Overview of Investment Banking in India Reference https://www.wikijob.co.uk/content/industry/investment-banking/investment-banking

1. Investment Banks
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INVESTMENT BANKS
INDEX

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SR. NO. CONTENT PAGE. NO.
01 INTRODUCTION 01
02 INVESTMENT BANK AND CAPITAL MARKET 01
03 TYPES OF PLAYERS IN INVESTMENT BANKING 04
04 INVESTMENT BANKING IN INDIA 05
05 SKILLS SUGGESTED FOR INVESTMENT BANKERS 06
06 ROLE OF INVESTMENT BANKERS IN DEVELOPING AN ECONOMY 11
07 MAJOR FUNCTIONS OF THE INVESTMENT BANK 12
08 SCOPE OF INVESTMENT BANKS 12
09 INVESTMENT BANK ORGANIZATIONAL STRUCTURE 18
10 ROLE OF FRONT, MIDDLE AND BACK OFFICE IN INVESTMENT BANKING 19
11 TOP TEN INVESTMENT BANKS 24
12 BIBLIOGRAPHY 25

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INTRODUCTION
A financial intermediary that performs a variety of services. Investment banks specialize in
large and complex financial transactions such as underwriting, acting as an intermediary
between a securities issuer and the investing public, facilitating mergers and other
corporate reorganizations, and acting as a broker and/or financial adviser for institutional
clients. Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman
Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse,
Citibank and Lazard. Some investment banks specialize in particular industry sectors. Many
investment banks also have retail operations that serve small, individual customers.
INVESTMENT BANK AND CAPITAL MARKET
‘Investment Banking’ as the term suggests, is concerned with the primary function of
assisting the capital market in its function of capital market intermediation, i.e. the
movement of financial resources from those who have them means investors, to those who
need to make use of them means issuer for generating profit. Banking & financial
institutions on the one hand & capital market on the other hand are two broad Platforms of
institutional intermediation for capital flows in the economy. Therefore, it could be inferred
that investment banks are those institutions that are the counterparts of banks in the
capital market in the function of intermediation in resources allocation. Investment banks

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carried on various activities it helps companies and governments and their agencies to raise
money by issuing and selling securities in the primary market. They assist public and private
corporations in raising funds in the capital markets both equity and debt, as well as in
providing strategic advisory services for expansion acquisitions, mergers and other types of
financial transactions.
Investment banking is much wider term than merchant banking as it implies significant fund
based exposure to the capital market. Internationally, investment banking have progressed
both in fund based & fee based segments of industry. In India, the dependence is heavily on
merchant banking, more particularly with issue management & underwriting. However
downturn in primary market has forced merchant banks to diversify & become full fledged
investment banks. Over the decades, backed by evolution & also fuelled by recent
technological developments, investment banking has transformed repeatedly to suit the
needs of the finance community & thus become one of the vibrant & exciting segments of
financial services. The future for investment banks is bright with scope for merchant banks
to convert themselves into investment banks. Much of the investment banking in its present
form, thus owes its origins to the financial market in U.S.A due to which, American
investment banks have been leader in the American & Euro market as well. Therefore, the
term ‘investment banking’ can be said to be American origin. Their counterparts in U.K were
termed as ‘merchant banks’ since they had confined themselves to capital market
intermediation until the U.K & European markets & extended the scope of such businesses.
TYPES OF PLAYERS IN INVESTMENT BANKING

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Full-Service Firms- These are type of investment banks who have significant presence in all
areas like underwriting, distribution, M&A, brokerage, structured instruments, asset
management etc. They are all rounder 0f the game.
Commercial Banks- Commercial Banks operating through “Section 20” subsidiaries referring
to the subsidiaries formed under section 20 of the Glass- Steagall Act which were allowed to
carry on limited investment banking services.
Boutique Firms-These are the type of players which specialist in particular areas of
investment banking.
Brokerage Firms- These firms offers only trading services to retail & institutional clients.
They have huge investor base which is also used by underwriters to place issues.
Asset Management Firms- These firms offer on investment services. This includes activities
like fund management, wealth management, cash management, portfolio management
depending on the type of investors, tenure of corpus, purpose of investments, type of
instrument invested in etc.
INVESTMENT BANKING IN INDIA
Players in
Investment
Banking
Full-Service
Firms
Commercial
Banks
Boutique
Firms
Brokerage
Firms
Asset
Manageme
nt Firms

