1. finance
2. bank

An Overview of Banking
How Bulge Bracket Banks Are Set Up…
An Illustrative Example: J.P. Morgan
J.P. Morgan
Investment
Banking
Sales &
Trading
Research
Asset
Management
Treasury
Security
Services
Credit Risk
Behind all these divisions are accounting and operations functions.
Revenue Breakdowns
JP Morgan 2007
26%
56%
18%
Goldman Sachs 2008
36%
23%
41%
Investment Banking
Investment Banking
Trading and Principal Investments
Trading and Principal Investments
Asset Management
Asset Management
Typical Management Structure
Varies depending on the bank, group size and number of senior positions
Group Heads /
Managing
Directors
Vice Presidents
Associates (2 years)
Analysts (2-3 yrs)
Most familiar with current u-grad standards
Divisions Overview
INVESTMENT BANKING
Bulge Bracket Bank
Investment
Banking
Sales &
Trading
Research
Asset
Management
Treasury
Security
Services
Credit Risk
Overview of Investment Banking
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Who are the major players
How do they make $$
What functions do they perform
Who are their clients
What other divisions do they connect/work with
(if any)
 How is IB broken up? What kind of teams, groups
or subdivision make up this sector of the bank?
Sales & Trading
Bulge Bracket Bank
Investment
Banking
Sales &
Trading
Research
Asset
Management
Treasury
Security
Services
Credit Risk
Overview of Sales & Trading
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Facilitates movement of capital (securities) from those that have it to those that
need it
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Market participants: individuals, pension and mutual funds, banks, governments,
insurance companies, corporations
Sell-side financial institutions (broker-dealers) add value by making markets in
particular securities
Sales
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Primary markets: where new securities are issued
Secondary markets: where trading of already issued securities occurs
Take orders from clients and communicate them to their trading desks for execution
Introduce new opportunities to customers
Keep clients informed about changing market conditions that might affect the value of
securities in their portfolio
Dinners/entertainment with clients
Trading
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Does actual buying/selling of securities
Continuously adjust bid/ask to make spread from transactions
Take on proprietary positions (principal investments)
Risk management and securities pricing
General Characteristics
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Overall
-Interest in the markets
-Good communication and analytical skills
-Thrive in fast-paced environment
 Sales
 -Good at attracting, building and maintaining relationships
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Trading
-Be able to take calculated risk
-Instinctively react to market movements
(-Financial modelling)
Research
Bulge Bracket Bank
Investment
Banking
Sales &
Trading
Research
Asset
Management
Treasury
Security
Services
Credit Risk
Research
 Equity, Credit, Economic…
 Sell Side (Banks) and Buy side (Hedge Funds)
 Teams of 2-10, not standard across the street
 Equity Research
 Buy/Sell/Hold
 They Serve:
 Internal clients: traders, internal funds
 External clients: sell side shops, hedge funds
Asset Management
Bulge Bracket Bank
Investment
Banking
Sales &
Trading
Research
Asset
Management
Treasury
Security
Services
Credit Risk
Overview of Asset Management
 Asset management is the professional management of various securities
(shares, bonds etc.) and assets (e.g., real estate), to meet specified investment
goals for the benefit of the investors. Investors may be institutions (insurance
companies, pension funds, corporations etc.) or private investors
 Investment managers who specialize in advisory or discretionary (client gives
the bank control over what to do and how to invest) management on behalf of
(normally wealthy) private investors may often refer to their services as wealth
management or portfolio management often within the context of so-called
"private banking".
 The provision of 'investment management services' includes elements of
financial analysis, asset selection, stock selection, plan implementation and
ongoing monitoring of investments. Also, brokers and bankers have to be
knowledgeable about any issues a client can face: mortgages, planning for
college, planning for retirement, transferring assets to children, estate
planning, wills etc. Investment management is a large and important global
industry in its own right responsible for caretaking of trillions of dollars, euro,
pounds and yen.
Overview of Asset Management
 Coming under the remit of financial services many of the world's largest
companies are at least in part investment managers and employ millions
of staff and create billions in revenue. All of the big banks have Asset
Management divisions. Goldman, JPM, HSBC and Bank of America /
Merrill Lynch are particularly well known in this industry
 Money is earned by charging a commission on the investments that are
sold to clients, by charging trading fees and fees for other services such as
estate planning, or by charging a spread on the total yearly return for the
portfolio.
