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Irwin/McGraw-Hill Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

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Page 1: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill1

Securities Firms and Investment Banks Chapter 3

Financial Institutions Management, 3/e

By Anthony Saunders

Page 2: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill2

Securities Firms and Investment Banks

Nature of business:• Underwrite securities• Market making • Advising (example: M&A, restructurings)

Growth in mergers and acquisitions:• $200 billion in 1990. $919 billion 1997.

$910 billion in first half of 1998.

Page 3: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill3

Size, Structure and Composition

• Dramatic increase in number of firms from 1980 to 1987. Decline of 18% following the 1987 crash, to 1996.

• 1987: Salomon Brothers held $3.21 billion in capital.

• 1997: Merrill Lynch held capital of $33 billion.• Many recent inter-industry mergers (i.e.,

insurance companies and investment banks).

Page 4: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill4

Types and Relative Sizes of Firms

• National full-line firms are largest.• National full-line firms specializing in

corporate finance are second in size.• Remainder of industry:

» Specialized investment subsidiaries of BHCs.

» Discount brokers.

» Regional securities firms (subdivided into large, medium and small).

Page 5: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill5

Key Activities

• Investing• Investment banking

» Activities related to underwriting and distributing new issues of debt and equity.

• Market making• Trading• Cash management• Assisting with mergers and acquisitions• Back-office and service functions

Page 6: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

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Trends

• Decline in trading volume and brokerage commissions (particularly since crash of 1987).

• Decline in underwriting activities over 1987-91.

• Resurgence in activity and profitability since 1991.

• 1987: Federal Reserve allowed BHCs to expand securities underwriting. (Prohibited since 1933 under Glass-Steagall Act).

Page 7: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill7

Balance Sheet

• Key assets:» Repurchase agreements.

» Long positions in securities and commodities.

• Key liabilities:» Repurchase agreements major source of funds.

» Securities and commodities sold short.

• Capital levels much lower than levels in depository institutions.

Page 8: Irwin/McGraw-Hill 1 Securities Firms and Investment Banks Chapter 3 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill8

Regulation

Primary regulator: SEC• Reiterated by National Securities Markets

Improvement Act (NSMIA) of 1996.• Prior to NSMIA, regulated by SEC and states.

Day-to-day trading practices regulated by the NYSE and NASD.

Securities Investors Protection Corporation (SIPC).


McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies

1 Lamar University Integrative Negotiation Adapted from: Lewicki, Roy J., Saunders, David M., and Minton, John W., Essentials of Negotiation, Irwin McGraw-Hill,

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin

Chapter 11 · Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001 Chapter 11 Reporting and Interpreting Owners’ Equity. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc.,

McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, All Rights Reserved

Relevant Costs for Decision Making - NELY BACHSIN BLOG · PDF fileChapter Thirteen . McGraw-Hill/Irwin ... McGraw-Hill/Irwin Copyright © 2008, ... McGraw-Hill/Irwin Copyright © 2008,

1 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Seven McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc.,

McGraw-Hill/Irwin ©2005 The McGraw-Hill Companies, All rights reserved ©2005 The McGraw-Hill Companies, All rights reserved McGraw-Hill/Irwin

Chapter Ten LocalMarketing in Emerging Markets Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,,

© The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin

McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc

© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All

#14-1 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights

Chapter 10 · Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001 $ Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc.,

11-1 McGraw-Hill/Irwin

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill

Irwin/McGraw-Hill 1 Capital Adequacy Chapter 20 Financial Institutions Management, 3/e By Anthony Saunders

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 6: Integrated Operations Planning McGraw-Hill/Irwin

12-1 McGraw-Hill/Irwin © 2012 The McGraw-Hill Companies, All Rights Reserved McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All

Irwin/McGraw Hill The McGraw-Hill Companies, Inc., 2000 · Slides by Matthew Will Chapter 2 Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000. Irwin/McGraw Hill ... " Tools

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights

Local Marketing in Mature Markets Chapter Eight. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,,

12-1 McGraw-Hill/Irwin

McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies,

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill

McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 1 Saunders Cornett McGraw

McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies

McGraw-Hill/Irwin ©2005 The McGraw-Hill Companies, All rights reserved McGraw-Hill/Irwin

4 1 Irwin/McGraw Hill

1 2-1 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc.,

10-1 McGraw-Hill/Irwin

Irwin / McGraw-Hill

McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin