Econ 310

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Econ 310  Financial Institutions in Hong Kong

• Investment Bank
• Merrill Lynch

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The Nature of Investment Bank

• - intermediary that help corporations raise funds

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Role of investment banks

• - underwrite the initial sale of stocks and bonds
• - a deal maker in mergers, acquisitions, and
  spin-offs
• - a middleman in the purchase and sale of
  companies
• - a private broker to the very wealthy

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The revenue of investment banks

• - Commission
• - fee income
• - Spread
• - principal activities

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Global investment banking revenue increased in to
52.8bn 2005. - This was up 14 on the previous
year - The recovery resulted in an increase in
MA activity
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The US was 51 of the total Europe (with Middle
East and Africa) generated 31 of the total Asian
countries generated the remaining 18.
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Well-known investment banking firms

• - Morgan Stanley
• - Merrill Lynch
• - Salomon brothers
• - First Boston Corporation
• - Goldman, Sachs.

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The Background of Merrill Lynch

• 1914 - Charles E. Merrill Co. opened for
  business at 7 Wall Street in New York City on
  January 6. A few months later, Edmund C. Lynch,
  joined him
• 1915 - The name was officially changed to Merrill
  Lynch Co. in

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• 1941 Merrill Lynch became the first company of
  announcing annual report at Wall street
• 1955 It gained a underwriting contract of
  100million in the first time
• 1960 and 1961 It set up in London and Tokyo
  separately
• 1993 It became the first securities firm of
  Beijing

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- with offices in 37 countries and territories -
total client assets of approximately 1.5
trillion - ranked No.34 in Fortune 500 from the
April 17th 2006 issue - topped Barron's annual
"Top 100 Financial Advisers" again in April 2006,
with the largest number on the list of any firm
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Two core businesses of Merrill Lynch

• - Global Private Client
• - Global Markets Investment Banking Group

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Services of Merrill Lynch  - Securities
origination, brokerage, dealer and related
activities - Investment banking - Securities
clearance, settlement, equity financing and
services, including prime brokerage - Wealth
management products and services, including
financial, retirement and generational planning -
Banking, trust and lending services - Insurance
and annuity products and annuity underwriting -
Private equity and other principal investing
activities - Global investment research -
BlackRock
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Major locations - 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 - London, UK, European headquarters
- Hong Kong, PRC - Tokyo, Japan
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Other Services of Merrill Lynch

• Two global business
• - global private client
• - global markets

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Global private client

• Main Services provided
• GPC business model
• Target Customers

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Global private client

• Four main services of small and mid-sized
  businesses
• - integrated cash management
• - flexible financing
• - retirement benefits
• - personalized advice

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Global private client

• Role of GPC
• Total MerrillSM
• Awards

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Global Markets

• Services provided
• Fixed Income, Currencies and Commodities group
  (FICC)
• Global Equities
• Award

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Performance of Merrill Lynch

• 2005 Financial Data
• Total Revenue 26.0 billion USD
• Change ?18
• Net Profit Margin 5.1 billion USD
• Change ?15
• Total Asset 681 billion USD
• Change ?8.4

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• Revenue from
• - Asset management fees
• - Portfolio service fees
• - Commissions of Equities and Mutual Funds
• - Principal transactions
• - Underwriting
• - Strategic advisory

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• Key Event in 2006
• Merger Merrill Lynch Investment Managers with
  BlackRock, Inc.
• - 49.8 shareholding
• more than 1 trillion in assets under management

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Stock Performance of Merrill Lynch (MER)
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Primary Sponsor(???) of IPO
Merrill Lynch - ICBC (1398) - ?????? (1800)

• Morgan Stanley
• ???? (457)
• ???? (3323)
• ???? (2626)
• ????? (813)
• ???? (1898)

• Goldman Sachs
• ???????(3355)
• ???? (3988)
• ????? (1888)
• ?????? (552)

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Case Study ICBC
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• 210 hundred million US dollars
• ICBC will purchase in Hong Kong and Shanghai,
  distribute 483 hundred million for A shares and H
  shares
• Hong Kong release partially approximately
  composes for 3/4
• ICBC can become the stock which goes on the
  market in Hong Kong and China.

