pdf to tiff conversion using c# : Adding text to a pdf in reader application SDK tool html wpf windows online Welch-ed189-part1882

23.1 THEINVESTMENTBANKINGBUSINESS
855
23.1A WHATEXACTLYISUNDERWRITING?
Thefirstmajorbusinessofinvestmentbanksistheunderwritingoffinancialsecuri-
Underwritingmeans
guaranteeingtheproceeds.
However,thisisnolonger
important.
ties.Almostalldebtandequityofferingsbyexchange-tradedfirmsareunderwritten
byinvestmentbanks.Thetermunderwriteroriginallycamefromtheguaranteeof
theissuingproceedsbythebankertotheissuingclient,similartotheunderwriting
ofapolicybyaninsurancecompany.Thismatteredgreatlyinanerawhencommu-
nicationstraveledbyhorse,investorsweredispersedoverthousandsofmiles,sales
hadtobemadebyforeignagents,andittookweekstoplacetheshares.Timeshave
changed.Communicationisnowinstantaneousaroundtheglobe,andeveryunder-
writerknowsalmosteveryimportantlargeinvestor.Afewdozenlargeinstitutional
fundsaresobigthattheycouldeasilyabsorbhundredsofofferings.Giventoday’sfi-
nancialinformationenvironment,theunderwriterknowsquitewellonthedayofthe
offeringatwhatpricetheissuecanbesoldfor.Iftheissuerweretorefusetoacceptthis
pricepoint,theunderwriterwouldnotbringtheissuetothemarketinthefirstplace.
Thus,theactualunderwritingguaranteeitself,whichisgrantedonlyonthemorning
oftheoffering,alsohasbecomeunimportant.
Instead,themainfunctionsofunderwriterstodayaredifferent:
Underwritingtodayisan
agencybusiness.Underwriters
helpcorporationssellsecurities
tothird-partyinvestors.
Issueorigination:Underwritersmusthavetheexpertisetohandlethelegalandop-
erationalprocesses.
Issueplacement:Underwritersmustmaintainandtaptheirinvestornetworkstofind
theinvestorsdesiredbyissuers.(Manyissuerspreferinstitutionalinvestors;others
preferdispersedownership.)
Reputationandsignaling:Underwritersvouchfortheintegrityoftheprocessandthe
qualityoftheissuertotheinvestors.
Underwritersalsohelpthroughouttheprocessinwaysthatarenotasformal.For
Analysts’conflictof
interest,Anecdote,Section
21.7,p.809
example,manyinvestmentbankshavelargebrokeragearms.Aftertheoffering,the
banks’analystswillcontinuetoprovidehelpfulinformationtoinstitutionalandretail
investorsonanongoingbasis.(ForIPOs,theycanalsohelpspread“positivehype”
throughoptimisticanalystreportsonbehalfoftheissuer.)Thispresumablyincreases
thedemandforinvestmentinthecompanyandisthusgoodforsellingmoreshares
anddebtinthefuture.UnderwritersareallowedbyaspecialSECexceptionto“stabi-
lize”(i.e.,manipulate)theprice.
Althougheverymajorbanknowadayshasplentyofcontactstoplaceeventhe
Syndicatesandlead
underwriters.
largestissuesonitsown(andplentyofcapitalsoasnottohavetofeartheriskof
afailedoffering),anotherhistoricalaspectoftheunderwritingprocessthathassur-
vivedisthatalmostallofferingsarebroughttomarketbyasyndicateofbanksput
togetherforeachdeal.Syndicatestypicallycontainbetweentwoandsixleadunder-
writers.Syndicatesareledbybookrunnersandleadmanagers,withtheformerin
chargeofassemblingthebookofinvestorsinterestedinpurchasingshares(actually,a
spreadsheet),andthelatterinchargeofhandlingtheduediligenceandthetechnical
andlegalaspectsoftheprocess.Normally,leadunderwritersarealsothebookrun-
ners.Sometimes,differentbookrunnersareinchargeofdifferentmarketsegments,
suchasdomesticversusforeignplacements.Offeringsalsousedtohavemanyco-
underwriterswhohelpedtoplaceshares,butthisfeaturehaslargelydisappearedin
thelastdecade.
Adding text to a pdf in reader - C# PDF Annotate Library: Draw, edit PDF annotation, markups in C#.net, ASP.NET, MVC, Ajax, WPF
Draw, Add and Edit Various Annotations on PDF File in C# Programming
adding text to a pdf in acrobat; add text to pdf document online
Adding text to a pdf in reader - VB.NET PDF Annotate Library: Draw, edit PDF annotation, markups in vb.net, ASP.NET, MVC, Ajax, WPF
Guide to Draw, Add and Edit Various Annotations on PDF File in VB.NET Programming
adding stamps to pdf files; add comments to pdf in reader
856
CHAPTER23
INVESTMENTBANKINGANDMERGERS&ACQUISITIONS
Investmentbankscaregreatlyabout“braggingrights”(moreformallycalled“rep-
Underwriterreputationis
oftenmeasuredbyranking.
utation”).Forexample,banksconsideritimportanttobenamedaleadunderwriter,
becauseithelpstheirrankings.ThetwomainprovidersoftheserankingsareThom-
sonFinancialandDealLogic.Historically,beforerankingsbecamewidelyavailable,
thelocation,placement,andfontsizeoftheunderwriter’snameintheprintedfi-
nancialadvertisementofanoffering(theso-calledtombstoneadvertisement)was
anotherimportantsignoftherelativeprestigeofaninvestmentbank.However,tomb-
stonesarerapidlybecomingextinct.
solvenow!
