Revision 1

Corporate finance: – Equity underwriting – Debt underwriting & bond pricing – M&A advisory Asset management – Derivative products (swaps, options) – Portfolio management Capital regulation Topics covered 2

Types of issuance: IPO, SEO Why go public? Why not go public? IPO process Syndicates: – Potential functions – Actual functions – Syndicates and effort Equity underwriting 3

Underpricing – Facts – Principal agent theory – Information revelation theory – Winner’s curse – Institutional explanations – Ownership and control – Stock-flipping – Long-run performance Equity underwriting 4

The underwriting spread – How high is the spread – Costs of underwriting for IBs – Are the spreads justified? Fee structure inconsistent with the existence of fixed costs No price competition High spread in the US Efficient contracting hypothesis Industry concentration, entry Justice department probe US banks add value Equity underwriting 5

Role of IB: more about selling and structuring than pricing Pricing of government bonds Corporate bonds – Default risk – Call provision – Convertible bonds Debt underwriting 6

Forward vs. spot rates Interpreting the yield curve Interpreting corporate bond yields: what is the probability of default? Term structure of interest rates 7

Derivatives SWAPS – Rationales for swaps: hedging, exploit comparative advantages Options: – buy, call – Pricing options 8

Asset securitization Role of securitization in banking CDS CDO 9

Buyer’s motivation Seller’s motivation Who gains from M&A? Role of investment banks: do they add value? IBs market shares, IBs vs. commercial banks M&A 10

Portfolio management Passive vs. active management Performance measurement, the different ratios 11

Financial analysts Function of analysts Optimistic bias: – Origin – Facts – Reward and risk-taking – Market reaction 12

Capital regulation Rationales for capital regulation Basel 1, Basel 2 Procyclicality problem 13