the firm

on essential areas such as controlling the firm's global riskexposure and the profitability.

Corporate strategy, along with risk, treasury, and controllers also

often falls under the finance division.


9/26

Compliance areas are responsible for an investment bank's daily

operations compliance with government regulations and internalregulations.


10/26

Back Office

Operations involves data-checking trades that have been

conducted, ensuring that they are not incorrect, and transactingthe required transfers. While some believe that operations

provides the greatest job security and the bleakest career

prospects of any division within an investment bank,smany banks

have outsourced operations. It is, however, a critical part of the

bank. Technology refers to the information technology department.

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.


11/26

Investment policies of banks

Commercial banks are engaged principally in accepting

deposits from large numbers of depositors and lending money towide variety of borrowers, but investment in securities animportant part of their operation.

The manner in which they invest in securities is stronglyconditioned by the structure of their assets and liabilities, by the

relative size of their sources of income and by provision of RBI.


12/26

Capital adequacy ratio

Bankers pay a great deal of attention to the adequacy

of their capital to support the risks they assume in theirloans and investments.

Differences in capital adequacy often influence their

decision and ability to assume risk of loss of principal

invested in securities. Risk minimization policies are imposed on banks by

conditions under which they operate, by RBI.

Inability and unwillingness to assume very high level of

risk in terms of financial abilities of issuers to payback causes commercial banks to limit their almost

entirely to highly rated securities.


13/26

The fundamentals objectives of the new framework should be to

strengthen the soundness and stability of the banking system.Secondly, that the framework should be fair and have a high

degree of consistency in its application to banks in different

countries with a view to diminishing an existing source of

competitive inequality among the international banks.

In the context of the varying minimum capital requirement andtaking into account. RBI has decided that a new uniform

prescription for capital adequacy should be introduced .

In the long run, such an approach, incorporating both on-balance

sheet and off-balance sheet exposures of a bank into its capital

ratio according to the level of perceived risk would encourage thebanks to be more risk-sensitive and to structure their balance

sheets in a more prudent manner.


14/26

The regulatory restrictions on banks have greatly reduced many of

the risks in the financial system. Earlier the deposits were taken at mandated rates and loaned out

at stipulated rates. The interest rates therefore remained

unaffected by market pressures. It can be classified as:

Domestic operations

1. Funded Risk Assets

2. Off Balance Sheet Item

Over Seas Operations

1. Funded Risk Assets2. Non Funded Risk Assets


15/26

Liquidity Requirements

Liquidity essentially means the ability to meet all contractual

obligations as and when they arise, as well as the ability to satisfyfunds requirements to meet new business opportunities.

Liquidity planning involves an analysis of all major cash flows

that arise in the bank as a result of assets and liability

transactions and projecting these cash flows over the future.

Balance sheet projection should be prepared each month whichwill enable treasury managerto identify any potential liquidity

problems that may rise in the future and take action which initiate

the bank liquidity.


16/26

Liquidity analysis involves an analysis of the maturity profile of

existing assets and liabilities over which are superimposed theimpact of transactions that are planned for the future.

Effective liquidity management requires careful attention tobalance sheet growth and structure. A balanced sheet that is

growing rapidly needs careful scrutiny to determine whether the

liquidity of bank is being adversely affected. Very often banks put up excessive assets in the form of cash credit

lending's or investments in securities without having matching

sources of funds of similar tenors.

This mismatch in maturities of assets and liabilities results in the

bank being subjected to liquidity risk, because the bank startsdepending chronically and excessively on the most easily

accessible source of funds i.e. the interbank call money markets.


17/26

Investments Considerations

As investment provide a major source of income to banks next

only to advances, management of that of managing a creditportfolio. Therefore banks must frame suitable policies formanaging the investment portfolio.

They are expected to use professional approach while managingtheir investment portfolio subject to ones own norms as well as

the regulations/guidelines framed by the RBI From time to time.The investment portfolio of commercial banks in India iscomprised of both approved and non-approved securities.


18/26

This investment policy should cover the following

subjects:

1. The overall investment policy

2. Guidelines to be framed for conducting transaction in

securities.

3. Classification of securities under the current and

permanent investment category.

4. Exposure to various banks, institutions and

investment.


19/26

While selecting a security for its investment portfolio

the bank should give due weight age to the certainimportant criteria like:

1. Maturity

2. Yield

3. Composition


20/26

NON-APPROVED

SECURITIES:Bonds issued by public.

Units of UTI.

Equity shares and debentures of

joint stock companies.

APPROVED

SECURITIES:Central and state govt.

securities.

Treasury bills of 91 and 364

days.Bonds issued by municipal

corporations.

.


21/26

Banks are required to invest in the approved securities to comply

with the statutory liquidity ratio requirements It has been observed that the approved securities form more than

95% of total SLR components. The bank also invests its fund inthe non-approved securities including corporate securities inconformity with the guidelines issued by the RBI from time to

time and section 19(2) of the banking regulations act,1949. The investment function purely from compliance with SLR

requirement only which is a conservative approach. Instead of

this, investment portfolio is to be looked upon as a source of

income as well as liquidity.


22/26

TYPES OF FUNDS

Money market fund

Equity fund

Sector fund

Bond fund

International fund

Balanced fund

Asset allocation and flexible funds

Index fund

a ac ua y nves men


23/26

a ac ua y nves menBanker do? Investment bankers are agents. They dont create

anything and they dont buy anything; they just sellthings that arent ours to begin with. And make a lot of

money doing that.

If the business world were like Entourage, bankers

would be the agents, private equity firms and largecompanies would be the studios, and companies would

be the actors and movies. Private equity firms buy and

sell companies. Studios buy and sell actors and movies.

Bankers make introductions and try to sell things.

Agents make introductions and sell their Clients.


24/26

Fee structure

They are the cost incurred by the mutual fund inoperating the portfolio.

Shareholder do not receive an bill for these operatingexpenses.

OperatingExpenses

It is a commission or sales charge paid when you

purchase the shares. Payee to the brokers who sell the funds, may not exceed

8.5%,but higher than 6%.

Front-End load

It is a redemption or exit fee incurred when you sell yourshares.

It start from 5% or 6% & reduce them by 1% point for

every year funds are left invested.

Back-End load

An annual marketing or distribution fee on a mutualfund.

The securities and exchange commission allows themanagers of so called 12b-1 funds to use fund asset.

12b-1 Charges


25/26

Advantages of investment banking

An investment banking helps an organization, which may be a

company, or a government or one of its agencies, in theissuance and saleof new securities.

An investment bank usually helps in this process by providing

expertise and customers to buy the securities.

In other words, connecting the need for money with the source

of money. The bane of Indian capital markets today is lack of investor

confidence which effect the poor performance in both primary

and secondary markets.

The cause for existing situation are many but primarily arise on

account of lack of liquidity Investment banking can solve this problem because investors

would be dealing with reputed investment bankers in the

primary market rather than unknown issuers.


26/26

Thank you!!!

ppt on investment banking project

Documents