Q23.1 Whatarethemostimportantservicesandfunctionsofunderwriters
today?
Q23.2 Howgoodandunbiasedarebrokerageanalysts’buyrecommendations?
23.1B WHATEXACTLYISM&AADVICE?
ThesecondmajorbusinessofinvestmentbanksisthehandlingofM&Atransactions.
Advisoryservicesarebasically
anagencybusiness.Think
“personalrealestateagent”
onalargerscale.
Thisbusinessiseasiesttovisualizeifyouthinkofagoodcommonrealestatebroker—
thetwojobsarereallyquitesimilar.Theydifferprimarilyinscale.Hereiswhatagood
advisortypicallydoes:
.
Theadvisoridentifieshisownpotentialclients,orviceversa.Sometimes,theclient
initiatesthecontactwhenshewantstobuyorsellatargetbusiness.Atothertimes,
aninvestmentbankerhasanideathathebringstotheclient.
.
Theadvisoroffersvaluationservicesforpotentialtargets.(Thiswasthesubjectof
mostofthistextbook.Youalreadyknowthatthisisnotaneasytask.)
.
Ifworkingforapotentialtarget,theadvisorhelpstopositionthebusinesssothat
itcanbesold.Thismaybeasimpleoracomplextask.Itcouldinvolvehiringnew
personnel,restatingthefinancialsinalightthatmakesthemlookmorefavorable,
helpingtoadvertisethebusiness,andsoon.
.
Theadvisorhelpstofindpotentialacquirersortargets.Thisisoftennotjustan
intelligence-gatheringfunction.Manygoodadvisorsalsohavepersonaland/orbusi-
nessconnectionstopotentialcounterpartiesthatmakeanapproachmucheasier.
.
Theadvisorhasexpertiseinnegotiation,whichtheclientmaylack.Advisorshavea
Agents:Whoworksfor
whom?Anecdote,Section
10.3A,p.315
greatincentivenottoletnegotiationsbreakdown.(However,thisisnotnecessarily
good.Advisorsareoftenlesswillingthantheprincipalclienttowalkawayfromdeals
ifthetermsarenotright.)
.
Theacquirer’sadvisorcanhelpconductduediligence(i.e.,aminimalamountof
scrutiny)tolocategapingproblemsinthetargetortransactionthatwouldotherwise
beoverlooked.Mostofthetime,however,thishasbecomejustalegalrequirement
thatmustbesatisfied.
.
Theadvisorcanhelpwiththetaxstructureofadeal.Thiscanbeahugelyimportant
aspect,savingthepartiesasmuchas20%ofthedealcomparedtoaworsestructure.
(Forexample,asellerisoftenbetteroffnottakingaconsultingroleinthemerged
C# PDF insert text Library: insert text into PDF content in C#.net
Supports adding text to PDF in preview without adobe reader installed in ASP.NET. Powerful .NET PDF edit control allows modify existing scanned PDF text.
add text to pdf using preview; adding text to pdf in acrobat
VB.NET PDF insert text library: insert text into PDF content in vb
Multifunctional Visual Studio .NET PDF SDK library supports adding text content to adobe PDF document in VB.NET WinForms and ASP Add text to PDF in preview
a pdf text extractor; adding text pdf
23.1 THEINVESTMENTBANKINGBUSINESS
857
entity.Suchapositionwouldhavecashflowstaxedathighordinaryincometaxrates,
ratherthanatlowercapitalgainstaxrates.)
.
Theadvisorcanoftenarrangethefinancingneededtocompleteanacquisition.In-
deed,mostacquirersdonothaveenoughcashonhand,sotheinvestmentbankalso
oftenprovidesbridgefinancingtofacilitatetheacquisition.Asthenamesuggests,
theintentisfortheacquirertoliquidatesomecorporateassetsrightaftertheacqui-
sitiontorepaythisloan.
.
Theadvisor knowshowto navigatethelegalaspects oftheprocess, everything
rangingfromstatelawstoSECregulations.
Thesearedifficult tasksthat requireexpertise that few w acquirersor targets have
themselves—thus,theroleoftheinvestmentbanker.
23.1C THEGLOBALMARKET
Itwouldbeamistaketoconsiderthetopicofinvestmentbankinginisolation.Itexists
Bankingisaglobalandwider
businessthanU.S.investment
banking.
inthecontextofalargerandglobalbankingmarket.Nowadays,banksfromallover
theworldcompetetoprovidecapitaltoinstitutionsnotonlyintheUnitedStatesbut
alsoinEurope,Asia,andeverywhereelse.Moreover,manylargeglobalbanksnotonly
canactasintermediariesformostoftheirclients’creditneeds,butcanalsosatisfy
theseneedswithloansfromtheirowncapitalbase.
