Investment Banking Merrill Lynch ICBC in IPO Financial Institution in HK ECON 310 s4g4

Introduction to investment Bank Best known in the world Help companies to raise money in primary market Intermediaries Differ from commercial bank & brokerages Commerical Bank: Take deposits and make commercial and retail loans Brokerages:Assist in the purchase and sale of stocks, bonds, and mutual funds

Background of Merrill Lynch Established in 1914 Owner: Charles E. Merrill & Edmund C. Lynch Place: Wall street in New York City In 1959 become 1st member firms of the New York Stock Exchange Go public in 1971

CEO President & Chairman of the Board Industry: Finance & Insurance Main Products Financial Services Investment Banking Investment Management Background of Merrill Lynch (con’t) Stan O’ Neal I’m Stan O’ Neal

Responsibilities of Merrill Lynch Underwriting Researching & provide advice Pricing YearEvents 1980Started the underwriting business 2001E. Stanley O’ Neal became president and COO Merrill Lynch, Citigroup and Goldman Sachs advised AT&T on its IPO 2002E. Stanley O’ Neal became CEO % market shares of the deals E. Stanley O’ Neal became the first African- America chairman of Merrill 2004Won the advisory on the sale of AT&T Wireless Group 2006Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, a 2006 Supreme Court case involving security fraud claims

Multicultural Marketing of Merrill Lynch African American Marketing Hispanic American Marketing LGBT (Lesbian, Gay, Bisexual and Transgender) Marketing Native American Marketing South Asian Marketing Special Needs Marketing Women’s Marketing

Major Locations of Merrill Lynch New York City, New York, U.S., global headquarters Jacksonville, Florida, U.S., corporate center, supporting North America operations Hopewell, New Jersey U.S., corporate center, supporting North America operations Jersey City, New Jersey U.S., corporate center, supporting North America operations

Major Locations of Merrill Lynch (Con’t) Princeton, New Jersey, U.S., corporate center, GPC Home Office Singapore, corporate center, supporting Asian Pacific Rim (APR) operations, namely Hong Kong & Tokyo London, UK, European headquarters Hong Kong, PRC Hong KongPRC Tokyo, Japan TokyoJapan

Financial performance

Ranking of Merrill Lynch

Business Groups of Merrill Lynch Big 3 Groups: GMI: Global Markets & Investment Banking Group GPC: Global Private Client MLIM: Merrill Lynch Investment Managers/ BlackRock, Inc.

Highlights achieved in the markets No. 1 trader of U.S. Stocks (NYSE) since No. 1 Private Banking Assets, fifth consecutive year, Leading Player Best Investment Bank of the Year by The Banker. Top European Equity House by International Financing Review Top China Equity House by International Financing Review Asia Best Investment Bank by Euromoney Barron's Best 100 Brokers Top Full-Service Brokerage House

Background of ICBC Established in 1 Jan 1984 One of the big four commercial bank Decided to restructure

Financial structure :

IPO Procedure 2005 Financial restructure MarInvestment banks were chosenInvestment banks were chosen 12 Jul ICBC decided Issue A and H-share simultaneously 20 Jul Formal application 9 Oct International Road Show 16 – 19 Oct Subscription for the Public 20 Octprices $3.07 (upper limit) 23 Oct Oversubscribed 76 times 977,000 people involved US$543 billions was frozen 27 Oct made public, $3. 60 (  17%)

Listing information

Specialty of ICBC IPO Raise US$21.9 billion Break the record made by NTT DoCoMo Inc (Japanese mobile phone company) Which raise $18.4 billion in 1998 The biggest IPO in the world Source:The Wall Street Journal Briefing (

First time issue A and H-shares simultaneously Landmark of the stock history the Chief Executive Mayor of Shanghai Good example for other enterprises Specialty of ICBC IPO(con’t) attended the ICBC’s IPO ceremony in Hong Kong and Shanghai respectively

Biggest white form eIPO application ~10% investors using eIPO (~ 83,000 people) Protect the environment Convenient to investors Saving the transaction fee to investors Receive allotment result by Specialty of ICBC IPO(con’t)

The highest capital was frozen in A share $800 billion was frozen break the record of the Bank of China. Specialty of ICBC IPO(con’t)

Other new records Most retailer investors apply ( 997,000 people) First day  HK$37.4 billion No. of bank collect form  7 Banks, 88 branches Issue Warrant and Share simultaneously Specialty of ICBC IPO(con’t)

Influence in HK Ensure the international financial position in HK 2004 world 3 rd largest fund raised market After New York and Madrid 2006 HK has good banking system & listing requirement ICBC & BoC IPO → the largest fund raised market

Influence in HK (con’t) Issue H-share → improve corporate governance → internationalization Going public in HK → Trend in the foreseeable future

Comment Playing an important role on adjusting the initial price of stock  advice: not to issue so many warrants  to stabilize the initial price Setting of initial price  a gain for all the subscribers in the market  underwriting fee: 2.5% per book runner  Merrill Lynch itself earned $50M SIU KAM HA JOYCE

Comment (Con’t) Position has been raised Exposure of a variety of risks  e.g. market risk, Liquidity Risk, Competitive Environment  caused by the unpredictable factors  Suggestion: paying more attention + identifying the risks + solutions SIU KAM HA JOYCE

Conclusion Merrill Lynch had played an important role on the success of ICBC stock issuing  giving contributable advice  gaining satisfactory earnings + growth  being one of the most famous investment banks in the world  affecting other companies’ ranking  somehow a promotion of a stock with the invitation of large book runner SIU KAM HA JOYCE

tHe EnDtHe EnD

Joint Coordinator & Joint Sponsors CICC ICEA Merrill Lynch Joint Bookrunners Merrill Lynch CICC Credit Suisse Deutsche Bank ICEA Back