Industry Research Group 1 1. Fundamental differences of Commercial Banks and Investment Banks, the different job nature and how to make money

Definition of commercial bank  An institution which accepts deposits, loan and offer services  Can be classified into 4 groups: –Community Bank –Regional Bank –Super-regional bank –Money center or international bank

Definition of Investment Bank  An institution which acts as an underwriter or agent for corporation to issue securities to issue securities –Maintain dealer or broker operation –Maintain market for previously issued securities. –Offer advisory services for investors

Differences between the commercial bank and investment bank

Job Nature of Investment Banks Leading Investment Firms: Leading Investment Firms: -Goldman Sachs Group, -Merrill Lynch -Morgan Stanley Dean Witter 3 main types of activities:  Investment Banking  Trading and Principal Investments  Asset Management and Securities Services

1.Investment Banking  Corporate Advisory Services –Mergers –Acquisitions –Restructurings  Securities Underwriting –buying all the shares of IPO for resale at a pre- established price per share  Private Placement of Debt and Equity Securities –place, negotiate and close transactions of private placement

2.Trading and Principal Investments  Fixed Income, Currency and Commodities –products are: bank loans, commodities, currencies, derivatives  Equities –trades equities and equity-related products  Principal Investments –make principal investments directly and through the funds they raise and manage

3.Asset Management and Securities Services  Asset Management –Assets under management include mutual funds, separate accounts managed for institutional and individual investors, merchant banking funds and other alternative investment funds  Securities Services –includes prime brokerage, financing services and securities lending, all of which generate revenues primarily in the form of fees or interest rate spreads  Commissions –include fees from executing and clearing client transactions on major stock, options and futures markets worldwide –also include revenues from the increased share of the income and gains derived from our merchant banking funds.

How Investment Banks Make Money?  Investment Banking –fees charged for financial advisory –Commissions from Underwriting businesses  Revenues earned through Trading and Principal Investments  Asset Management –generates management fees by providing investment advisory services

Personal Banking of Standard Charted Bank Job dutuies Personal Banking Basic services Deposits Loans Investment Credit card Retirement service Insurance Personal banking plans Priority banking Excel banking Easy banking Banking services Mobile WAP Palm Automated ATM Life stage plans Getting started Young couples Getting established Prime

Corporate banking --Trade services Assist firm in international trade  Factoring/Account Receivables services  Import and export Letters of Credit  Documentary collections and guarantees  Document Against Acceptance  Document Against Payment  Credit Bills Negotiation  Tailored trade services packages

Credit facilities Credit facilities help meet financial needs Credit facilities help meet financial needs  Working Capital  Cheque Protection  Professional Firm Overdraft  Merchant Overdraft  Residential and Commercial Property Financing

Cash management Help firms manage money  Transactional accounts (e.g. Savings Account and Current Account)  Time Deposit Account  Remittances and bank drafts  24-hour phone banking services  Consolidated statement  ATM Services  Fax banking and courier services  Electronic banking services  International and local collection and payment services

Protection and employee service Offer protection and employee services provide products such as: provide products such as:  insurance  payroll  provident fund products

How to make money?  lending and accepting deposit  to earn net interest income  charge transaction fees and commission  from the financial services they provided

Service charges and commission  Net fees and commissions (HK$ millions) (HSBC) 2001 (HSBC) 2001 Account services 1214 Account services 1214 Credit facilities 1534 Credit facilities 1534 Import/export 2193 Import/export 2193 Remittances 856 Remittances 856 Securities /stock broking 1530 Securities /stock broking 1530 Cards 2723 Cards 2723 Other 3584 Other 3584

Thank You ! The End!