BeforewelookatU.S.investmentbanking,let’slookfirstatthebroadercontext:
The(commercial)bankingsectoratlarge: Table23.1liststhe25biggestglobalbanks
(Commercial)bankscanlend
asprincipals,too—unlike
investmentbanks,whichjust
facilitatefundingbyother
investors.
in2007.TheUnitedStatesandUnitedKingdomtogetherarestillveryprominently
represented,butsomeotherEuropean,Japanese, andevenChinesebankshave
joinedthelistofbankswithdeeppockets.Asnoted,manyofthesebanksarenot
somuchintermediariesasprincipallenders.Otherbanksonthislistareboth.
Sizealoneisnotnecessarilyanasset.(Badpun.)Inmanyforeigncountries,
thesebanksareseenasnationalresources,orasthreatstopublicwelfare,andare
thereforehighlyregulated.Thiscanmakeitdifficultforthemtocompeteinthe
worldmarket.
Therearemanyinterestingfactsnotreportedinthetable.Forexample,theU.S.
andU.K.banksareconsiderablymoreprofitablethantheirforeigncompetitors
whenmeasuredagainsttheirTier1capital.Outofthetop1,000banks,thetop200
U.S.banksaccountedforabout28%oftheprofits,whilethetop300banksfrom
theEuropeanUnionaccountedforabout40%oftheprofits.(Europewasdragged
downbythe100Germanbanks,whichwereonlymarginallyprofitable.)
Theglobalinvestmentbankingmarket: Themarketinwhich h banksactprimar-
Bysizeofthecapitalmarket,
theUnitedStatesisnow
onlyprimusinterpares(first
amongequals).
ilyasintermediariesratherthanasprincipallendersisnotjustdomestic,either.
TheUnitedStatesandEuropestillhavethelargestfinancialmarketsintheworld,
thoughAsia(includingChina)isclearlycomingonstrong.Marketsizesandmar-
ketsharesin2007forseasonedequityofferings(SEOs),initialpublicofferings
(IPOs),debtofferings,andM&AadviceareshowninTable23.2.
Don’ttakethesenumberstooliterally.Notonlydotheychangeyeartoyear,
butitisnotevenclearanylongerwhatisissuedandwhoisholdingwhat.For
example,aLatinAmericancompanymayissuesecuritiesintheUnitedStatesthat
areboughtbyJapanesebanksthatareownedbyKuwaitiinvestors.Whichregion’s
VB.NET PDF Text Box Edit Library: add, delete, update PDF text box
Barcoding. XImage.Barcode Reader. XImage.Barcode Generator. Others. Provide VB.NET Users with Solution of Adding Text Box to PDF Page in VB.NET Project.
add comments to pdf preview; add comments to pdf reader
C# PDF Text Box Edit Library: add, delete, update PDF text box in
Provide .NET SDK library for adding text box to PDF document in .NET WinForms application. Adding text box is another way to add text to PDF page.
add text to a pdf document; add textbox to pdf file
858
CHAPTER23
INVESTMENTBANKINGANDMERGERS&ACQUISITIONS
TABLE23.1 TheLargest25GlobalCommercialBanksin2007
Bank
Country
Tier1Capital
MarketValue
ClientAssets
BankofAmerica
USA
$91,065 1 1 ↑
$220,379 2 2 −
$1,459,737 10 0 ↑
Citigroup
USA
$90,899 2 2 ↓
$261,270 1 1 −
$1,882,556 4 4 ↓
HSBC
UK
$87,842 3 3 −
$214,934 3 3 −
$1,860,758 5 5 −
CreditAgricole
France
$84,937 4 4 ↓
↓↓
$1,818,341 6 6 ↓
JPMorganChase
USA
$81,055 5 5 ↑
$168,585 5 5 ↑
$1,351,520 11 1 ↑
MitsubishiUFJ
Japan
$68,464 6 6 ↓
$126,676 9 9 ↓
$1,579,390 8 8 ↓
ICBC
China
$59,166 7 7 ↑
$209,060 4 4 ↑↑
$961,576 20 0 ↑
RoyalBankofScotland
UK
$58,973 8 8 −
$119,808 10 0 ↓
$1,710,703 7 7 ↑
BankofChina
China
$52,518 9 9 ↑
$157,343 6 6 ↑↑
Santander
Spain
$46,805 10 0 ↑
$114,095 12 2 ↑
$1,098,213 17 7 ↑
BNPParibas
France
$45,305 11 1 ↓
$109,388 13 3 ↓
$1,896,935 3 3 ↑
Barclays
UK
$45,161 12 2 −
$94,732 15 5 ↓
$1,956,786 2 2 ↑↑
HBOS
UK
$44,030 13 3 ↑
$76,249 25
$1,160,245 16 6 ↑
ChinaConstructionBank
China
$42,286 14 4 ↑
$132,224 7 7 ↑↑
Mizuho
Japan
$41,934 15 5 ↓
$84,970 22 2 ↓↓
$1,235,443 14 4 ↓↓
Wachovia
USA
$39,428 16
$101,312 14
UniCredit
Italy
$38,700 17
$91,876 17
$1,084,267 18 8 ↑
WellsFargo