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• Feburary,2006
• ICBC gathers capital the amount 100 hundred
  million US dollars
• the bank choice goes on the market sells on
  consignment business certainly to have to enjoy a
  higher well-knowingness in the local capital
  market, and has a stronger comprehensive strength.

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• March 2006
• requested them to make the suggestion estimate
  and the detailed plan book

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• July 2006
• ICBC incurs the stock price approximately 2.76
  dollars
• the independence buyers should have 3,000 dollars

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• September 2006,
• ICBC in the preliminary of raising capital which
  submits to Securities and Futures Commission

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• the ICBC can distribute 130 hundred million of A
  shares, but H shares achieved 353 hundred million
  
• public shares are partial initially only accounts
  for 5

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• The ICBC amounts between 180 to 210 hundred
  million US dollars
• ICBC of stock price possibly lies between 2.6
  dollars to 3.05 dollars

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• On 27 of October, 2006 (1st Day)
• All independence buyer totaled gains
  approximately 16 hundred million dollars.
• ICBC of H shares receives nearly 15, reports
  3.52 dollars
• each independence buyers gain 319 dollar

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ICBC

• Merrill set the right price
• Over subscribe exist

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ICBC

• - 1st day (opening)
• Share price 3.60
• Higher than listing price
• (3.07 3.6) 17
• 450/1000 share

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ICBC

• China Merchants bank 24.9
• Bank of China 15.3
• ICBC 14.6
• Bank of Communication 13.2
• China Construction Bank 0

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ICBC

• - Professionals expectation
• Long term
• - Trend is going upward (share price)

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?? ?? ?? ?? ?? ??? ?????
2006-11-23 4.15 4.20 4.08 4.11 605,236,992 4.11
2006-11-22 4.02 4.14 4.02 4.13 685,890,112 4.13
2006-11-21 4.03 4.05 3.99 4.01 357,018,912 4.01
2006-11-20 3.97 4.05 3.95 4.01 450,274,496 4.01
2006-11-17 3.98 4.03 3.96 4.01 593,172,928 4.01
2006-11-16 4.05 4.14 3.97 4.03 1,049,694,912 4.03
2006-11-15 3.88 4.02 3.88 4.00 1,160,173,056 4.00
2006-11-14 3.82 3.93 3.80 3.87 1,464,082,304 3.87
2006-11-13 3.64 3.78 3.63 3.77 1,197,494,656 3.77
2006-11-10 3.65 3.67 3.62 3.65 1,055,038,784 3.65
2006-11-09 3.56 3.64 3.56 3.63 832,210,752 3.63
2006-11-08 3.60 3.60 3.55 3.56 508,204,160 3.56
2006-11-07 3.63 3.64 3.59 3.61 508,741,152 3.61
2006-11-06 3.58 3.65 3.56 3.62 952,751,488 3.62
2006-11-03 3.51 3.63 3.50 3.58 2,051,865,856 3.58
2006-11-02 3.49 3.51 3.48 3.50 512,928,032 3.50
2006-11-01 3.48 3.52 3.47 3.49 984,243,840 3.49
2006-10-31 3.48 3.49 3.45 3.48 2,253,748,224 3.48
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Competitors
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Short term

• Great competition in local market
• 58 banks providing investment banks services
• many choices to choose underwriting IPO
• e.g. ICBC case

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Competitors

• local banks are expanding their business to
  different categories, e.g. HSBC

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Competitors

• 1.      Commercial bank the Hongkong and
  Shanghai banking co-operation
• 2.      Investment Banking -- HSBC Investment
  (Hong Kong) Limited
• 3.      Insurance
• 4.      Leasing, Finance and Factoring
• 5.      HSBC Securities Services
• 6.      Global Payments and Cash Management
• 7.      Trade Services
• 8.      Corporate, Investment Banking and Markets
• 9.      Property Services
• 10.  Shipping

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Competitors

• Long term
• Merrill is not a local I-bank, cannot share the
  benefit of CEPA
• Competitors doing more advanced
• Market predicted is negative to Merrill

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Conclusion
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The End

• Group members
• Ng Sin Kwan 043057
• Chiu Pui Ming Stephanie 055012
• Or Chung Ching 035165
• Lai Man Yan 043012
• Fan Man Kit 043022
• Wong Ping Yiu, Brian 043195