Contents
1.Introduction------------------------------------------------------------------------1
2.The commercial activities of investment bankers-----------------------------1
●The definition of the investment bank-----------------------------------------------------1 ●The nature of these activities---------------------------------------------------------------3
●For example of the investment bankers activities in China----------------------------4
2.The activities which contributed to the global financial crisis--------------6
3.The investment bank generates income from the activities------------------7
●Example of the income from the activities-----------------------------------------------8
4.The link between the activities and the global financial crisis--------------9
5.Conclusion-------------------------------------------------------------------------9
6.Reference--------------------------------------------------------------------------11
1.Introduction
This article we will set out the commercial activities of the investment bank and how the investment bank to operate and develop.With the economy and technology fast spread and growth , the economic globalization is driven by the rapid development of the global economy, so as to continuously develop the investment bank has become a market of fresh blood into the economy. The non-bank financial institutions and commercial banks for the investment banks that is a corresponding rank of financial condition, mainly participate in securities issuance, underwriting, trading, corporate restructuring, mergers and acquisitions, investment analysis, risk investment, project financing and other services activities, and is the capital market the main financial intermediaries.
2.The commercial activities of investment bankers
1)The definition of the investment bank
Securities and investment banking company shares to certain institutional development stage of the product, is mainly activity in developed securities markets and mature financial environment, to be the role of the modern social and economic development in the communication between the supply and demand of funds, securities market structure, and promote mergers and acquisitions,to promote industrial concentration and the formation of scale economy, an important role in optimizing the allocation of resources and so on. Due to the rapid development of the investment banking business, the definition of investment banks is also very difficult. Investment banks are American and continental European title, in Japan called the British commercial bank refers to the securities company. The definition of international investment bank, have four kinds: the first kind: any financial institution engaged in Wall Street, financial services can be called investment bank. Second: the capital market operations, only some or all of the investment banking financial institutions. Third: to engage in securities underwriting and mergers and acquisitions investment bank called financial institutions. Four: the only financial institutions the underwriting of securities in the primary market and two secondary market trading of securities referred to as investment banks. Investment Bank is a commercial bank with a corresponding concept is to adapt to the modern financial industry, an industry that the formation of modern economic development. It is distinguished from other relevant industries notable feature is,First of all, it belongs to the financial services industry, which is the
difference between the general opinion, signed intermediary services; Second, it is primarily to serve the capital market, which is a sign of the difference between commercial banks; and third, it is a knowledge-intensive industries, which is the difference between other specialized financial services organizations logo.
2)The nature of these activities
Modern Investment Bank has exceeded the securities issuance and underwriting, securities trading brokerage traditional business framework, private equity and other securities, mergers and acquisitions, project finance, venture capital, corporate finance, investment advisory, asset and fund management, asset securitization, financial innovation has become an overall investment bank's core business.
The main functions of investment banks in the capital market as an intermediary to help people who have idle funds to find suitable investment opportunities, while helping people in need of capital to find money to make money and investment opportunities can be combined to create more wealth. Investment banking is an agency itself, but there are massive in its internal division of labor. Upstream investment banking business is investment business, its main customer base is in need of capital companies, institutions and countries. At this stage, the investment bank's mission is to help those in need of capital and financing customers to design appropriate solutions to specific business customers, the factory, the company formed an abstract concept, which is the formation of a security. Midstream investment banks are capital markets business, responsible for upstream and downstream convergence work. Downstream Investment Bank is sales department, responsible for stocks, bonds, and the need to sell have idle funds investment opportunity.
There are two basic types of investment bank, the first one is full service,and the second one is boutique.Full service undertake all investment banking activities.Boutique investment banks may focus on a subset of these activities.They may also choose to specialize in industry sectors where they have specific expertise.And the investment banks activities can be categorized as financial advisory and underwriting, trading , market-making, arbitrage and broking, asset securitization, fund management.
1)Financial advisory and underwriting
Financial advisory and underwriting tens to form an important component of an investment bank’s
business.
There are several components of this business:including buy and sell-side mandates for capital raising transactions, M&A (mergers and acquisition)advisory mandates. Leveraged buy-outs.
There are four common types of capital raising transactions that investment banks specialize in including: private equity transactions are where a privately-held company issues shares to raise equity. private placements of corporate bonds are a non-public issue of corporate bonds. venture capital transactions are investments made in a project/company where there is a reasonably high risk,usually a new business that is often not yet cash flow positive.and initial public offerings are where a privately-held company goes public, issuing stock for the first time to the public on a public stock exchange, This stock may be equity(shares)or debt(corporate bonds)..