USA
$36,808 18
$117,492 11
Rabobank
Netherlands
$34,757 19
$732,708 25
INGBank
Netherlands
$33,958 20
$1,178,697 15
UBS
Switzerland
$33,212 21 1 ↓
$128,331 8 8 ↓
$1,963,870 1 1 ↑
Sumitomo
Japan
$33,177 22 2 ↓↓
$826,599 22 2 ↓↓
DeutscheBank
Germany
$32,264 23 3 ↓↓
↓↓
$1,483,248 10 0 ↓
ABNAmro
Netherlands
$31,239 24
$90,526 18
$1,299,966 12
CreditMutuel
France
$29,792 25
Intesa
Italy
$92,563 16
BankofCommunications
China
$88,122 19
CreditSuisse
Switzerland
$87,168 20
$1,029,219 19 9 ↓
SocieteGenerale
France
$85,755 21
$1,260,162 13
BBVA
Spain
$84,142 23
Sberbank
Russia
$81,700 24
Fortis
Belgium
888,570 21
Commerzbank
Germany
801,184 23
Dexia
Belgium
746,402 24
Alldollarsareinmillions.Tier1Capital(alsocalledcoreequity)iscommonstock,disclosedreserves,andretainedearnings.Althoughbased
onbookvalueandthereforeunreliable,itisthemostcommonregulatorydefinitionforbankcapitalization.Marketvalueisthemarketvalue
ofequity,asofearly2008.Arrowsindicatehowthebankchangedsince2003(butindicatedonlyiftheinformationwasavailable).Twoarrows
implybiggermoves.The•symbolonthefarleftmeansthatthebankwasamongthemostprominentinvestmentbanksactiveintheUnited
Statesin2007.
Source:TheBanker,2008.
VB.NET PDF Page Insert Library: insert pages into PDF file in vb.
Support adding PDF page number. Offer PDF page break inserting function. DLLs for Adding Page into PDF Document in VB.NET Class. Add necessary references:
add drawing to pdf; add text pdf reader
VB.NET PDF Library SDK to view, edit, convert, process PDF file
Support adding protection features to PDF file by adding password, digital signatures and redaction feature. Various of PDF text and images processing features
add text to pdf in acrobat; add text box in pdf
23.1 THEINVESTMENTBANKINGBUSINESS
859
TABLE23.2 GlobalMarketSizesandMarketSharesinUnderwriting
Equity
MarketShares
SEO IPO
All
Debt M&A
UnitedStates
23% 15% 27%
58%
42%
Europe(MiddleEast,Africa)
33% 41% 33%
37%
40%
Asia
31% 28% 26%
7%
Australia
6%
2%
4%
4%
Japan
4%
2%
3%
3%
LatinAmerica
3% 12%
6%
2%
WorldMarketSharein2007,inbillionUSdollars $362 $304 $844 $6,226 $4,482
Source:ThomsonFinancial
capitalmarketwouldyougivecreditto?Nevertheless,thetabledoesgivesome
insightintohowlargecapitalmarketsindifferentregionsare.Overall,theUnited
Statesisstillthelargestfinancialmarketintheworld.Yetitisnolongerthelargest
equitymarket.ThathonornowbelongstoEuropeandwillsoonbelongtoAsia.
Thisshouldnotbetoosurprising.Thedemandforcapitalinothercountriesis
expanding: FirmsinAsiaand EasternEuropearejustbeginning to go public.
Similarly,thesupplyofcapitalbyothercountrieshasbeenexpanding(principally
thecapitalfromAsia).Thus,itiseasytopredictthattherestoftheworldwill
continuetocatchupwiththeUnitedStates.Thereisjusttoomuchcapitaland
economicdevelopmenthappeningoutsideourborders.
However,asyouwilllearnbelow,theworld’sprincipalinvestmentbankingoper-
Still,theUnitedStatesremains
thetopdog.
ationsofmostglobalbanksarestillheadquarteredinNewYorkCity.Mostalsohavea
strongsatelliteofficeinLondon,perhapsanotherinHongKong,Singapore,Tokyo,or
Shanghai,andoneintheirhomecountry.Thus,theUnitedStatesstilldeservesspecial
treatmentinthischapter.
Inevitably, bythetimeyouread this, , theinformationherewill l beoutdated.
Hereiswhereyoucanfind
updatedstatisticsonthe
currentinvestmentbanking
markets.
However,ThomsonFinancialpubliclypostsupdated“LeagueTables”athttp://www
.thomsonreuters.com/products_services/financial/league_tables,whichnotonlypro-
videotherrelatedinformation(suchasfeerevenues),butalsosliceanddicethedata
inallsortsofotherinterestingways.TheThomsonLeagueTablesarefreeandhighly
recommendedforbrowsing.
solvenow!
