Topic 6 - Fin 3080
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This 4 page Class Notes was uploaded by ag28 on Tuesday October 20, 2015. The Class Notes belongs to 308 at Clemson University taught by Chernykh in Fall 2015. Since its upload, it has received 18 views. For similar materials see Financial Institutions and Markets in Finance at Clemson University.
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Date Created: 10/20/15
Clemson University Department of Finance FIN 3080 Dr Lucy Chemykh Financial Institutions and Markets Topic 6 SECURITIES FIRMS AND INVESTMENT BANKS CH 16 Outline 0 Securities firms vs investment banks 0 Industry size and structure 0 Lines of business 0 Performance 0 Regulation 0 Recent trends in the IB industry SECURITIES FIRMS AND INVESTMENT BANKS IBS Investment banks IB s help corporations and governments raise capital through debt and equity security issues in the primary market Give advice help firms With IPOs to reduce asymmetric information and sometimes secondary offerings Underwriting is assisting in the issue of new securities IBs also advise on mergers and acquisitions MampAs and corporate restructuring Securities firms assist in the trading of securities in secondary markets Brokerdealers assist in the trading of existing securities Help When securities are changing hands being traded Industry size and structure The size of this industry is measured by the equity capital of firms rather than TA Equity capital 214 billion 2010 industry was shrinkingstagnant Number of firms about 5000 Structure Bank holding companies fullline firms large IBs small specialized firms Lines of Business Know for exam need to know from reading Will not ask about smaller lines of business Know these topics and simple definitions IB gInvestment Banks 2 IPS and SEO private placement sell shares privately not through the market VC Venture Capital management of pools of money to finance startups financing new businessideas risky business normally not able to get financing from the banks Do a lot of work in screening out those that have a very high failure rate PE Private Equitv diverse sell securities to acquire existing firms Market Making creation of secondary markets for an issue Trading taking an active net position in an asset MampA assistance cyclical after the crisis there was a new wave of MampA Investing managing mutual funds Cash management MMMFs money market mutual funds Pools of money INDUSTRY PERFORMANCE Revenues and profits fell record amounts in 2008 but rebounded sharply in 2009 Industry employment fell sharply Low interest rates and strong stock market helped fuel profit recovery REGULATION The Securities and Exchange Commission SEC is the primary regulator of the securities industry 0 The SEC sets rules governing underwriting and trading activity I All issues and borrowed funds beyond 270 days have to be regulated I Registration and information disclosure Investors in the industry are protected by the Securities Investor Protection Corporation SIPC 0 Protects investors against losses of up to 500000 due to securities firm failures but not against poor investment decisions I To protect smaller investors DoddFrank 0 Financial Services Oversight Council FSOC to monitor systemic risk in the industry I Banks over 50B in total assets SIFIs 0 More regulation in securitization and derivative markets 0 Higher capital requirements for larger and for interconnected firms INVESTMENT BANKING RECENT TRENDS KNOW big structural changes in the industry Global IBs are ranked for MampA advisory syndicated loans equity capital markets debt capital markets Cannot service transaction from both sides Con ict of interest Syndicated loan banks pull funds together to give a loan riskier than those granted by CBS 0 Benefit diversification risk sharing banks can grant large denomination loans 0 Can compete With CBs by being able to issue syndicated loans Fees have dropped role of independent investment banks is shrinking
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