Investment Bank:

An intermediary organization that performs consulting and fundraising activities in the capital
market for clients (including enterprises and governments).
● The main source of capital in the capital market is primarily medium- to long-term.
● Acts as a financial intermediary in the capital market.
● Participates in investment activities on its own account in the secondary market.

2. Investment Banks and Commercial Banks:

→ Commercial banks mobilize capital directly from organizations and
individuals in all forms—deposits.
→ Investment banks do not mobilize capital through deposits but mainly by
issuing securities (stocks and bonds).
→ Investment banks assist enterprises and governments in issuing securities
to the market, such as equity securities (stocks) or debt securities
(bonds), allowing capital to flow directly from surplus to deficit entities.
→ Commercial banks lend to enterprises or individuals (intermediary
mobilization, earning intermediary fees, but with guaranteed commitments,
less risk).

3. Banking Services:
● Investment banking services include: M&A advisory (mergers and acquisitions; private
equity investment; venture capital; structured finance).
● Custody services.
● Securities brokerage and underwriting.
● Business and sales on the secondary market (stocks, bonds, foreign currencies,
commodities, derivatives, and structured products).
● Research and strategy.
● Commercial banking services include:
○ Financial intermediation (accepting deposits from investors—distributing funds
via loans—to those in need of capital).
○ Capital mobilization.
○ Credit granting.

Note:
Security Services including Securities and Insurance
● Characteristics of parent companies and subsidiaries: If a shock occurs in one part, other
parts remain unaffected; easier to audit and consolidate.

4. Main Activities of Investment Banks:

● Investment banks engage in private equity investment activities for themselves and
clients through private equity fund management.
● The same-named activity "INVESTMENT BANKING":
→ Mainly in the primary market:
○ Advisory services.
○ Underwriting and issuing securities.
→ Types of securities include: debt securities (bonds) and
equity securities (stocks, convertible bonds).
● Investment activities (sales & trading):
→ Mainly in the secondary market: including brokerage and investment.
 ○ Brokerage: mainly applied to listed securities (including listed
derivatives such as futures and options) → Investment banks act
as order takers and match orders for clients.
○ Investment: creates market liquidity; investment banks act as market makers and
engage in proprietary trading aiming to speculate on stock price movements
(high risk as banks invest their own funds).
● Research activities:
→ Conducted by research staff to monitor market developments of
securities and enable investors to make timely trading decisions.
→ Research involves industry, macroeconomics, investment strategies,
and product analysis.
● Merchant banking: Mainly for alternative products (non-traditional investments like real
estate, leveraged loans, large credit agreements such as co-financing loans and project
grants).
● Private Equity (PE): Investing in unlisted companies with potential growth, increasing
value through restructuring and operations.
● Investment management:
→ A key business segment with low risk and stable income.
→ Divided into asset management and private banking.
→ Asset management includes managing investment funds and portfolios
for institutional clients—popular funds: mutual funds, pension funds,
hedge funds, private equity, venture capital, etc.
→ Private banking offers consulting and wealth management for high-
net-worth individuals and families.

5. Investment Banking (Prime Brokerage - Capital Market Services):

● Includes hedge funds and organized institutional investors.
● Hedge funds (hedge funds) are member pools involving select investors meeting asset
and expertise thresholds. They use leverage and derivatives for higher returns, carrying
high risks.
● Prime brokerage services include licensing, infrastructure setup, office leasing, investor
fundraising, capital arrangement, risk management, cash flow and liquidity management,
IT solutions, investment brokerage, and securities safekeeping.
● PUBLIC LISTED COMPANIES:
○ Public companies traded on the stock market.
○ Subject to strict regulation and transparency requirements.
○ Benefits include trusted capital raising, liquidity, long-term growth, and increased
brand value.
○ Conditions for IPO and bond issuance are detailed, with specific requirements on
equity and debt levels.
● Bond underwriting (Debt underwriting):
○ Government bonds (treasury bills, bonds, construction bonds).
○ Corporate bonds: with fixed rate, floating rate, zero-coupon, high-yield,
convertible, asset-backed securities, etc.
○ Risks involved: credit risk, payment ability risk, interest rate risk, agency risk.
○ Underwriting process involves valuation, proposal, investor presentation,
negotiations, and distribution.

6. Equity Securities & Bond Underwriting:

● Equity securities (stocks, preferred stocks, fund certificates) represent ownership and
claim on part of earnings and assets of a company.
 ● Types include common stocks, preferred stocks, and fund certificates.
● Underwriting for equity issuance involves guarantees and distribution strategies,
including firm commitment and best efforts.
● Benefits: access to capital, liquidity, brand enhancement, and long-term advantages.
● Risks: ownership dilution, regulatory compliance, high issuance costs, and management
accountability.