Q23.3 Canyounamesomeoftheleadingglobalcommercialbanksfrommem-
ory?RoughlyhowmuchTier1capital,marketvalue,andclientassets
dothetop25bankshave?
VB.NET PDF Text Add Library: add, delete, edit PDF text in vb.net
Barcoding. XImage.Barcode Reader. XImage.Barcode Generator. Others. Professional VB.NET Solution for Adding Text Annotation to PDF Page in VB.NET.
add comments to pdf file; add text field pdf
C# PDF insert image Library: insert images into PDF in C#.net, ASP
supports inserting image to PDF in preview without adobe PDF reader installed. technical problem, we provide this C#.NET PDF image adding control, XDoc
add text pdf; .net extract text from pdf
860
CHAPTER23
INVESTMENTBANKINGANDMERGERS&ACQUISITIONS
Q23.4 Wherearethebiggestcapitalmarketsforplacingsecurities?Roughly,
howdotheycompareinsize?
23.1D THEINVESTMENTBANKINGHISTORYINTHEUNITEDSTATES
IntheUnitedStates,thedistinctionbetweeninvestmentbankingandordinarybank-
DuetoU.S.regulations,
investmentbankshavea
uniquehistoryintheUnited
States.
inghasnotjustbeenaconceptualone.Investmentbankinghashadaratherun-
usual history here. During the e Great Depression, , many y banks that had invested
depositors’moneyinthestockmarketcollapsed.Thus,CongresspassedtheGlass-
SteagallActof1933, which prohibited themixingofretailbusiness—thetaking
ofdepositsfromretailinvestors—andinvestmentbanking.Glass-Steagalltherefore
madeitimpossibleforlargeconsumerbanks,suchasCitibankorChaseManhattan
Bank,tocompeteeffectivelyintheinvestmentbankingsector.Manyothercountries
nevermadesuchadistinction—theyjusthadonetypeofbankthatperformedboth
consumer/commercialandinvestmentbanking.Itwasourunusuallawsthatmade
theUnitedStatesuniqueinfosteringalargenumberofrelativelysmallinvestment
banks.
Overthedecades,Glass-Steagallwasaugmentedwithotherlaws,firststrengthen-
After1999,thisuniqueness
disappeared,andcommercial
bankingempiresquickly
emerged.
ingitandlaterweakeningit.ItwasfinallyrepealedinNovember1999.Withthelegal
separationbetweenordinaryandinvestment banking gone, theinvestmentbank-
ingsectorrapidlybegantoconsolidate.Forexample,CiticorpandTravelersGroup
mergedin1998tobecomeCitigroup.Inthesameyear,SmithBarneypurchasedSa-
lomonBrotherstobecomeSalomonSmithBarney.Ayearlater,withGlass-Steagall
fullyrepealed,CitigroupthenpurchasedSalomonSmithBarney,sothefiveformerly
independentfinancialservicesprovidersarenowalljustpartsofonelargefinan-
cialconglomerate.Similarly,ChaseManhattanpurchasedJPMorganin2000,then
mergedwithBankOneCorporation(alargecreditcardissuer)in2004.CSFBisthe
combinationofCreditSuisse,averylargeSwissbank,andFirstBoston,anoldU.S.
investmentbank.Andsoon.
solvenow!
Q23.5 WhatwastheGlass-SteagallAct?
23.1E ANEXAMPLE:GOLDMANSACHS
Unfortunately,itisnoteasytofindmuchinformationaboutfinancialfirms.(Hedge
Gettinginformationfrom
investmentbanksislike
pullingteeth.
fundsareevenworsethaninvestmentbanksinthisregard.)Generally,financialfirms
considerinformationtheircompetitiveadvantage,soitisusuallyimpossibletocon-
vincethemtopartvoluntarilywithanydata.(Trustme:Ihavetried.)Fortunately,SEC
disclosurerequirementsallowustogetalimitedglimpseintotheiroperations.The
SECrequiresinvestmentbanksthatfacilitateissuesofotherfirms(e.g.,inthepub-
licissuingprocessofsecurities),todisclosecertaininformation.Moreover,because
investmentbanksarepubliclytradedfirms,theyhavetodisclosecertaininformation
aboutthemselvesintheirownannualreports.Thisinformationiseasiesttocomeby
iftheU.S.investmentbankisnotjustasmallpartofalargerempire.Thereareonlya
C# PDF Page Insert Library: insert pages into PDF file in C#.net
By using reliable APIs, C# programmers are capable of adding and inserting (empty) PDF page or pages from various file formats, such as PDF, Tiff, Word, Excel
add text to pdf document online; add text pdf acrobat professional
23.1 THEINVESTMENTBANKINGBUSINESS
861
ANECDOTE
AnInvestmentBankingJob?