 Client typically tend to be wealthy individuals and institutions
 Asset management relies heavily on other divisions of the bank – the
commercial bank for their credit card services which are offered to clients
and S&T to help place trades for the wealthy clients.
How is Asset Management Set Up?
Example in Review: JPMorgan Asset Management
JPMorgan Asset Management
Private Banking
Private Wealth
Management
• For private clients with
$25million+ in liquid assets • For private clients with $2• Issues mainly evolve
25million in liquid assets
around protecting wealth
• Lower-level issues: this
and transferring assets to
group may still have to
heirs, as well as
worry about paying for
implementing the best
college, planning for
possible tax strategies.
retirement or growing
their portfolio.
Investment
Management
• For institutional clients.
Includes more quantitative
groups and specialized
groups in areas such as real
estate, mutual funds,
pension funds etc.
**Different banks use the above titles differently. For example, all clients at Credit Suisse are
part of their “Private Bank”, regardless of the amount of money they have.
**Liquid Assets does NOT include your house, car, business etc. ONLY cash or investments
Types of AM Teams
 Banking Teams (also known as Brokers – these are the
“face” to the client and direct contact). Have a talking
knowledge about a broad range of topics.
 Investor teams- make strategy calls specific to certain
clients’ portfolios. Know the client well. Market
oriented.
 Product Teams – Equity Solutions, FICC (Fixed Income /
Currencies / Commodities), Mortgages, Hedge Funds,
Due Diligence, Global Access Portfolios, Portfolio
Construction. “Make the strategy calls for clients to get
in or out of investments.” Deep knowledge about 1
specific topic.
Commercial Banking and Credit Risk
Bulge Bracket Bank
Investment
Banking
Sales &
Trading
Research
Asset
Management
Treasury
Security
Services
Credit Risk
Commercial Banking
 Treasury Securities Services-largest cash flows for most of the
banks with credit card services
 Generate enough cash flows to be their own stand-alone Fortune 500
company
 Other Roles of the Commercial Bank
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Payment processing
Issuing bank cheques
Accepting deposits
Lending
Providing guarantees
Safety deposit boxes
Credit Risk
 Credit Risk-Evaluates the risk levels associated
with certain deals
 Rating companies
Investment vs. Commercial Banks
 Investment Banks
 Clients: Large corporations and
high net worth individuals
 Financial services and advice
 Intermediaries
 S&T function
 Loans are usually sold (removed
from the Balance Sheet)
 Higher risk
 Make bets with own money
 Commercial Banks
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Clients: Every day people
Provide basic banking functions
Accept deposits (FDIC)
Make consumer & commercial
loans (held on Balance Sheet)
 Lower risk
What is private equity?
 Private equity is a broad term that refers to any type of equity
investment in an asset in which the equity is not freely
tradable on a public stock market.
 Categories of private equity investment include leveraged
buyouts, venture capital, growth capital, angel investing,
mezzanine capital and others.
 PE firms will sometimes pool funds together to take very large
public companies private. Many private equity firms conduct
what are known as leveraged buyouts (LBOs), where large
amounts of debt are issued to fund a large purchase. Private
equity firms will then try to improve the financial results and
prospects of the company in the hope of reselling the
company to another firm or cashing out via an IPO.
 Alternative asset class favored by university endowments,
insurance companies, corporate pension plans, public
employee retirement plans and high net worth individuals
Reading List
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Reminiscences of a Stock Operator by Edwin Lefevre
Stock Market Wizards: Interviews with Top Traders by Jack D. Schwager
When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein
Liar’s Poker: Rising Through the Wreckage on Wall Street by Michael Lewis
Monkey Business: Swinging Through the Wall Street Jungle by Peter Troob & John Rolfe
Barbarians at the Gate: The Fall of RJR Nabisco by John Helyar
Den of Thieves by James B. Stewart
The Alchemy of Finance: Reading the Mind of the Market by George Soros & Paul Volcker
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim N. Taleb
Against the Gods by Peter L. Berstein
The Black Swan: The Impact of the Highly Improbable by Nassim N. Taleb
Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay
Ice Age by John Gribbin & Mary Gribbin
Influence: The Psychology of Persuasion by Robert B. Cialdini
Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor by David S. Landes
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger by Charles T. Munger &
Peter D. Kaufman