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The bane of Indian capital market today is lack of investor confidence. This is reflected in the
poor performance of both primary & secondary markets. The causes for existing situation
are many but primarily arise on account of lack of liquidity, unscrupulous issuers &
merchant bankers & poor or unappraised issues. Investment banking can solve this problem
because investor would be dealing with reputed investment banker in the primary market
rather than unknown issuers. The investment banks whatever be their issue management
techniques have their own capital on hold. The issues are likely to be properly appraised &
priced & sponsors on OTCEI have a two year lock-in period. Similarly investment banks
would hold the issues until market conditions are appropriate for issue, thus reducing the
risk exposure of investors in gestation for issue. Moreover, the price of reissue will be a
better indicator of issue’s performance. Investment banks make the primary market
subscription. In sum, the quality of pricing, appraisal, & primary market functions will
improve resulting in substantial improvement in investor confidence. Since the investment
banker lends its name to the issue it will imply an issue investors can trust. Investment
bankers may gradually replace merchant bankers in India.
SBI was the first Indian public sector bank to set up its investment banking division in
1972. ‡SBI Caps and IDBI Caps are two prime examples of investment banks in India
today.Currently, there are 300 investment banks registered with SEBI.Currently, without
holding a certificate of registration
granted by the Securities and Exchange Board of India,
no person can act as a investment banker.
SKILLS SUGGESTED FOR INVESTMENT BANKERS

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 Technical Skill
 Academic Background- In the early days of investment banking, not much importance
was attached to academic background. Today, the business has become very
complicated and the skill requirements have multiplied. Consequently, investment banks
find it important to recruit people with the right academic credentials. Typically, for
most of the important jobs, an MBA is a must. Investment banks rely heavily on campus
recruitments
 Conceptual Soundness- One of the major benefits for a professional in an investment
bank is the learning associated with work. The financial skills of an expert are tested to
the core while handling a complicated deal. Comprehensive and in-depth knowledge of
financial and business concepts are essential to sustain business. Multiple relationships
between various factors render decision-making difficult. Financial solutions can be
provided to the clients only when the advisor is competent to understand all or at least a
majority of them. Before practical solutions emerge, the tools for decision-making will
give greater choice to the solution provider. A strong grounding in theory and concepts
facilitates this.
 Product Specialization- One way to specialize in an investment bank is through
products. An expert in a particular product, say hybrid instruments, can work out
•Academic Background
•Conceptual Soundness
•Product Specialization
•Legal Knowledge
•Knowledge ofCapital Marketsand Functioning
•Knowledge ofRegulatory Bodiesinvolved in theVariousOperations
•Knowledge ofInternationalBusinessScenarioand Economic Trends
•Knowledge ofSoftware Tools, Developmentsin theField ofInformation
Technology
Technical Skill
•Ability to Cater to the Audience According to its Awareness Levels-
•Negotiation Skills
•Personality Traits
Communication
Skills
•Marketing Skills
•Inter-Personal Skills
•Networking Skills
Other Skills

