An Overview of Banking

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18 Νοε 2013 (πριν από 3 χρόνια και 8 μήνες)

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An Overview of Banking

How Bulge Bracket Banks Are Set Up…

An Illustrative Example: J.P. Morgan

J.P. Morgan

Investment
Banking

Sales &
Trading

Research

Asset
Management

Treasury
Security
Services

Credit Risk

Behind all these divisions are accounting and operations functions.

Revenue Breakdowns

26%

18%

56%

JP Morgan 2007

Investment Banking
Trading and Principal Investments
Asset Management
23%

41%

36%

Goldman Sachs 2008

Investment Banking
Trading and Principal Investments
Asset Management
Typical Management Structure

Varies depending on the bank, group size and number of senior positions

Group Heads /
Managing
Directors

Vice Presidents

Associates (2 years)

Analysts (2
-
3 yrs)


Most familiar with current u
-
grad standards

Divisions Overview

INVESTMENT BANKING

Bulge Bracket Bank

Investment
Banking

Sales &
Trading

Research

Asset
Management

Treasury
Security
Services

Credit Risk

Overview of Investment Banking



Who are the major players


How do they make $$


What functions do they perform


Who are their clients


What other divisions do they connect/work with
(if any)


How is IB broken up? What kind of teams, groups
or subdivision make up this sector of the bank?

Sales & Trading

Bulge Bracket Bank

Investment
Banking

Sales &
Trading

Research

Asset
Management

Treasury
Security
Services

Credit Risk

Overview of Sales & Trading


Facilitates movement of capital (securities) from those that have it to those that
need it


Primary markets: where new securities are issued


Secondary markets: where trading of already issued securities occurs


Market participants: individuals, pension and mutual funds, banks, governments,
insurance companies, corporations


Sell
-
side financial institutions (broker
-
dealers) add value by making markets in
particular securities


Sales


Take orders from clients and communicate them to their trading desks for execution


Introduce new opportunities to customers


Keep clients informed about changing market conditions that might affect the value of
securities in their portfolio


Dinners/entertainment with clients


Trading


Does actual buying/selling of securities


Continuously adjust bid/ask to make spread from transactions


Take on proprietary positions (principal investments)


Risk management and securities pricing

General Characteristics


Overall


-
Interest in the markets


-
Good communication and analytical skills


-
Thrive in fast
-
paced environment



Sales


-
Good at attracting, building and maintaining relationships



Trading


-
Be able to take calculated risk


-
Instinctively react to market movements


(
-
Financial modelling)


Research

Bulge Bracket Bank

Investment
Banking

Sales &
Trading

Research

Asset
Management

Treasury
Security
Services

Credit Risk

Research


Equity, Credit, Economic…


Sell Side (Banks) and Buy side (Hedge Funds)


Teams of 2
-
10, not standard across the street


Equity Research



Buy/Sell/Hold


They Serve:


Internal clients: traders, internal funds


External clients: sell side shops, hedge funds

Asset Management

Bulge Bracket Bank

Investment
Banking

Sales &
Trading

Research

Asset
Management

Treasury
Security
Services

Credit Risk

Overview of Asset Management


Asset management

is the professional management of various securities
(shares, bonds etc.) and assets (e.g., real estate), to meet specified investment
goals for the benefit of the investors. Investors may be institutions (insurance
companies, pension funds, corporations etc.) or private investors


Investment managers who specialize in
advisory

or
discretionary
(client gives
the bank control over what to do and how to invest) management on behalf of
(normally wealthy) private investors may often refer to their services as wealth
management or portfolio management often within the context of so
-
called
"private banking".


The provision of 'investment management services' includes elements of
financial analysis, asset selection, stock selection, plan implementation and
ongoing monitoring of investments. Also, brokers and bankers have to be
knowledgeable about any issues a client can face: mortgages, planning for
college, planning for retirement, transferring assets to children, estate
planning, wills etc. Investment management is a large and important global
industry in its own right responsible for caretaking of trillions of dollars, euro,
pounds and yen.

Overview of Asset Management


Coming under the remit of financial services many of the world's largest
companies are at least in part investment managers and employ millions
of staff and create billions in revenue. All of the big banks have Asset
Management divisions. Goldman, JPM, HSBC and Bank of America /
Merrill Lynch are particularly well known in this industry


Money is earned by charging a commission on the investments that are
sold to clients, by charging trading fees and fees for other services such as
estate planning, or by charging a spread on the total yearly return for the
portfolio.