I
na2008JournalofFinancearticlecalled“TheMaking
ofanInvestmentBanker,”PaulOyertrackedStanford
MBAgraduatesfromtheclassesof1960through1997.
Investmentbankersenjoyedbetween$2millionand$6
millionindiscountedlifetimeincome(inreal1996dol-
lars). This is much higherthan whattheywouldhave
earnediftheyhadenteredotherprofessions.Fifteenyears
aftergraduation,theaverageI-bankerearned60%more
thantheaveragemanagementconsultantatgraduation,
and300%morethantheaverageStanfordMBAgradu-
ate.(Today,itisnotuncommonforinvestmentbankers
toearn$1millionperyearormore.)
Moreinterestingly,Oyerfound thatstockmarket con-
ditionsatgraduationtimeplayedabigrolenotonlyin
obtainingafirstjobinI-bankingbutalsointheprobabil-
itythatanindividualwouldeverenduponWallStreet.
(And,equallyremarkable,manyoftheindividualsgrad-
uatinginbearyearsendedupasentrepreneurs!)
Oyerconcludes thatrandomfactors beyond talentare
veryimportantindeterminingindividuals’lifetimepaths
andcompensation—andthatthereisaverydeeppoolof
potentialI-bankersinanygivenStanfordMBAclass.
fewmajorU.S.investmentbankslefttodayforwhichthisisthecase(andeventhese
aremuchmorethaninvestmentbanks,asyouwillsoonsee).
OneofthesebanksisGoldmanSachs.Itisperhapsthemostprominentinvest-
Goldman’shistory.
mentbankintheworldtoday.It wasfounded in1869byMarcusGoldmanasa
commercialpaperbusiness.In1896,Goldman’sson-in-law,SamuelSachs,joinedthe
CommercialPaper,Section
15.2A,p.545
firm,whichwasthenrenamedGoldmanSachs.ItbecameamemberoftheNewYork
StockExchangethesameyear.In1999,itconvertedfromapartnershipintoapub-
liclytradedcorporationviaanIPO.AsofNovember2007,GoldmanSachsconducted
IPOs,Section21.7,p.806
businessin25countries:43%ofitsemployeeswereoutsidetheUnitedStates,49%
ofitsnetrevenuesand57%ofitsearningswerefromoutsidetheAmericas,andits
clientswerecompaniesandindividualsworldwide.(DespiteitsobviousJewishher-
itage,GoldmanSachsevenreceivedalicenseinJanuary2008tooperateinSaudi
Arabia.)
In2007,Goldmanhad30,522employees(17,383intheUnitedStates),plusan-
Goldman’smostimportant
resourcebyanymeasureisits
employees.
other4,572employeesinaffiliatedbusinesses.About6%oftheseweremanaging
directors,whichisthehighestjobtitlethatGoldmanconveys.Investmentbanking
hierarchiesareusuallyfairlyflat,withonlyfourorfiveranks:analyst,associate,vice
president,director,andmanagingdirector.(YoumayalsofinditinterestingthatGold-
manSachswasamongthepioneersrecruitingMBAsandPhDsfrommanybusiness
schools.)Investmentbanksareunusualbusinessesinthattheirmainresourceswalk
outoftheirbuildingseverynight(thoughitmayoftenbeaftermidnight).Keepingits
bestemployeeshappyisperhapsGoldman’smainbusinesschallenge.Manysuccessful
Goldmanemployeeshavelefttojoingovernment(suchasGoldman’sex-CEO,Henry
Paulson,U.S.TreasurySecretaryunderGeorgeW.Bush)andhedgefunds(suchas
Goldman’sex-headofprimebrokerage,EmmanuelRoman,nowco-CEOofGLG
Partners).Tofightagainstthedeparturesofvaluableemployees,Goldmanpaidout
HowGoldmaniteswere
compensatedin2007.
$20.2billioninemployeecompensationin2007.(Nonemployeecostswereonly$8.2
billion.)The$20.2billioncomestoanaverageofjustover$600,000peremployee,
mostofwhichwasintheformofbonuspayments.Thedistributionofcompensation
ishighlyskewed.Forexample,threetraders(aged35to40)whopushedGoldman
862
CHAPTER23
INVESTMENTBANKINGANDMERGERS&ACQUISITIONS
intoaprofitablebetagainstsubprimewerepaidbetween$5and$15millioneach.
Interestingly,onWallStreet,thetopearnersinanygivenyearneednotbetheCEO.
Itcouldequallywellbethetraderswiththebestperformance.In2007,however,it
wasGoldman’sCEO,LloydBlankfein,whotookhome$100million.Fourothertop
executivesalsoearnedbetween$30and$60million.
Goldmanprides itself ona more collaborative atmospherethanitscompeti-
Goldman’sculture.
tors.Tofosterthisatmosphere,itsannualbonusandretentionevaluationscheme
takesintoaccounthowcollaborativelyanemployeebehaves.Ontheflipside,like
manyotherinvestmentbanks,Goldmanhasapolicyoflayingoff5%ofitsworst-
performingstaffeveryyear.