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financial solutions for any client across the industries. Each client has his or her
individual risk taking ability. To cater to the client on an in basis, appropriate products
that would suit their risk profile should be identified. The clients will also feel at home
while dealing with a product specialist.
 Legal Knowledge- While clear cut guidelines can be issued to the traders regarding their
market related activities that are governed by the law, the complexity multiplies for an
M&A deal. The regulators’ guidelines have to be strictly followed, even while envisaging
a combination. Legal knowledge is also important for structuring such deals, which will
help identify the constraints associated with proposed solution. The situation gets more
intense when the deal is a cross-border M&A proposal. Apart from the knowledge of the
inland laws, foreign laws also have to be considered. Any regulation by the foreign
government can make an otherwise desirable deal, unviable.
 Knowledge of Capital Markets and Functioning- More than any other industry, it is the
investment banking industry that has a direct bearing on the way capital markets
function. Any changes in the capital market regulations affect the brokerage side of the
business, along with the trade clearing and settlement houses. The trading personnel
should be conversant with the regulations, guidelines, procedural formalities and actual
trade execution processes involved in capital market. E.g. Trading system involves a lot
of additional skills than online trading. He has to be conversant with the codes, symbols
and conventions followed by the market. Quick signaling and accurate interpretation are
of utmost significance. Any mistake in these would lead to faulty execution of orders and
might entail additional costs to the firm in correcting the errors.
 Knowledge of Regulatory Bodies involved in the Various Operations- It is necessary for
an investment banker to be aware of all the regulatory bodies that govern the activities
in which he/she is involved. A thorough knowledge of all such bodies is absolutely
essential to perform extraordinarily. In India, the SEBI & central bank acts as a watchdog
and regulator of market related activities.
 Knowledge of International Business Scenario and Economic Trends:-Though a
researcher is primarily involved in economic and business cycle studies, it is the duty of
all the investment bankers to have a general overview of these affairs. Salespersons,

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who also act as financial consultants/advisors, should essentially be aware with
economic and business cycles, lest they lose the respect and trust of the client. The
requirement for global perspective and international exposure is becoming increasingly
important. The firm should offer services across the national borders to the corporate
clients and informed services are possible only when the employee is well-equipped
with international business information.
 Knowledge of Software Tools, Developments in the Field of Information Technology-
One of the most important technical skills is the usage of computers, tools and internet
technologies. Marketing, brokerage, research and capital mobilization have all
undergone sweeping changes owing to technology.
The securities trader has changed into a tech-savvy professional, executing online orders
& maintaining databases. The technology helps management and other departmental
professionals and even the clients to disseminate such data in negligible time. Asset
managers have now complicated tools for scientific and in-depth valuation of portfolios.
Comp frameworks can be solved with minimum effort using technology.
 Communication Skills
 Ability to Cater to the Audience According to its Awareness Levels- Communication
skills include both the means of communication — written and oral. However, the
audiences vary extensively, and hence, the requisite communication skills also differ
widely. A marketer handling individual investors will necessarily have to keep the
content very simple and express t in layman’s terms. Usage of financial terms & jargons
will not fetch results. Cash flows, the characteristics of the instruments & the risk class
to which the investment belongs to must be explained in simple & easily understandable
terms.
 Negotiation Skills- Negotiation skills is important at a variety of places. Institutional
clients have to be convinced about the prospects of the investments that are solicited by
the firm. Investors in syndicated debt must be satisfied with the payment streams and
interest rate terms. M&A transactions are the toughest assignments for negotiations.

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Even a friendly transaction would be difficult if not for patient and mutually
negotiations. The common issues that pertain to negotiation are — terms of offer, offer
price, post merger integration, organization and reporting structure, business lines to be
developed above all dealing with the overlapping functions. While negotiating, the
banker should always keep the prime object in the mind & quickly evaluate the various
counter offers & suggestions made by other party.
 Personality Traits- Personality Traits plays an important role in developing the skill set of
an investment banker. Creativity is an important feature. It comes in use while handling
prospectus, clients & team members. It is essential when solutions are to be identified
for complex problem. Innovations & creativity are required structure deals.
 Other Skills
 Marketing Skills- The marketing skills would be an application of skills mentioned
above. One of the important marketing skill would be relationship management. Unlike
most other industries where relationship plays a facilitating role in conducting business,
it is fundamental issue in the investment banking industry. An attitude for creating,
establishing & maintaining relationships, during boom & down period, is of utmost
importance in getting mandates.
 Inter-Personal Skills-Inter-personal skills are basically blended from communication
skills, and personality traits. They include interactions with superiors, subordinates,
colleagues, clients, competitors, team members and even politicians and public office
bearers. Inter-personal skills come to the fore during team exercises where diplomacy
and manners become essential. Team exercises can also include dealing with members
from other departments or even with other firms. Such situations call for greater
application of team skills and an element of mutual respect towards each other.
 Networking Skills- Networking refers to the process of developing a web of contacts and
acquaintances. Some of the special attributes required to develop networking abilities
would include:
• Knowledge of human psychology;
• Presence of mind to apply the appropriate skills as situation demands;

