share the knowledge

1. CHAPTER 3: INTERNATIONAL
INVESTMENT BANK
What is this chapter
about?
• Introduction
• Features
• Functions
• Operational System
• Differences between Commercial Banks
CHAPTER CONTENTS:

2. INTERNATIONAL INVESTMENT BANK
• Horizontal
• Vertical
 Functions involved provision of long-term equity, loan finance for industrial & other corporations.
 Specialize in helping businesses & governments sell their new security issues in primary markets to finance capital
expenditures.
 After the securities are sold, they make secondary markets for the securities as brokers & dealers
 Also provide advisory service to corporate clients (securities issues & M&A activities).
 Deal with companies & other large institutions (do not deal with retail customers).
 Do not take deposits.
 Bringing initial public offering (IPO) to the market.
 They manage the buying and selling of stocks, bonds, & other financial instruments for their own portfolio & on
behalf of clients.
 Securitization / bundling of assets to sell in the secondary market.
Introduction
Features

3. 1) Issue stocks
2) Obtained funds
3) Invest funds / expand business
4) Gained profits
5) Payback dividend to investors
INVESTORS MEGA PROJECT
COMPANY/FIRM

4. 2) Set up IPO
Sell the stocks to investors
on behalf of the firm
3) Obtained funds
5) Invest funds / expand business
INVESTORS MEGA PROJECT
INVESTMENT BANK
COMPANY/FIRM
1) Appoint an investment bank
to organized an IPO & find
potential investors
4) Distribute obtained
funds to firms & take
certain profit margin for
their IPO service
6) Gained Profit
7) Payback investors through dividend payment

5.  Revenue Generating Activities:
 Such as; primary market making (IPO), secondary market making, trading,
corporate restructuring, financial engineering, advisory services, investment
management, venture capital, and consultation.
 Assist with corporate reorganizations & advising on strategic matters such as
M&A, divestitures, corporate defence strategies, joint ventures, privatizations,
spin-offs & leveraged buyouts.
 Support Activities:
 Involve clearing, internal finance/funding & information services
 Primarily serve as intermediaries between corporations / governments that want
to attract investment capital & investors wanting to invest capital
 Act as intermediaries in trading for clients
Functions
 Front Office
 Middle Office
 Back Office
Operational System

6. FRONT OFFICE
POTENTIAL INVESTORS MIDDLE OFFICE BACK OFFICE
 Most prestigious &
highest paid
 Find high net-worth
clients (potential
investors )
 Assist clients in raising
funds
 Relies on research
published by Middle
Office
 Make sales pitch, suggest
trading ideas, take orders
 Acting as clients’ fund
managers
Operational System
 Do market research
 Research relies on data
obtained from Back Office
 Research & functions
encompass of:
 Potential markets
 Potential clients
 Market risk
 Management risk
 Financial risk
 Treasury related
 Compliance
related
 High net-worth
individuals
 In possession of unlimited
funds
 In access of lucrative
economic projects
 In search of investment
opportunities & advice
 Responsible for data
collection as requested by
Middle Office
 Have access to multiple
financial database
 Other functions:
 Underwriting of
new issues
 Trading securities
 Risk arbitrage
 New product
development
 Advisory relations
data
research
sales

7. Investment Bank vs Commercial Bank
Investment Bank Commercial Bank
No deposits taking Deposits taking
Not loan provider Loan provider
Have a few hundred core
customers/less
May have millions of customers
Provider of a very custom-
made/tailored service
Provider of a very standardized
service
Not a transactional day-to-day
service provider. E.g. Fund-
and fee-based services.
A transactional day-to-day
provider. E.g. Current
savings account, credit and
cards, mortgage and personal
and insurance.
A strategic advisor to
with regards to their
acquisitions, divestments and
capital markets products e.g.
debts and equity instruments.
Not a strategic advisor to
companies/corporations.

8. TUTORIALS
• Explain the main function of an international investment bank.
• Explain the operating system of an international investment bank
• Explain the differences between a commercial and investment international
bank.

9. END OF CHAPTER 3
HAPPY LEARNING
&
STAY SAFE