ButlookbackatTable23.1:WherewasGoldmanSachs?Itwasnotonthelistof
Doesbanksizereallymatter?
thetop25globalcommercialbanks.NeitherweresomeotherprominentU.S.invest-
mentbanks,suchasMerrillLynch,LehmanBrothers,orMorganStanley.Yetthese
U.S.investmentbanksareactiveandnimblecompetitors,quitecapableofbeinglead-
inginvestmentbanksworldwide,evenwithoutaccesstothelargecapitalbasesofthe
banksfromTable23.1.Ifyouhavereadtheprecedingcarefully,youprobablyunder-
standwhythelimitingresourceisnotfinancialcapital(thoughhavingmorecapital
definitelyhelps)butexpertiseandhumantalent.AslongasGoldmanandotherU.S.
andU.K.banksstillexcelinattractingandretainingthebesttalentfromalloverthe
world(andtheystilldo),theywillremainthegloballeadersininvestmentbanking.
Let’smoveontoGoldman’sactualbusiness.During2007,Goldman’sequitymar-
Goldman’sprofitabilityand
marketvalue.
ketvaluefluctuatedbetween$70and$100billion.Ithadearningsof$11.7billion—a
littlemorethanhalfofGoldman’s$20.2billionemployeecompensation.Remarkably,
unlikemostofitscompetitors,Goldmanhaddodgedthesubprimeliquiditycrisis
of2007byplacingawell-timed(andsubsequentlywell-publicized)betagainstsub-
primemortgagesthatultimatelycontributed$4billioninprofittoits2007earnings—
recommendedbythethreeaforementionedtraders.
OfGoldman’sthreemain
businesslines,investment
bankingisactuallythe
smallest.
Goldman’sbusinessitselfconsistsofthreedivisions:
Net
Operating Before-Tax
DivisionName
Revenues Expenses
Earnings
TradingandPrincipalInvestments
$31,226
$17,998
$13,228
AssetManagementandSecuritiesServices
$7,206
$5,363
$1,843
InvestmentBanking
$7,555
$4,985
$2,570
Total
$45,987
$28,383
$17,604
P.S.:Goldman’snumberson
page57ofits2007annual
reportdonotaddup.
Thetradingandprincipalinvestmentsarmisbasicallyaninvestmentsarbitrage
businessinfixedincome,currencies,commodities,equities,andprivateequity(with
investmentsinChinaandJapan).Goldman’sassetmanagementarmspecializesin
institutionalclientsandhigh-net-worthindividuals,althoughitalsoentertainssome
retailclients.Ithadabout$868billionundermanagement(ofwhich$151billionwas
inalternativeinvestments,suchashedgefunds,privateequity,realestate,currencies,
commodities,andassetallocationstrategies),$255billioninequity,$256billionin
23.1 THEINVESTMENTBANKINGBUSINESS
863
fixedincome,and$206billioninmoneymarkets.Theassetmanagementarmalso
Primebrokerage,Section
7.2A,p.191
containsitsprimebrokeragebusiness.
Thefocusofourchapteristheinvestmentbankingarm.Lookcarefully:Even
Ourfocusistheinvestment
bankingbusiness,whichhas
twocomponents:restructuring
adviceandunderwriting.
thoughGoldmanisstillcalledaninvestmentbank,thetermhasbecomesomewhat
ofamisnomer.Goldmanisnowprimarilyatradingandarbitragefirm(withlittle
regulatoryoversight)andnolongerprimarilyaninvestmentbankthesedays.Trading
iswhatconsumesmostofGoldman’sresources:itscapital,valueatrisk,talent,bonus
pool,andsoon.Ofcourse, investmentbankingisstill anontrivialaspectofthe
business,andappropriatelyaprimeconcerninourcorporatefinancetextbook.In
thecaseofGoldmanandmanyotherinvestmentbanks,investmentbankingconsists
ofthesametworoughlyequalpartsthatwehavealreadydiscussed:
Financialadvisory:TheadvisorybranchworksmostlyonM&A-relatedconsulting,
althoughitalsoincludesrestructuringadvice,acquisitionfinancing,andcross-
borderstructuringexpertise(whichismostlyatax-planningservice).M&Aad-
visingalsolinksintootherservicesofferedbythefirm,especiallyitsbridgeloan
facilitation.Asasidenote,youmayfinditinterestingthatGoldmanSachsisun-
usualinthatithashistoricallyspecializedinhelpingmanagementdefenditself
againstunfriendlytakeovers.Mostlikely,thispolicywasnotinstitutedformoral
reasons(i.e.,tohelppoorvictimCEOs)butrathertoprotectitsotherbusiness.
In2007,Goldmanearned$4.222billion(ofits$7.555billionininvestment
banking) inadvising onapproximately$1.5trillioninabout400transactions.
Goldman’sadvicecostabout$7.5millionperdealonaverage($10millionperdeal
intheUnitedStates).Two-thirdsofitsadvisorybusinesswasstillintheUnited
States.
Underwriting:Theunderwritingbranchhelpsclientfirmsissuesecurities,principally
debtandequity.
