FNM103 Banking and Financial Institutions
PAMANTASAN NG CABUYAO
College of Business, Administration & Accountancy
1st SEMESTER – PRELIMS Financial Management
2ND
INVESTMENT BANKING: NATURE AND SCOPE
What is Investment Banking? 5. Asset Management – Managing investments for a wide
− Investment banking is the division of a bank or financial range of investors including institutions and individuals,
institution that serves governments, corporations, and across a wide range of investment styles.
institutions by providing underwriting (capital raising) and
mergers and acquisitions (M&A) advisory services. 1. Underwriting Services in Investment Banking
− Investment banks act as intermediaries between investors − Underwriting is the process of raising capital through
(who have money to invest) and corporations (who require selling stocks or bonds to investors (e.g., an initial public
capital to grow and run their businesses). offering IPO) on behalf of corporations or other entities.
− Businesses need money to operate and grow their
businesses, and the bankers help them get that money
by marketing the company to investors.
Types of Underwriting
1. Firm Commitment – The underwriter agrees to buy
the entire issue and assume full financial
responsibility for any unsold shares.
2. Best Efforts – Underwriter commits to selling as
much of the issue as possible at the agreed-upon
offering price but can return any unsold shares to the
What DO Investment Banking do? issuer without financial responsibility.
− Full-service investment banks offer a wide range of services 3. All-or-None – If the entire issue cannot be sold at the
that include underwriting, M&A, sales and trading, equity offering price, the deal is called off and the issuing
research, asset management, commercial banking, and retail company receives nothing.
banking.
− The investment banking division of a bank provides only the
underwriting and M&A advisory services.
2. M&A Advisory Services
Services of Full-Service Banks − Mergers and acquisitions (M&A) advisory is the process
1. Underwriting – Capital raising and underwriting groups of helping corporations and institutions find, evaluate,
work between investors and companies that want to raise and complete acquisitions of businesses.
money or go public via the IPO process. This function − This is a key function in i-banking. Banks use their
serves the primary market or “new capital”. extensive networks and relationships to find
2. Mergers & Acquisitions (M&A) – Advisory roles for both opportunities and help negotiate on their client’s behalf.
buyers and sellers of businesses, managing the M&A − Bankers advise on both sides of M&A transactions,
process start to finish. representing either the “buy-side” or the “sell-side” of the
3. Sales & Trading – Matching up buyers and sellers of deal.
securities in the secondary market. Sales and trading
groups in investment banking act as agents for clients and
also can trade the firm’s own capital.
4. Equity Research – The equity research group research, or
“coverage”, of securities helps investors make investment
decisions and supports trading of stocks.
FNM103 Banking and Financial Institutions
PAMANTASAN NG CABUYAO
College of Business, Administration & Accountancy
1st SEMESTER – PRELIMS Financial Management
2ND
Banking Clients Careers in Investment Banking
− Investment bankers advise a wide range of clients on their • Analyst
capital raising and M&A needs. These clients can be located • Associate
around the world. • Vice President
• Director
Investment Bank Clients include:
Governments – Investment banks work with governments to • Managing Director
raise money, trade securities, and buy or sell crown corporations. • Head, Vice Chair, or another special title
Corporations – Bankers work with both private and public
companies to help them go public (IPO), raise additional capital,
grow their businesses, make acquisitions, sell business units, and
provide research for them and general corporate finance advice.
Institutions – Banks work with institutional investors who
manage other people’s money to help them trade securities and
provide research. They also work with private equity firms to help
them acquire portfolio companies and exit those positions by
either selling to a strategic buyer or via an IPO.
Investment Banking Skills
• Financial modeling – Performing a wide range of financial
modeling activities such as building 3-statement models,
discounted cash flow (DCF) models, LBO models, and
other types of financial models.
• Business valuation – Using a wide range of valuation
methods such as comparable company analysis, precedent
transactions, and DCF analysis.
• Pitchbooks and presentations – Building pitchbooks and
PPT presentations from scratch to pitch ideas to prospective
clients and win new business (check out CFI’s Pitchbook
Course).
• Transaction documents – Preparing documents such as
a confidential information memorandum (CIM), investment
teaser, term sheet, confidentiality agreement, building a data
room, and much more (check out CFI’s library of free
transaction templates).
• Relationship management – Working with existing clients to
successfully close a deal and make sure clients are happy
with the service being provided.
• Sales and business development – Constantly meeting with
prospective clients to pitch them ideas, offer them support in
their work, and provide value-added advice that will ultimately
win new business.
• Negotiation – Being a major factor in the negotiation
tactics between buyers and sellers in a transaction and
helping clients maximize value creation.