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• Approaching through proper channels that would lend credibility respectability to
contacts;
• Persuasion skills;
• Highest standards of professionalism.
ROLE OF INVESTMENT BANKERS IN DEVELOPING AN
ECONOMY.

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MAJOR FUNCTIONS OF THE INVESTMENT BANK
Investment
Bankers
Banks &
Financial
Investment
Institutions
(financial
economy)
CapitalMarket/
Money Market
(financial
economy)
Foreign
Exchange
Market
(financial
economy)
Real Estate /
Gold etc (real
economy)
Commodity
futures Market
(financial
economy)
Business activity
Production of
goods and
services (real
economy)
Investors
(generate
savings)

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 Raising Capital & Security Underwriting. Banks are middlemen between a company that
wants to issue new securities and the buying public.
 Mergers & Acquisitions. Banks advise buyers and sellers on business valuation,
negotiation, pricing and structuring of transactions, as well as procedure and
implementation.
 Sales & Trading and Equity Research. Banks match up buyers and sellers as well as buy
and sell securities out of their own account to facilitate the trading of securities
 Retail and Commercial Banking. investment banks now offer traditionally off-limits
services like commercial banking.
SCOPE OF INVESTMENT BANKS
Following are activities of investment banks. They can be allocated into categories such as
“Corporate Finance,” “Capital Markets,” “Wealth Management / Private Client,”
“Alternative Investments,” and the like.
 Public Offerings of Debt and Equity Securities
There are four general types of public offerings: 1) Initial public offerings (IPOs) of securities
issued by companies that have never before issued any public securities (normally common
stock is the first security to be issued in an IPO); 2) Initial public offerings of new securities
that companies that are already public have not before issued (e.g., a new class of
convertible debt security); 3) Further public offerings of securities that are already publicly
traded (e.g., the issuance of additional common stock when its price is sufficiently high so
Raising Capital
& Security
Underwriting
Mergers &
Acquisitions
Sales & Trading
and Equity
Research
Retail and
Commercial
Banking

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that cost of capital is sufficiently low); 4) Public offerings by company shareholders of
securities that are already publicly traded (e.g., when an original large shareholder, say a
private equity fund, wants to cash out its position).
In the past we could cleanly differentiate debt and equity securities and put them into
separate categories. Investment grade corporate bonds were distinct from high-yield
(“junk”) bonds. Today the old distinctions are fuzzy. Debt and equity are more points on a
continuum than boxes on a chart. Junior subordinated zero-coupon convertible debentures
can be thought more equity than debt and dutch-auction preferred stock can be thought
more debt than equity. Geography, as well, is no longer a constraint: Companies can reach
anywhere in the world to lower their cost of capital.
 Private Placements of Debt and Equity Securities
Private placement is the selling of securities to investors without the regulatory
requirements of public offerings. The regulations defining private placements are complex
and the securities and investment vehicles offered are numerous. Ranging from corporate
equities to real estate interests, privately placed securities carry a higher return than
similarly structured securities that can trade in the public markets. The loss of liquidity
enhances risk and therefore requires a proportionally higher return.
 Mergers and Acquisitions (M&A)
This is the front-page stuff – the huge acquisitions, takeover battles, hostile attacks and
fierce defenses. But it’s not all war. The vast majority of M&As are friendly. Investment
bankers seek to optimize price and terms, so that the “best price” may not be the highest
price for client sellers (all cash or confidence in closing may be more important) nor the
lowest price for client buyers (certainty of getting the deal done may be more vital).
Investment banks find, facilitate, price, and finance mergers and acquisitions. Also included
in M&A are leverage buyouts by private equity, the restructuring and recapitalization of
companies, and the reorganization of troubled companies.
 Financial Advisory / Sponsor Group Finance