The figure of the nature activities of the investment banks
3)For example of the investment bankers activities in China
Our investment banking business from the issuance and trading of securities to meet the needs of growing up. From our practice, the investment banking business was originally done by commercial banks, commercial banks, not only the main issuers of financial instruments, the amount of financial assets is in charge of the largest financial institutions. In the late eighties, with the opening up of China's securities market circulation, the securities business of the original commercial banks gradually separated, each region has set up a large number of securities companies, securities
companies formed a stock market-based agency system. In the ensuing ten years, gradually become the main body of the brokerage investment banking. However, in addition to professional securities companies, as well as a large number of relatively broad scope of business trust and investment companies, financial investment companies, equity trading and brokerage, asset management companies, financial advisory companies engaged in investment banking in other businesses.
Our investment banks can be divided into three types: the first is national, the second is local, and the third is a private nature. National investment bank is divided into two categories: one is based on the banking system as the background of securities firms; the second is directly under the State Council, or wagons background Trust and Investment Corporation. Regional investment banks are mainly two provinces specialized securities companies and trust companies. Both types rely on national investment banking franchise in the securities business occupies a dominant position in the investment banking industry in our country. The third category of private investment bank mainly some investment management companies, financial consultants and asset management companies, most of them are from the past to provide management consulting and investment advisory services for clients developed, and have some capital strength In mergers and acquisitions, project finance and financial innovation is very flexible, is becoming China's investment banking sector has a backbone.
Our modern investment banking business from the development up to now only a short period of time less than fifteen years, there are still too small, such as, the narrow scope of business, the lack of high-quality professionals, excessive competition and other such problems. However, China's investment banking industry is facing the biggest market demand, with the rapid development of China's economic reform and deepening social and economic life of the investment and financing needs will become increasingly strong, state-owned enterprises operating in the conversion mechanisms and private enterprises to seek future development, also will increasingly rely on the role of the capital market, which will provide long-term development of the investment banking industry has laid a solid foundation.
Investment bank also plays such roles in the trading market,securities brokers,securities market maker, securities deals.For the securities broker specializing in the trading of securities agents to obtain commission income of financial services organization,brokers is a price taker, no inventory risk.
Securities market maker refers to the use of market makers engaged in securities trading on their own account ,to maintain price stability and the securities market liquidity through continuous trading quotes and get the profit from the difference between the sale of financial services organizations in the offer. Market makers do to him for the city’s securities market participants to determine a pricing system, he is creator of the price. Securities deals refers to profit for the purpose of using their own capital at your own risk, self-trading securities institutions.types of self-service operation, speculative business focus on speculators seek changes in the price level from securities profit .arbitrage business cash in profits from arbitrage trader expects the value of the dislocation in the relevant.risk arbitrage business activities involving mergers and acquisitions activity in the stock market or corporate bank and other forms of restructuring activities.
2.The activities which contributed to the global financial crisis
For example Historically, all or most of the financial indicators related to the impact of the world financial crisis, for example, the financial crisis is also known as the financial crisis (such as a country or several countries and regions: the short-term interest rates, monetary assets, securities, real estate, land (price ), the number of business bankruptcy and the collapse of financial institutions) cycle than some. "The first is strong, the global economic crisis and a super short (1857). 1857 economic crisis, a crisis in world history, particularly the general characteristics required capital. Crisis is the first time in the United States, than the crisis in the UK. Because a lot of investment in building railways in the United Kingdom, the United States has led to speculation failed British Rail is not small. After the economic crisis, 1850 1847 The most important function is to greatly improve the world trade expansion cycle began in the 1850s compared to the average annual growth rate in the first 20 years of growth in world trade increased by 2 times. Machinery Industrial Revolution, the emerging countries and involving international cargo transport, and found defects gold in California and Australia, the development of new rapid industrial development, promoting market economic crisis. World, we can see that fully reflects his bass drum, because many factors affect certain
investment business activities of investment banks, the relationship between some of the major capital market speculation between mental function is to determine the supply and demand, but there are many investors still momentum, psychological price is high the water rose and the ship, in order to increase investment in the development of people's voices. Therefore, a large number of career, it will blind you can not see the protagonist. Lead to economic bubble capital markets have become more and more serious. Unavoidable. Because of the economic crisis and the crisis, US banks, finance companies and industrial enterprises go bankrupt. Only in 1857, there are nearly 5,000 bankruptcy. Surplus food production, food prices and the decline in exports, coupled with intense competition in the industry in the UK, leading to the deepening economic crisis in the United States. In turn, the British economic crisis in the US. British banks, railways, USA, bankrupt enterprises, but also remember the values held by British investors.
Hayek said other well-known economist, debt sustainability over the promotion of investment cycle. Originated in Ireland and Spain are the real estate bubble. Debt also contributed to the existing asset prices off: In the past few decades, the UK real estate market is the best example. Wang in the cycle, the main leverage seems to be potential problem. In fact, Americans are at once instead of letting them increase their wealth around a stagnant or declining real wages when.
