Lecture02 - 2-1The Financial Services Industry and Risks of...

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Unformatted text preview: 2-1The Financial Services Industry and Risks of Financial InstitutionsInstructor: Dr. QU BaozhiPhone: (852) 27887312Email:[email protected]: ACAD-P74072-2Today’s Topics◆Securities Firms and Investment Banks (Ch. 4)◆Mutual Funds and Hedge Funds (Ch. 5)◆Finance Companies (Ch. 6)◆Risks of Financial Intermediation (Ch. 7)2-3Securities Firms and Investment Banks◆Investment banking: the raising of debt and equity securities for corporations or governments.◆Nature of business:•Underwrite securities.•Market making.•Advising (example: M&A, restructurings).2-4Size, Structure and Composition (U.S.)◆Dramatic increase in number of firms from 1980 to 1987. Decline of 31% following the 1987 crash, to year 2003.◆1987: Salomon Brothers held $3.21 billion in capital.◆2003: Merrill Lynch held capital of $24.8 billion.◆Many recent inter-industry mergers (i.e., insurance companies and investment banks).•Role of Financial Services Modernization Act, 19992-5Top U.S. Underwriters, 2006Manager Amount (Billions) Market Share SSB $668.8 8.7% J.P. Morgan 506.1 6.6 Deutsche Bank 475.0 6.2 Morgan Stanley454.6 6.0 Lehman Bros. 446.5 5.8 2-6Key Activities◆Investing◆Investment banking•Activities related to underwriting and distributing new issues of debt and equity.◆Market making•Increasing importance of online trading◆Trading•Position trading, pure arbitrage, risk arbitrage, program trading2-7Key Activities (continued)◆Cash management◆Assisting with mergers and acquisitions◆Back-office and service functions2-8Balance Sheet◆Key assets:•Long positions in securities and commodities.•Reverse repurchase agreements.◆Key liabilities:•Repurchase agreements major source of funds.•Securities and commodities sold short.•Broker call loans from banks◆Capital levels much lower than levels in banks2-9Global Issues◆Global nature of securities firms•Demonstrated by recent mergers such as Deutsche Bank/Bankers Trust •Dominance of UBS in U.S. mortgage backed securities markets◆Growth in securities trading and underwriting is a global event2-10Pertinent WebsitesFederal Reserve: www.federalreserve.govNASD: www.nasd.comNYSE: www.nyse.comSEC: www.sec.govSecurities Industry Association: www.sia.comSIPC: www.sipc.orgThe Banker: www.thebanker.comThompson Fin. Securities Data: www.tfibcm.comWall Street Journal www.wsj.com2-11Mutual Funds◆Mutual Funds: financial intermediaries that pool the financial resources of individuals and companies and invest in diversified portfolios of assets.•Open-ended•Closed-end2-12Size, structure and composition (U.S.)•First mutual fund: Boston, 1924.•Slow growth, initially.•Advent of money market mutual funds, 1972....
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This note was uploaded on 02/22/2009 for the course ECONOMICS 4313 taught by Professor Tsui during the Spring '09 term at HKU.

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Lecture02 - 2-1The Financial Services Industry and Risks of...

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