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Financial advisory services have grown dramatically as investment banks work with the large
number of private funds – hedge funds and private equity – that have mushroomed in
recent years and control hundreds of billions of dollars. Services include (i) raising of capital
for general funds, (ii) M&A acquisitions, (iii) financing acquisitions, (iv) IPOs of portfolio
companies owned by the funds (when appropriate) and (v) M&A of these companies (when
IPOs are not appropriate). Investment banks like to involve themselves with hedge funds
and private equity since they are transaction oriented, generate huge fees and are in
perpetual deal mode-.
 Fairness Opinions
Fairness opinions support M&A, leveraged buyouts and restructurings for public companies.
Providing an independent, defensible, expert statement on values and the “fairness” of
those values is an essential part of any such public transaction. Investment banks command
what may seem to be exorbitantly high fees for giving fairness opinions, considering the
number of hours worked (and the amount of paper produced). The reason is the significant
liability the investment bank assumes, which can be realized both in the courts via
shareholder suits and in industry reputation. In fact, major investment banks do not like to
provide fairness opinions – the risks are too high for the fees – but generally do so only to
serve important clients.
 Structured Finance / Securitization
The creation of synthetic financing mechanisms and structures makes possible allocations of
capital with better risk-return features for both issuers and investors. This is generally
achieved by instruments that (i) pool assets, (ii) allocate liabilities into different “trenches”
(with different risk-return profiles), and (iii) are contained within an independent legal
entity.
Securitization is the process by which formerly illiquid assets, mostly small consumer
receivables of all kinds (e.g., home mortgages, automotive loans, credit card receivables),
can be liquefied by their being “rolled up” into large, publicly tradable securities with
improved risk-return for both issuers and investors. (Such innovations exemplify investment
banking’s contribution to financial markets.)

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Securitized obligations are sophisticated in design and often require statistical analysis and
sensitivity testing of key criteria (e.g., default rates, prepayment profiles, interest rate
sensitivity, tax changes, etc.). For example, a change from forecasted rates of prepayment
(e.g., due to interest rate declines and the resulting refinancing of older, higher-rate
mortgages) can result in shocking differences in returns from initial expectations. (Principal
itself can suffer significantly.)
Other kinds of structure finance include project finance, which is used to fund large-scale
enterprises such as power plants and infrastructure.
 Risk Management
Hedging positions in interest rates, foreign currency exchanges and commodity positions
through swaps, options and futures are an essential building block of financial markets.
Swaps are the mechanism by which two or more parties exchange their debt obligations in
order to control more precisely each party’s desired risk/return profile. Swaps work because
different entities have different comparative advantages when pricing different categories
of debt in different financial markets. Parties of dissimilar credit ratings or financing needs
can exchange their obligations (e.g., from shorter term to longer term and vice versa) in
order to optimize their financial strategy and structure. Risk management groups combine
expertise in diverse hedging instruments to develop a complete hedging strategy for
enterprises.
 Merchant Banking
Merchant banking is the commitment of an investment bank’s own capital to equity-level
investments and participations, seeking very high returns. Such commitment of capital is
made for two general purposes: 1) to facilitate a client transaction (i.e., a bridge loan until
permanent financing is obtained); or 2) to purchase securities in an operating company for
the firm’s own account (i.e., whether 100% ownership by the investment bank, in
partnership with a client, or as the manager of an LBO[BP1] fund). Bridge loans are highly
profitable, combining commitment fees, placement fees, high interest rates,and equity
kickers.
 Public Trading of Debt and Equity Securities