Client typically tend to be wealthy individuals and institutions


Asset management relies heavily on other divisions of the bank


the
commercial bank for their credit card services which are offered to clients
and S&T to help place trades for the wealthy clients.

How is Asset Management Set Up?

Example in Review: JPMorgan Asset Management

JPMorgan Asset Management

Private Banking


For private clients with
$25million+ in liquid assets


Issues mainly evolve
around protecting wealth
and transferring assets to
heirs, as well as
implementing the best
possible tax strategies.

Private Wealth
Management


For private clients with $2
-
25million in liquid assets


Lower
-
level issues: this
group may still have to
worry about paying for
college, planning for
retirement or growing
their portfolio.

Investment
Management


For institutional clients.
Includes more quantitative
groups and specialized
groups in areas such as real
estate, mutual funds,
pension funds etc.

**Different banks use the above titles differently. For example, all clients at Credit Suisse are
part of their “Private Bank”, regardless of the amount of money they have.

**Liquid Assets does NOT include your house, car, business etc. ONLY cash or investments

Types of AM Teams


Banking Teams
(also known as Brokers


these are the
“face” to the client and direct contact). Have a talking
knowledge about a broad range of topics.


Investor teams
-

make strategy calls specific to certain
clients’ portfolios. Know the client well. Market
oriented.


Product Teams


Equity Solutions, FICC (Fixed Income /
Currencies / Commodities), Mortgages, Hedge Funds,
Due Diligence, Global Access Portfolios, Portfolio
Construction. “Make the strategy calls for clients to get
in or out of investments.” Deep knowledge about 1
specific topic.

Commercial Banking and Credit Risk

Bulge Bracket Bank

Investment
Banking

Sales &
Trading

Research

Asset
Management

Treasury
Security
Services

Credit Risk

Commercial Banking


Treasury Securities Services
-
largest cash flows for most of the
banks with credit card services


Generate enough cash flows to be their own stand
-
alone Fortune 500
company


Other Roles of the Commercial Bank


Payment processing


Issuing bank
cheques


Accepting deposits


Lending


Providing guarantees


Safety deposit boxes

Credit Risk


Credit Risk
-
Evaluates the risk levels associated
with certain deals


Rating companies

Investment vs. Commercial Banks


Investment Banks


Clients: Large corporations and
high net worth individuals


Financial services and advice


Intermediaries


S&T function


Loans are usually sold (removed
from the Balance Sheet)


Higher risk


Make bets with own money


Commercial Banks


Clients: Every day people


Provide basic banking functions


Accept deposits (FDIC)


Make consumer & commercial
loans (held on Balance Sheet)


Lower risk


What is private equity?


Private equity is a broad term that refers to any type of equity
investment in an asset in which the equity is not freely
tradable on a public stock market.


Categories of private equity investment include leveraged
buyouts, venture capital, growth capital, angel investing,
mezzanine capital and others.


PE firms will sometimes pool funds together to take very large
public companies private.

Many private equity firms conduct
what are known as leveraged buyouts (LBOs), where large
amounts of debt are issued to fund a large purchase. Private
equity firms will then try to improve the financial results and
prospects of the company in the hope of reselling the
company to another firm or cashing out via an IPO.


Alternative asset class favored by university endowments,
insurance companies, corporate pension plans, public
employee retirement plans and high net worth individuals


Reading List


Reminiscences of a Stock Operator by Edwin
Lefevre


Stock Market Wizards: Interviews with Top Traders by Jack D.
Schwager


When Genius Failed: The Rise and Fall of Long
-
Term Capital Management by Roger Lowenstein


Liar’s Poker: Rising Through the Wreckage on Wall Street by Michael Lewis


Monkey Business: Swinging Through the Wall Street Jungle by Peter
Troob

& John Rolfe


Barbarians at the Gate: The Fall of RJR Nabisco by John
Helyar


Den of Thieves by James B. Stewart


The Alchemy of Finance: Reading the Mind of the Market by George Soros & Paul Volcker


Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by
Nassim

N.
Taleb


Against the Gods by Peter L.
Berstein


The Black Swan: The Impact of the Highly Improbable by
Nassim

N.
Taleb


Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay


Ice Age by John
Gribbin

& Mary
Gribbin


Influence: The Psychology of Persuasion by Robert B.
Cialdini


Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor by David S.
Landes


Poor Charlie’s
Almanack
: The Wit and Wisdom of Charles T.
Munger

by Charles T.
Munger

&
Peter D. Kaufman