BIP 394 Notes.docx - BIP 394 2\/3 final exam questions are from end of chapter questions Presentation all the m&a transactions in the past 6 days apply

BIP 394 Notes.docx - BIP 394 2/3 final exam questions are...

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BIP 394 2/3 final exam questions are from end of chapter questions Presentation all the m&a transactions in the past 6 days, apply slide to few transactions that have been interesting Pricing, structure Have couple pages on general economic information (what the fed is doing) Politics Total 10 minutes Lecture 1: Investment Banking has 3 divisions: Banking o Products: M&A and Financings o Customers: Corporations Trading o Products: Investment Products o Customers: Institutional Investors Asset Management o Products: Investment Products o Customers: Individual Investors (high net worth individuals) Collateralized Debt Obligation (‘CDO’) Individual takes a regular mortgage loan from a commercial bank Commercial bank passes on the mortgage to an investment bank Investment bank passes on to a Special Purpose Vehicle (SPV) as it provided protection for the investment banks CDO is created by investment bank to be the funding source for SPV o CDOs rated as AAA, BBB, CCC (rated by rating agencies) CDOs purchased by bond investors How did IBs lose money? o Banking division (financing) conceived the idea of taking mortgages from CBs and creating SPVs o In order to get high ratings on CDOs, IBs got credit support from numerous insurance companies (AIG, Freddie Mac, Fannie Mae) – credit default swap If CDOs defaulted, these insurance companies would pay the deficit – essentially insuring the bond Freddie Mac and Fannie Mae – biggest taxpayer bailout in history o The IBs lost money as they owned the mortgages
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o The Trading divisions lost much more money as prop trading groups within the trading division were investing on CDOs as well o Asset management divisions lost money from buying back CDOs from clients Pure Play Investment Banks: Goldman Sachs Morgan Stanley Merrill Lynch Lehman Brothers Bear Stearns M&A: Zephry.com, capitaliq.com, Bloomberg, Merger Market, IPO – NASDAQ Presentation Guidelines: Keep it under 12 minutes M&A and Financings: most important part of presentation (7-8 minutes) Acquirer, Target, Deal size, Comments, acquisition premium, consideration (cash or stock), EPS, M&A adviser IPO: do as other group Conversion price for convertibles 2/3 pages on specific M&A Deals CEO of Merrill Lynch John Thain: Writing off $10bn although only need $5bn – but in fact he underreserved Before the deal for BoA and Merrill closed, John Thain discovered that there were additional losses Securities Regulation Overview: TARP – Troubled asset relief program 2008, when all stocks were dropping Forcing 1000+ banks to sell preferred stock to US government o No equity ownership o Same deal with Warren Buffett and GS deal Establishing confidence – taxpayers are doing the Warren Buffet deal
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  • Spring '09
  • Syal
  • investment bank, hedge ratio

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