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Most large investment banks maintain strong trading capabilities, which is a significant
though volatile profit center – profits are made both from commissions generated by
trading for clients and from capital appreciation generated by trading for the firm’s own
account. Investment banks act as brokers, dealers, and/or market makers (which can differ
for different securities). In addition to traditional stocks and bonds, money market
instruments and commodities (e.g., gold, silver, coffee, crude oil, various metals, various
foods), investment banks create “synthetic securities” (e.g., striped Treasuries, interest only
and principal only instruments), which by appealing to different investors, enhance the risk-
return for all.
Brokers are commissioned agents who represent either buyers or sellers and work much as
do real estate agents; they carry no securities in inventory and therefore assume no risk in
price variation or interest-charge. Dealers set bid-and-ask prices for each security they offer
for trade; by maintaining an inventory of securities, dealers assume a price risk since the
market may go up or down during the time they hold the securities. Market Makers
establish (and support) the entire market for a security on either side of a transaction.
Brokers and dealers are regulated by the various exchanges of which they are members and
the National Association of Securities Dealers (NASD), which is the self-regulating
organization to which they all belong.
 Investment Research and Security Analysis
For decades, the research capabilities of an investment bank’s security analysts were often
the firm’s most prestigious and visible strength. (More recently, M&A, IPOs, LBOs, and
private equity / hedge funds have usurped the limelight.) Indeed, many investment banks
used the reputation derived from their investment analysis expertise to develop
underwriting and money management businesses. Typical subdivisions are Global Equities
and Fixed-Income. Today, after various scandals and prosecutions, investment banks must
enforce strict compartmentalization between their corporate finance and investment
research departments (the so-called “Chinese Wall”).
 Wealth Management

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The accumulation of vast wealth by institutional investors (i.e., pension and insurance
funds), and by rich and super-rich individuals, has made money management a vital
business. (For individuals, the departments are called “private banking” or “private client.” )
Investment banks compete with one another, and with large commercial banks and
specialized money management firms in accumulating assets under management. Hundreds
of billions of dollars are at stake.
 Alternative Investments
The investments in financial products other than exchange-traded stocks and bonds have
become a huge business, such as private equity, real estate, arbitrage, international, and the
like. The development of funds under management, including private equity and hedge
funds, has increased dramatically, and investment banks both develop their proprietary
products and sell others.
 Public / Government Finance
The raising of money for governments (“sovereigns”) at all levels: national governments,
state governments, county and municipal governments. Also included is working with
national governments in the privatization of government assets

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INVESTMENT BANK ORGANIZATIONAL STRUCTURE
Investment banking is split into front office, middle office, and back office activities. While
large service investment banks offer all lines of business, both "sell side" and "buy side",
smaller sell-side investment firms such as boutique investment banks and small broker-
dealers focus on investment banking and sales/trading/research, respectively.
Investment banks offer services to both corporations issuing securities and investors buying
securities. For corporations, investment bankers offer information on when and how to
place their securities on the open market, an activity very important to an investment
bank's reputation. Therefore, investment bankers play a very important role in issuing new
security offerings.

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ROLE OF FRONT, MIDDLE AND BACK OFFICE IN INVESTMENT BANKING
Front office
Front office is generally described as a revenue generating role. There are two main areas
within front office, i.e. Investment Banking and Markets.
Investment Banking involves advising the world's largest organisations on mergers,
acquisitions, as well as a wide array of fund raising strategies. This is, on average, the most
prestigious and highest paid department in the bank with first year analysts typically making
£60,000 upwards (depending on individual, team and firm performance).
Markets is divided into sales, trading, some research and also structuring.]
Investment banking
Corporate finance is the traditional aspect of investment banks which also involves helping
customers raise funds in capital markets and giving advice on mergers and acquisitions
(M&A). This may involve subscribing investors to a security issuance, coordinating with
bidders, or negotiating with a merger target. Another term for the investment banking
division is corporate finance, and its advisory group is often termed "mergers and
acquisitions". A pitch book of financial information is generated to market the bank to a
Front Office
•Investmentbanking
•Sales & Trading
•Research
Middle
Office
•Risk Management
•InternalControl
•Corporatetreasury
Back Office
•Operation
•Technology

