Brief Capital Markets Flashcards
What are the <b>FOUR</b> main areas of investment activities?
<b>1️⃣ Capital Market</b>: provide a detailed description of underwriting services
<b>2️⃣ Advisory services</b>: M&A and restructuring
<b>3️⃣ Trading & Brokerage</b>
<b>4️⃣ Asset Management</b>
Why do the companies need the Capital Markets services?
Because the companies <b>go public or</b> want to <b>issue debt</b> sold to the public.
What is Capital Markets?
The market for <b>long-term funding</b>
1️⃣ ECM (Equity Capital Markets) - equity
2️⃣ DCM (Debt Capital Markets) - bonds
ECM (Equity Capital Markets)
Investment bank responsible for <b>structuring and pricing the issuance of equities</b>, such as at IPO
DCM (Debt Capital Markets)
Investment bank division responsible for <b>issuance and pricing of debt securities</b> (eg bonds).
A company or a government can borrow money from public investors. Investors buy these securities and b style=”font-size:160%;”>expect to be paid an interest rate throughout the duration of the bond.
IPO stands for…?
<b>Initial Public Offering</b>
Difference between ECM and DCM
Bonds can be issued by <b>sovereign countries</b>
Shareholder
A shareholder is any person, company, or institution that owns at least one share of a company’s stock.
Shareholder can <b>determine who will run the business</b>, who will sit on the board of directors.
What is the cost if company goes to public?
Increase its administrative and finance staff significantly.
Have to prepare several documents and financial reports.
What is the right time to go public? What are the considerations to go public?
<b>1️⃣ Profitability</b>
<b>2️⃣ Administration</b>
<b>3️⃣ Growth potential</b>
<b>4️⃣ Solid Management</b>
<b>5️⃣ Size</b>
What is the investment bankers’ role in ECM process?
<b>1️⃣ Provide Guidance</b>: When is the <b>right time</b> to go public, how the company can position itself to attract investors interest.
<b>2️⃣ IPO Preparations</b>: <b>determine</b> what will be the <b>price</b> at which the company will sell its shares.
<b>3️⃣ Deal with Investors</b>: organise meetings between the company’s management and investors, present to investors the investment opportunity, create a list with potential buyers.
<b>4️⃣ Stabilise the stock price</b>: after the IPO has taken place, investment bankers will <b>exercise certain instruments</b> at their disposal to stabilise the price of the stock in the first few days.
SEO (Seasoned Equity Offerings)
A process for already listed company to issue some <b>additional shares</b>.
<b>Easier</b>. The company is already listed on the Stock Exchange. Shares are <b>already priced by the market</b>.
<b>already created all documents necessary</b> to be in compliance with financial regulation.
What is the investment bankers’ role in DCM process?
<b>1️⃣ Advise loan terms</b>
<b>2️⃣ Prepare company presentations</b>
<b>3️⃣ Find potential investors</b>
<b>4️⃣ Price the loans</b>: Much easier to price compared to equity. Because every company that issues a bond has a <b>credit rating</b>.
Credit Rating
An opinion about its <b>credit worthiness</b>, expressed by independent credit agencies.
Loan Syndications
A syndicated loan is financing offered by a group of lenders/banks. Such group of banks is called the <b>syndicate</b>. – who work together to <b>provide funds for a single borrower</b>.