In2007,Goldmanearned$1.382billiononunderwritingabout$71billion
worthofproceedsinover200equitytransactions.Itearnedapproximately$1.951
billiononunderwritingabout$312billionworthofproceedsinabout700debt
transactions.AbouthalfofGoldman’sunderwritingbusinesswasintheUnited
States.(Notethatmuchofitsdebtissuingactivityisnotonbehalfofcorporate
clientsbutonbehalfofforeigncountries,federalcreditagencies,mortgage-backed
securities,municipaldebt,andsoon).
Thesefigurestellyouthatunderwritingasanactivitywaslessprofitablethan
Usuallyadvisoryand
underwritingareroughly
equal.In2007,however,
advisorywasmuchmore
important.
M&Aadvicein2007.Itturnsoutthat2007wasabanneryearfortheM&Aindustry.
Inmanyearlieryears,thetwobusinessesweremorebalanced.Forexample,in2000,
advisoryearned$2.592billionwhileunderwritingearned$2.779billion.However,it
hasalwaysbeenthecasethatanequityunderwritingdealismoreprofitablethana
debtunderwritingdeal.InGoldman’scase,itearnedmoreinequityunderwriting,
eventhoughitunderwrotefourtimesasmuchdebtasequity.
Unfortunately,Goldman’sfinancialsdonotbreakoutmuchmoreinformation.
Goldmanhassignificant
marketsharesinitsinvestment
bankingservices,bothglobal
anddomestic.
Thus,wehavetolookatsomeotherdatasources,whichcannotbeperfectlyrecon-
ciledwiththeinformationinGoldman’sannualreport.Nevertheless,theystillallow
864
CHAPTER23
INVESTMENTBANKINGANDMERGERS&ACQUISITIONS
youtogetafewmoreglimpses.ThomsonFinancialreportshowcompetitiveandim-
portantGoldmanwasinitsmarkets.Goldman’smarketshareswereasfollows:
MarketShare
Activity
DealSize
Fees
U.S.Equity
9.0%
11.2%
WorldwideEquity
5.6%
8.1%
WorldwideDebt
4.9%
4.3%
High-GradeCorporate
9.1%
WorldwideDebtandEquity
5.6%
4.8%
U.S.M&AAdvice
10.6%
WorldwideM&AAdvice
7.1%
YoucanseethatGoldmanisamajor playerinthemarketsitcompetesin, with
worldwideanddomesticmarketsharesbetweenabout5%and10%.Italsocharges
apremiumforitsparticipationinequities:Itsmarketshareofequityfeesishigher
thanitsmarketshareinequitydealsizes.
solvenow!
Q23.6 WhatwastheapproximateaveragecompensationofaGoldmanSachs
employeein2007?Whatwouldyouguesstheaverageseasonedinvest-
mentbankerearned?
23.1F THEUNDERWRITINGBUSINESS
Nowthatyouunderstandoneinvestmentbankinsomedetail,let’slookattheinvest-
Ourmaindataproviderforthe
industryatlargeisThomson.
Whatdoesthemarketfordebt
underwritinglooklike?
mentbankingindustrymorebroadly.ThomsonFinancialismoreorlessthestandard
dataproviderinthisindustry.Itreportedthatin2007globaldebtunderwritingfees
topped$19billion(onover$6trillioninissuingproceeds),andglobalequityunder-
writingfeestopped$22billion(onabout$1.5trillioninproceeds).Youalreadyknow
howmuchofthisGoldmanearned,butwho“owned”therestofthismarket?And
whatkindofsecuritieswereunderwritten?
Table23.3showshowthelargestinvestmentbanksintheUnitedStatesdividedthe
Lotsandlotsofgovernment
debt,stillagooddealof
investment-gradedebt,and
somenon-investment-grade
debt.
piefrom2005to2007.ThemostimportantdebtissuersarethethreeU.S.government
agencybonds:thetwohome-loanagencies—FreddieMacandFannieMae—andthe
FederalFarmCreditSystem.Theyaccountedforastaggering75%ofthebondmar-
ket.Intheremaining25%segment,mostbondissuesareofinvestment-gradequality.
Investmentgrade,Section
6.2D,p.148
Non-investment-gradedebtisfairlyrare—thougheventhemostreputableinvest-
mentbanksunderwriteinthismarket.Thisrelativerarityiseasytoexplain:Itis
oftencheaperforsmallerfirmstoborrowfromcommercialbanksinsteadofgoing
tothepublicmarket.(Thismarketfororiginalhigh-yieldjunkbondswasinvented
intheearly1980sbyMichaelMilkenofDrexel-Burnham-Lambert.) Underwriters
High-yield(junk)bonds,
AppendixB,p.B-3
chargeaboutthreetimesasmuchforissuingnon-investment-gradesecurities(fees
areabout1.3%)astheychargeforinvestment-gradesecurities(feesareabout0.5%).
Thegovernmentagenciespaidthelowestfees—only0.1%onaverage.(Aftertheir
Documents you may be interested
Documents you may be interested