21. Investment Banks
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potential M&A client; if the pitch is successful, the bank arranges the deal for the client. The
investment banking division (IBD) is generally divided into industry coverage and product
coverage groups. Industry coverage groups focus on a specific industry – such as healthcare,
public finance (governments), FIG (financial institutions group), industrials, TMT
(technology, media, and telecommunication) – and maintains relationships with
corporations within the industry to bring in business for the bank. Product coverage groups
focus on financial products – such as mergers and acquisitions, leveraged finance, public
finance, asset finance and leasing, structured finance, restructuring, equity, and high-grade
debt – and generally work and collaborate with industry groups on the more intricate and
specialized needs of a client.
Sales and trading
On behalf of the bank and its clients, a large investment bank's primary function is buying
and selling products. In market making, traders will buy and sell financial products with the
goal of making money on each trade. Sales is the term for the investment bank's sales force,
whose primary job is to call on institutional and high-net-worth investors to suggest trading
ideas (on a caveat emptor basis) and take orders. Sales desks then communicate their
clients' orders to the appropriate trading rooms, which can price and execute trades, or
structure new products that fit a specific need. Structuring has been a relatively recent
activity as derivatives have come into play, with highly technical and numerate employees
working on creating complex structured products which typically offer much greater
margins and returns than underlying cash securities. In 2010, investment banks came under
pressure as a result of selling complex derivatives contracts to local municipalities in Europe
and the US.[4] Strategists advise external as well as internal clients on the strategies that can
be adopted in various markets. Ranging from derivatives to specific industries, strategists
place companies and industries in a quantitative framework with full consideration of the
macroeconomic scene. This strategy often affects the way the firm will operate in the
market, the direction it would like to take in terms of its proprietary and flow positions, the
suggestions salespersons give to clients, as well as the way structures create new products.
Banks also undertake risk through proprietary trading, performed by a special set of traders
who do not interface with clients and through "principal risk"—risk undertaken by a trader
after he buys or sells a product to a client and does not hedge his total exposure. Banks seek

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to maximize profitability for a given amount of risk on their balance sheet. The necessity for
numerical ability in sales and trading has created jobs for physics, computer
science, mathematics and engineering Ph.D.s who act as quantitative analysts.
Research
The securities research division reviews companies and writes reports about their prospects,
often with "buy" or "sell" ratings. Investment banks typically have sell-side analysts which
cover various industries. Their sponsored funds or proprietary trading offices will also have
buy-side research. While the research division may or may not generate revenue (based on
policies at different banks), its resources are used to assist traders in trading, the sales force
in suggesting ideas to customers, and investment bankers by covering their clients. Research
also serves outside clients with investment advice (such as institutional investors and high-
net-worth individuals) in the hopes that these clients will execute suggested trade
ideas through the sales and trading division of the bank, and thereby generate revenue for
the firm. Research also covers credit research, fixed income research, macroeconomic
research, and quantitative analysis, all of which are used internally and externally to advise
clients but do not directly affect revenue. All research groups, nonetheless, provide a key
service in terms of advisory and strategy. There is a potential conflict of interest between
the investment bank and its analysis, in that published analysis can affect the bank's profits.
Middle Office
Risk management
Risk management involves analyzing the market and credit risk that an investment bank or
its clients take onto their balance sheet during transactions or trades. Credit risk focuses
around capital markets activities, such as loan syndication, bond issuance, restructuring, and
leveraged finance. Market risk conducts review of sales and trading activities utilizing the
VaR model and provide hedge-fund solutions to portfolio managers. Other risk groups
include country risk, operational risk, and counterparty risks which may or may not exist on
a bank to bank basis. Credit risk solutions are key part of capital market transactions,
involving debt structuring, exit financing, loan amendment, project finance, leveraged buy-
outs, and sometimes portfolio hedging. Front office market risk activities provide service to
investors via derivative solutions, portfolio management, portfolio consulting, and risk

