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Wachovia - Capital Markets Overview

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					The Investment Banking – Sales & Trading Process
Frank L. Van Buren Director, Wachovia Securities

Kenan-Flagler Business School

1

Traditional Corporate Banking
Credit Underwriting

Need Capital

Have Capital “Principal”

Corporation

$300MM

Bank

Corporation needs $300MM in capital, approaches relationship banker. Corporation borrows money.

Relationship banker gets credit underwriting team involved. Bank acts as Principal, and assumes the entire underwriting risk. Bank may distribute some risk to a “club” of banks.

Kenan-Flagler Business School

2

Investment Banking: Step 1
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital

Corporation

Dialogue

Investment Bank

Corporation needs $300MM in capital, engages in dialogue with Investment banker. After reviewing capital markets options, Corporation agrees on a method to gain financing.

Investment banker offers view on available capital markets options. Bank seeks to act as Agent, and connect the company to Institutional Investors.

Kenan-Flagler Business School

3

Investment Banking: Step 2
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital Sits on Wall between Public & Private

Public – “Buy-Side”

Corporation

Investment Bank

Dialogue

Syndicate

Investment banker engages in a discussion with internal Syndicate representatives.

Syndicate is empowered to approach the Institutional Investor community for feedback on “deal appetite”.

Research

Research publishes material for public consumption, and provides industry expertise to the Sales & Trading desk.
Kenan-Flagler Business School
4

Investment Banking – Sales & Trading: Step 3
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital Sits on wall between Public & Private Info

Public – “Buy-Side”
Access to Capital

Corporation

Investment Bank

Dialogue

Syndicate

Sales & Trading

Syndicate engages in a “no-name” discussion with Sales & Trading.

Research

Research, normally located on the “public” side of the information wall, is “brought over the wall” to assist. Now restricted from publishing.

Sales & Trading is provided with general credit information about potential issuer, in order to engage in discussions with “buy-side” Institutional Investors about hypothetical transaction.

Kenan-Flagler Business School

5

Investment Banking – Sales & Trading: Step 4
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital Sits on wall between Public & Private Info

Public – “Buy-Side”
Access to Capital Have Capital “Principals”

Corporation

Investment Bank

Syndicate

Sales & Trading

Institutional Investors

Sales force reaches out to Investor community for feedback on viability of potential deal.

Institutional Investors estimate the terms and pricing necessary to develop interest.

Research

Institutional Investors – Required by the Securities & Exchange Commission “SEC” to have greater than $100MM in assets: Mutual Funds Hedge Funds Insurance Companies Pension Funds Banks College Endowment Funds Labor Union Funds Corporate Profit Sharing Plans
Kenan-Flagler Business School
6

Investment Banking – Sales & Trading: Step 5
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital Sits on wall between Public & Private Info

Public – “Buy-Side”
Access to Capital Have Capital “Principals”

Corporation

Investment Bank

Syndicate

Sales & Trading

Institutional Investors

Corporation makes a determination whether or not to go forward with the proposed transaction, based on the expected pricing and terms necessary to get the deal done.

Investment Bankers communicate feedback to Corporation.

Syndicate communicates feedback to Investment Bankers.

Sales force communicates feedback to Syndicate.

Research

Kenan-Flagler Business School

7

Investment Banking – Sales & Trading: Step 6
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital Sits on wall between Public & Private Info

Public – “Buy-Side”
Access to Capital Have Capital “Principals”

Corporation

Investment Bank

Syndicate

Sales & Trading

Institutional Investors

Corporation says “go”.

Investment Bankers complete the underwriting process (on either a “fully underwritten” or “best efforts” basis). The former commits the I Bank to provide financing at the “backstop” rate/terms, regardless of the success of the distribution process.

Syndicate and Investment Bankers take Corporation “on the road” to meet with Investors.

Sales force and Syndicate arrange one-on-one meetings and group lunches to allow the Corporation to “sell the story”.

Research

Research & I Bankers educate Sales & Trading.
Kenan-Flagler Business School
8

Investment Banking – Sales & Trading: Step 7
Primary Issuance

Private – “Sell-Side”
Need Capital “Agent” of Capital Sits on wall between Public & Private Info

Public – “Buy-Side”
Access to Capital Have Capital “Principals”

Corporation

Investment Bank

Syndicate

Sales & Trading

Institutional Investors

Investors fund the $300MM transaction, and Investment Banking – Sales & Trading team receives an underwriting fee.

Kenan-Flagler Business School

9

Sales & Trading: Step 8
Secondary Market Trading

Public – “Buy-Side”

Need Liquidity

Provide Liquidity

Institutional Investor

Sales & Trading

Investors require liquidity (trading flow) to effectively manage portfolio of assets.

Sales Force talks with Investors (Accounts) daily to determine what securities they want to buy or sell. Traders “make the markets”, and manage the desk’s capital. Buy low, sell high and make the spread.

Institutional Investor

Kenan-Flagler Business School

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DOCUMENT INFO
Description: Investment Banking Interview Preparation