IB

First coins + paper money

650 BC by lydians (western turkey); first paper money - in china during song dynasty "jiaozi" evolved from promissory notes used since 7th century

10b-5 is famous rule - in 34 act

10b-5 is famous rule - is anti-fraud provision - prohibits fraud with purchaser sale of security - just in connection with it - which si super broad- enforces anti insider trading rules but also applies to other types of fraud of company is misleading investors- if you tell ppl misleading stuff about company and they buy stock then that is violation - have to be dealing in fair way

Active vs passive investing

12 consecutive year index funds beat majority of actively managed mutual funds Trading fees- pay half of bid ask spread every time you trade- broker take half of that spread - may be cent but then you pay half cent - more active trading is higher trading costs And they have management fees- index funds charge like 2 bp - active is 50 or smth to full % Stocks on average generate 10% return - 50 bps is .5% of that return - .5% moves you at disadvantage - if 100 bps then huge disadvantage - and they arent that much better than passive-REWATCHTHIS

asia 1978- pres

1976 - death of mao and rose after that 1978- deng xiaoping comes to power, radically reforms chinese econ after prior damage 198-s - japanese banks become largest in world (still have 3/12 top ones today) with tokyo stock market hitting all time record in 1989 huge huge bubble - real estate bubble 2001- china joins WTO China and then India see real GDP growth of 5%+ for many years By 2020, china had 4 of largest banks by assets in world Chinese econ now 2nd largest in world HK several times led in IPO volume India continues to gather strength - likely to pass china in population by 2030

American banking and asia's rise 1978 - present - covers 2000, 2001 mindset up to crash in 2008-9

2000 nasdaq meltdown 2001 - gold age - high ROE - "be like goldman", mortgage banking - few banks had goldman envy and entered mortgage banking - lots of leverage - bear, merrill, and lehman + city all loaded up on mortgages in many ways - fed raised rates which hurt them 2008-9 - second great crash - S&P down 56.8% Bear's rescue - 2/share initially - raised to 10 ultimately v 172/share in 2007 Death of lehman Merrill's rescue by bofa - goldman vicarious rescue through rescue of aig (underwrite of CDS); in 000, new york had ruled in june 2000 that CDS were not insurance, not securities, and commodity futures modernization act of 2000 stated that CDS are not futures or securities. Therefore, AIG did not have to reserve for them ??? rewatch

2002 sarbanes oxley + effects

2002 sarbanes oxley passed which made cost of private companies much higher (more accounting rules)- CEOs personally liable so risks higher- and availability of PE companies going up and up - bc ROR was very high in 90s or so - so more money available and more This trend likely to continue - PE money available rising Relevant w ECM bc you work with PE forms to monetize portfolio companies - do you wanna sell part of company to other PE firm etc

# of stock/other exchanges:

262 - largely track population and wealth Africa 38 Asia 91 Europe 56 Americas 69 Oceania 8 On listed exchange - in order to raise any sig capital need to be listed - can't be OTC for large amounts of money This is where you go to raise cap, and to trade stocks - list your clients on large exchanges bc more liquid, more investors, better pricing Can dual list in NY or HK or some combo

ECM - 2021 IPO activity

All time record in US, breaking 2020 record US IPO activity: 1010 deals (v 494 in 2020, 159 in 2019(; $287 billion raised v 174 billion raised in 2020 and 46.3b in 2019 1000 deals so average size is 287 million - inflated bc SPACs raised more than operating companies

Venture cap news Nielsen - tracks tv viewership - gives ratings

Are publicly traded- subject to unsolicited bid - valued 9 billion - rejected the deal - how do you value company? Valued below 25 and bid of 25.40 and said their value is higher Elliot management was involved - well known activist - will likely look for other way Has windacre partnership who owns ~10% - proves 9.9 actual stake and position through swaps for 14% - so like 25% of owning power- said they didn't support the deal

The key question: what is an asset worth

Asset is cash itself or can be converted to cash today or in future - if you pay cash that is liability Asset is also something that allows you to avoid spending cash on smth you would otherwise need to do - ppl would like to live in place with roof, so housing is an expense you have to have - avoiding implicit rent (have to, not want to) Some houses may be pure assets, some assets + consumption (don't necessarily need 20 m house - extra consumption is just listed as consumption)

direct listings last year - two ways to file listings - rule for holding period - reasons to do direct listing - ****** what are form names and review reasons

At least 6 direct listings last year he could find: roblox, coinbase global, squarespace, ziprecruiter, amplitude, and warby parker - in past seen as weird back door way to get public - now becoming more popular - spotify changed this mindset when they did direct listing a few years ago - good pipeline this year but markets not cooperating, need some nasdaq correction to get back to level Direct listing when company files reg statement- 2 types (1 is regulator form S1 which is normal reg statement w SEC for normal IPO to register shares that can then be sold, 2nd is file form 10 which is registering the company, not any shares, os company becomes pub traded and owners can resell privately owned share under rule 144 to sell shares into stock market even tho their shares have not indv been registered with SEC - rule 144 says holding period requirement that is 6 mo, 12 mo, or 24 mo depending on circumstances - if company registered w SEC and trading on listing exchange, and you re not affiliate (board or mgmt) then you do 6 mo - 12 mo if affiliate (officer or director), and 24 mo if company trading OTC (not registered) for affiliates and 12 for non affiliates) - want affiliates to have long term thinking So directly listed can sell over 144 and provides liquidity - why would you do direct listing if you can do IPO or SPAC - why trading if not raising money More eyes on company - publicity benefits Give employees the option to sell shares - liquidity for early investors and employees Now youre public so easier to raise money in future - easier to do secondary offering than IPO All of these were venture backed companies, didn't need money, wanted liquidity for shareholders