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advisory. Well-known risk groups in JPMorgan Chase, Goldman Sachs and Barclays engage in
revenue-generating activities involving debt structuring, restructuring, loan syndication, and
securitization for clients such as corporates, governments, and hedge funds. J.P. Morgan IB
Risk works with investment banking to execute transactions and advise investors, although
its Finance & Operation risk groups focus on middle office functions involving internal, non-
revenue generating, operational risk controls. Credit default swap, for instance, is a famous
credit risk hedging solution for clients invented by J.P. Morgan's Blythe Masters during the
1990s. The Loan Risk Solutions group within Barclays' investment banking division and Risk
Management and Financing group housed in Goldman Sach's securities division are client-
driven franchises. However, risk management groups such as operational risk, internal risk
control, legal risk, and the one at Morgan Stanley are restrained to internal business
functions including firm balance-sheet risk analysis and assigning trading cap that are
independent of client needs, even though these groups may be responsible for deal
approval that directly affects capital market activities. Risk management is a broad area, and
like research, its roles can be client-facing or internal.
Middle Office
This area of the bank includes treasury management, internal controls, and internal
corporate strategy.
Corporate treasury is responsible for an investment bank's funding, capital structure
management, and liquidity risk monitoring.
Internal control tracks and analyzes the capital flows of the firm, the finance division is the
principal adviser to senior management on essential areas such as controlling the firm's
global risk exposure and the profitability and structure of the firm's various businesses via
dedicated trading desk product control teams. In the United States and United Kingdom,
a comptroller (or financial controller) is a senior position, often reporting to the chief
financial officer.
Internal corporate strategy tackling firm management and profit strategy, unlike corporate
strategy groups that advise clients, is non-revenue regenerating yet a key functional role
within investment banks.

24. Investment Banks
24
This list is not a comprehensive summary of all middle-office functions within an investment
bank, as specific desks within front and back offices may participate in internal functions.[10]
Back Office
Operations
This involves data-checking trades that have been conducted, ensuring that they are not
wrong, and transacting the required transfers. Many banks have outsourced operations. It
is, however, a critical part of the bank.
Technology
Every major investment bank has considerable amounts of in-house software, created by
the technology team, who are also responsible for technical support. Technology has
changed considerably in the last few years as more sales and trading desks are
using electronic trading. Some trades are initiated by
complex algorithms for hedging purposes.
Firms are responsible for compliance with local and foreign government regulations and
internal regulations.

25. Investment Banks
25
TOP TEN INVESTMENT BANKS
According to the Financial Times, in terms of total advisory fees for the whole of 2014, the
top ten investment banks were.
Rank Company Fees ($m)
1. J.P. Morgan & Co. 6,398.67
2. Bank of America Merrill Lynch 5,693.77
3. Goldman Sachs 5,556.45
4. Morgan Stanley 5,310.17
5. Citigroup 4,489.64
6. Deutsche Bank 4,263.81
7. Credit Suisse 3,768.46
8. Barclays 3,706.22
9. Wells Fargo 2,367.32
10. UBS 2,219.69
The above list is just a ranking of the advisory arm (M&A advisory, syndicated
loans, equity capital markets and debt capital markets) of each bank and does not include
the generally much larger portion of revenues from sales and trading and asset
management.

26. Investment Banks
26
BIBLIOGRAPHY
 www.wikipedia.org
 www.investopedia.com
 www.moneycontrol.com
 money.livemint.com
 http://www.technofunc.com/
 www.finance-glossary.com
 (For definition of certain financial terms)
 Financial Management -by I. M. Pandey
 Financial Management- by Ravi Kishor