BIP 390 Final - Investment Banking Final | Stowell 1 A universal bank would be better to compete against a pure-play investment bank for M&A and other

BIP 390 Final - Investment Banking Final | Stowell 1 A...

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Investment Banking Final | Stowell1.A universal bank would be better to compete against a pure-play investment bank for M&A and other investment banking engagements because of numerous reasons. Universal banks have more stable and have countercyclical business cycles and are better able to compete internationally. Their larger balance sheet can also allow it to take on more risks in a transaction. 2.An investment bank will place higher priority on sell-side M&A engagements over buy-side engagements because sell-side transactions have a higher chance of closing, and since bankers are only paid fees on the successful closing of a transaction, it would be more profitable and more worth their time to focus on sell-side engagements.3.The prop trading division would want to buy shares from a new offering of an institutional client of the investment bank at the lowest price, while the institutional clients would want to issue their shares at the highest price. This represents an obvious conflict of interest. They can use internal information to make trades, which is illegal. Internalization of trade orders also can occur. 4.Although the AM and PWM divisions may be in the same firm, the PWM advisor may advise investing in products from a different bank and not from the AM group of itself if they are deemed not in the interest of the wealthy client, and so represents a conflict since the AM group of the same firm would obviously want to be selling their own products.5.Glass-Steagall Act 1933: Separation of commercial banks from investment banks. Securities Act 1933: Prospectus of offering required to be given to investors to prevent fraudulent activity by investment banks.Securities Exchange Act 1934: SEC was set up. Minimal reporting requirements were made for secondary offerings. Public Utility Holding Companies Act 1935: Reduced the relationship between investment banks and public utilities companies to prevent them controlling the company and engaging in monopolistic behavior.
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6.Restricted offerings (in mostly debt and convertible offerings) to Qualified Institutional Buyers do not need to be registered with the SEC (Under Rule 144A). Offerings to limited parties and of government, state and municipal issuances also do not need to be registered. 7.A ‘Red Herring’ is a preliminary registration with the SEC. It is called a red herring because there is always a passage in red font on the cover that states that no offering will be made until the SEC has approved offering. 8.The problem that the companies or their underwriters face is that of ‘jumping the gun’. During the ‘quiet period’ before a statement is declared effective, the company cannot disclose information about the offering that may affect its share price, and so the ‘quiet period’ prevents them disclosing any information until approval. The consequence of this is that the SEC may delay the offering to allow for the ‘cooling period’.
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  • Fall '12
  • Stowell
  • U.S. Securities and Exchange Commission, investment banks, investment bank, Investment Banking Final

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