corporate_Banking_Primer_2008__2_

corporate_Banking_Primer_2008__2_ - Corporate Banking...

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1 Corporate Banking Primer Transition from Balance Sheet Lender to Fee Generator Melding of Commercial Banks and Investment Banks Commercial Lending and Underwriting Other Investment Banking Products and Services Electronic Exchanges Small Business and Middle Market Processing Based Businesses Private Equity
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2 Transition from Lender To Origination and Fee Income Lenders have been disintermediated as corporations go straight to debt markets for borrowing 59% of bank assets are loans; 17% securities Loss of interest spreads net of loan loss provision typically returned an inadequate ROC thus a good thing for bank balance sheets Banks can earn origination fees without using balance sheets and requiring capital J.P. Morgan reduced loans on balance sheet by 50% but kept origination volume to generate fees and maintain tier 1 relationships CSFB reduced capital by $800m (25%) dedicated to lending business At the same time, derivatives and swaps have provided increased fee income potential significantly, for example: Treasurer wants to fix interest rates on floating rate exposure Treasurer wants to lock in foreign exchange rate Insurance company wants to adjust interest rate sensitivity of their portfolio Portfolio manager wants to diversify project risk Banks want to diversify credit risk concentrations Everyone wants to arbitrage
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3 Melding of Commercial and Investment Banks Corporations want a seamless provision of funding from leveraged funding to IPO support rather than be required to shop at multiple sites Financial Services Holding Company Act prohibits tieing of loans and underwriting but investment and commercial banks both look to profitable, multi-product relationships Largest commercial banks have purchased one or more investment banks and most investment banks make loans to keep underwriting share Citibank purchase of Smith Barney and Salomon Brothers Some banks unwound their investments Fleet shut down Robertson Stephens U.S. Bancorp sold off Piper Jaffray
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4 Commercial Lending and Underwriting Key lending roles are lead bank, managers and participants Unless a club loan where only a handful of banks take the full exposure Information memorandum includes pro-formas and description of facility
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This note was uploaded on 04/14/2008 for the course NBA 659 taught by Professor Peck,nate during the Spring '08 term at Cornell University (Engineering School).

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corporate_Banking_Primer_2008__2_ - Corporate Banking...

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