3.The investment bank generates income from the activities
Investment banks generally through securities sales and trading, securities underwriting and brokerage, corporate finance, mergers and acquisitions advisory services, asset management, venture capital, real estate brokers, insurance and mortgage business. Own stock trading securities, transaction costs or make economic agents such as earned, are investment banking revenue sources. Investment banking is broadly divided into three: the traditional investment banking, investment management business and brokerage trading business. Including traditional investment banking and underwriting of equity or debt financing (public offering or private placement), financial advisers and investment bank financing (self) etc; investment management business includes direct investment (self-employed), private equity fund investments and asset management ( Valet), etc; trading business including stocks, bonds, futures, foreign exchange, commodities and other derivatives trading (brokerage and proprietary).
From the business development of the global investment bank changes, the investment banking
revenues from traditional underwriting and brokerage business income mainly gradually changed to other operating income and other transaction-based class. In 1975, the proportion of global investment banking underwriting income and commission income to total income was 13.3% and 49.9%; to 1996, the proportion of underwriting income and commission income to total revenues were 9.0% and 15.4%; to the financial crisis before 2007, the ratio of underwriting income and commission income to total revenues were 5.6% and 11.5%, derivatives trading and other income rose to 63.6%. The financial crisis, a significant decline associated with derivatives trading revenue, after the relevant regulatory tighter and a series of major events leading to further declines in the transaction, many international investment banks have sold or closed related businesses.
1)Example of the income from the activities
●Contact JPMorgan Investment merchant model. Companies and banks, including JPMorgan
investment, banking, credit cards, retail banking, cash and influence, asset management and other departments. By the end of 2012, total assets of $ 2,359,141,000,000 income, when developing $ 9.7031 trillion, $ 2,128,400,000,000 net utility. From a business perspective, in recent years, high-return investment bank JP Morgan and spread the risk of banking business operations and help a voice soft. In general, the improvement of the global production of hybrid robust enterprise. JP Morgan investment model in the commercial sense contact: First, help to improve customer loyalty, hybrid synergy. Silver Certificates of integrated financial services to best meet the expansion needs of comprehensive customer service, reducing the investment businessman links; transaction costs and information costs extend and improve customer loyalty, help customer value mining. Second, the structural balance of the business helps to reduce business risk, volatility, you can better run balanced growth and healthy development goals.
●Lazard (Lazard) specialized investment banking model. Lazard is a veteran investment bank
focused on the significant increase in mergers and acquisitions core investment banking and investment management business in recent years 165. 2012 annual financial advisers Lazard $ 10.5 billion of the total turnover, including mergers and acquisitions and restructuring of part of the revenue of 75,6 advisers% and 17.4%. By the end of 2012, Lazard Asset Management total of $ 167 billion, and asset management company turnover of $ 880 million, accounting for 44,8% of total revenue. Specialized investment bank Lazard independent benchmark model:
First, focus on the benefits of the activity is more prominent; the second is the advantage of the business model, capital-light low-risk business; the third is the acquisition of complementary economic relations and debt restructuring cycle smoothing effect on firm performance. In 2009, revenue Lazard M & A 8.15 hundred million fell to $ 526 million US dollars last year, but operating income of $ 119 million restructuring, but so far, last year to $ 377 M, making less than 20% of total revenue decline.
4.The link between the activities and the global financial crisis
Fall 1857, the United States broke the currency crisis, the banking system paralyzed, the currency crisis in the United States peaked in mid-October, New York, 63 banks have stopped paying for 62, more than 60% discount rate, the market price of the stock market fell 20-50 %, more than 80% in many railroad company's stock fell. US economic crisis quickly spread to the UK and continental Europe, triggering a wave of bankruptcy burst after burst. Summarizes the operational activities of some investment banks, contact the global financial crisis should be complementary to each other, due to securities trading, stock trading and a range of business activities and to promote the development of financial markets, but also risks, and excessive investment and trading error will trigger a global financial crisis, as well as a series of financial crises erupted in the capital market activity has been on the verge of collapse. However, this effect will only affect a small part of the cause of the financial crisis. Therefore, the investment banking activities will lead to financial crisis, but it is not inevitable.So there is so clear we can see that the activities of the investment bank as the all of financial industry the most important role ,it related so much economic activity and may become the potential the fuse to the global financial crisis.
5.Conclusion
Research on the General said we know the indispensable role played by investment banks in the financial markets, whether it is economic development, or in the form of innovative financial products and promote investment banks played a very important role. Where some of the main business of investment banking, securities trading activities plays a securities broker, securities market makers, securities dealers roles. As the global economy continues to develop, driven by economic globalization, economic activity in the financial markets, capital investment banks will diversify development. Thus become a focal contributor to global economic development. But it also
bears some risks. The outbreak of the global financial crisis has sparked a lot of thinking. Economic activity with investment banks also complement each other. Overall, both the development or crisis, the role of investment banks is indispensable.
Reference:
?DePamphilis, Donald. Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press. 2008: 740.
?Cartwright, Susan; Schoenberg, Richard. Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities. British Journal of Management. 2006, 17
?Harwood, I. A. Confidentiality constraints within mergers and acquisitions: gaining insights through a 'bubble' metaphor. British Journal of Management. 2006, 17 (4): 347–359.