7. Securities Market & Bond Market:

● The securities market facilitates trade of government and corporate securities.
● Primary market: new issues; secondary market: trading existing securities.
● Organized (centralized) exchanges and OTC (over-the-counter) trading.
● Participants include issuing entities, investors (individual and institutional),
intermediaries, and regulatory authorities.
● Markets are categorized into government securities and corporate securities, with
different risk levels and liquidity profiles.

8. Securities Guarantee & Market Activities:

● Underwriting involves guaranteeing issuance of securities, with various methods such as
firm commitment, best efforts, and underwriting limits.
● Process steps: evaluating enterprises, selecting underwriters, structuring deals,
disclosure, distribution, and post-issuance support.
● Benefits include cost reduction, market stability, and professionalism.
● Risks include market fluctuations, valuation errors, legal issues, and failure to sell.

9. Equity and Corporate Bond Issuance Benefits & Conditions:

● Benefits include rapid capital raising, equity liquidity, long-term growth, and strategic
advantages.
● Conditions focus on financial stability, with specific equity and revenue requirements, and
legal compliance.

Market Types & Interactions:

● Capital and money markets serve as financial systems for long-term and short-term
funds, respectively, with interactions influenced by interest rates, liquidity, and risk
profiles.

10. Brokerage & Proprietary Trading:

● Investment banks act as intermediaries (brokers) executing buy-sell orders for clients,
earning commissions.
● Proprietary trading involves trading securities for the bank's own account, focusing on
profit maximization but carrying high risk.
● Risk management and market stabilization are crucial activities.

11. Investment Risk Management:

● Systematic identification, measurement, control, and mitigation of risks, including
market, credit, and operational risks.
● Use of tools like derivatives (credit default swaps, interest rate swaps, FX swaps) to
hedge risks.

12. Mergers & Acquisitions (M&A):

 ● M&A involves acquiring or merging companies, with types like forward merger, reverse
merger, consolidation, triangular mergers, and sector-specific mergers (vertical,
horizontal, conglomerate).
● Motivations include cost reduction, scale advantages, market positioning, and
addressing undervaluation.
● The acquirer benefits from cost-saving, profitability, competitive edge, reduced capital
costs, and market share.
● The target benefits include capital increase, reduced liabilities, strategic realignment, and
responding to share undervaluation.
● M&A process:
→ Partner search → Target identification → Due diligence → Negotiation
→ Contract signing → Post-merger integration.

13. Risks in M&A:

● Valuation risks, price fluctuation, transaction failure, and performance achievement risks.
● Use of earn-out agreements, collar options, and risk management strategies to mitigate.

14. Risk Management in M&A:

● Use of earn-out clauses: deferred payments linked to future performance, resolving
valuation concerns and aligning interests.
● Collar agreements: price and quantity bands to reduce negotiation risks and streamline
settlement.

15. Restructuring & Swaps:

● M&A includes restructuring models like vertical, horizontal, and conglomerate mergers,
based on industry and strategic motives.
● Benefits include cost savings, market expansion, diversification, and resource efficiency.

16. Securities & Asset Securitization:

● Asset securitization involves pooling assets (like loans) to issue securities (MBS, ABS).
● Benefits include market liquidity, risk transfer, and financing flexibility.
● Risks include credit risk, liquidity risk, and agency risk, with a detailed process involving
special purpose vehicles (SPV).

17. Investment Management & Funds:

● Investment bank offers portfolio management services for institutional and high-net-
worth clients.
● Common funds: mutual funds, ETF, hedge funds, real estate investment trusts (REITs),
venture capital, and buyout funds.
● Strategies include diversification, active or passive management, and risk-adjusted
returns.
● Venture capital invests in startups; life cycle phases include fund creation, investing,
supporting enterprises, and exit.

18. Financial Engineering:

● Innovative creation of new securities using advanced financial mathematics, statistics,
and technology (ABS, MBS, junk bonds).
● Benefits include product diversification and increased revenue.

19. Specialized Financial Assets:

 ● Junk bonds (high-yield, high-risk).
● Structured notes: interest rates based on formulas involving market rates, inflation, etc.
● Repurchase agreements (Repos): collateralized short-term loans.
● Credit derivatives: insurance-like products (e.g., CDS).
● Interest rate swaps and currency swaps: hedging tools for risk management.

20. Conclusion:
● The most risky market instrument is common equity (stocks).
● Speculation involves market timing for quick gains, whereas investment involves long-
term wealth accumulation based on analysis and patience.
● Market fluctuations present opportunities for strategic buying and selling.