If doing a material acquisition, a company needs to have a valuation done for accounting purposes

Bankers value company, but often separate valuation done for accounting purposes - this valuation process can add a month to deal process- Material Acquisition means any acquisition of property or series of related acquisitions of property that (a) constitute assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the Equity Interests of a Person and (b) involve the payment of Acquisition

Modern origins of interest, lending, receipts, modern banking in italy- name of oldest bank**

Banking originated in 2000 BC in assyria and babylonia - grain loans and gold deposits - storage fee or "interested" - financing started w food and charged in form of storage fee (want to store grain for 6 mo or so) and you owe certain amount (like 5% of grain which is effectively interest) Temple lending and exchange - greece, jerusalem - do transactions at temple - part banking and part FX - translate product into accepted currency of realm - and additional fee for storage or borrowing etc gold or silver receipts as basis for credit - switch to gold or silver receipts that don't weigh as much - bc you would need a ton of horses to hold that much silver for a big transaction - gold receipt counted as money and they could grab from goldsmith Modern banking started in italy - famous medici bank established in 1397 but banking was occurring as early as 1156 in genoa - they didn't just lend, were full service banks with commercial lending and borrowing, IBs, and merchant banks acting as principle on other side of trade (merchant banking not as common bc of volcker rule in dodd frank - cant have prop trading desks) Oldest bank in existence - banca monte dei paschi di siena spa (siena, italy) founded in 1472 (underwent a financial restructuring in 2017 to avoid liquidation; combination bail-in (bondholders) and bail-out) Banking often was "merchant banking" where the bank acted as principal not just intermediary

Stock repurchases

Banks get involved for compliance reasons - companies are experts in trading own stock - so company needs to hire bank for purchase program Opportunity for manipulation Can buy a lot of shares and move stock price - so you create rules to minimize risk of market manipulation but still have op to buy shares back

EQT acquisition - VC firm

Buying PE asia - buy rival private-equity firm Baring Private Equity Asia, a big bet on the growth of Asia's private markets.-globalization trend in PE - 7.5 billion deal Gives them 20 bn in AUM - paid 7.5 fr it - is that exp or cheap - 37.5 cents per dollar - AUM is not your money, just money you manage - what is your fee ? for PE usually - 2and20??? - mgmt fee sometimes 1.5 or 1% - well known firms charge 3130 - 2120 is basic metric - on dollar of AUM you get 2 cents a year + 20% of carried interest Say EQT acquisition - say no hurdle rate - then each 1% return they get 20 basis points .2 percent - so most get 15% return, sometimes 20 If they get 15% then you get 20% of that - get 3% - 2 cents in mgmt fee + 3 in carried interest - total return is 5 cents - get 5 cents return adn you paid 37.5 cents for price - so what's the multiple? paying 7.5 times projected cash flow - 7.5 times EBITDA basically Is milestone but will serve as comp for future transactions More deals likely in future bc EU growth slower, asia faster - may have acquisitions in asia - greenfield or acquire

Difference between private banking and central banking

CB is bank that is either owned by gov or sanctioned by gov to control the money supply - diff from private commercial banking (JPM cant influence money supply for example) CB younger heating - only 350 years started in sweden? - BOE too - set up bc these countries needed money - use CB to finance stuff like wars - tell everyone they can only use this currency and then you capture seigniorage which is money (print 100 bill and it only costs like 1) - so CBs print money used by country and is only thing accepted for taxes most importantly - BOE needed to fund english wars

Valuation in practice 5 year financial model using best estimates of growth, margin and sustainability - why CAPM and not ROE

Calculate the WACC Equity using CAPM. Why not ROE? Look at past and see if growth rate should be up or down or same Take last year rev, apply growth rate - go to cogs and other line items - see if they should change (margins changing? - margins usually go lower over time) Get op profit number - after that is debt, equity, cost of interest, dep Get 5 year and get other fin statements Get WACC - capm for cost of equity, cost of debt from bond rating or bank loan, percent equity and debt, and get WACC Not ROE bc it's backward looking, capm is less back looking - can use ROE for check - can use ROE for private companies without a beta Debt using bond rating or bank loan rate (after tax, subject to limitations such as HYDO rules) Debt more complicated today - in 1987 there were no restrictions on deductibility of interest Today 2 limitations HYDO rules past - junk bond can only deduct certain percentage of interest exp - only like 30% of operating profit if any company above certain size Large public companies with a lot of debt - may not all be deductibility so be careful w highly levered companies, interest may not be deductible

National bank acts of 1863-64

Create a system of national (rather than state chartered) banks Create a uniform national currency (rather than state currencies) Create secondary market for treasuries

3 primary methods of valuation in practice

DCF most theoretically sound (what we just talked about) Comparable public companies - same SIC code (industry) and some that are similar size - large and small companies trade diff (more on rev, less on earnings if they don't have earnings) - large ones more on earnings, also more research on them Comparable transactions - other transactions out there, like M&A multiples - 8 times ebitda sale etc

American banking jackson v buchanan - 70 years after second bank + double liability

End of second bank of US created an opening for "free" banking - fragmented banking system for like 70 years - no deposit insurance at federal level Many states had currency and banks Weak central gov - states' rights - no fed debt in 1837 State regulation including double liability - hoped bank was well capitalized - investors would agree to put up equal amount of money later if bank in trouble - to pay off depositors - so you have double liability - PE and HF do that today - PE raise money and dont have limited partners write full check on day 1, just take 25% on day 1 and commitment to fund as needed going forward - double liability concept has application today

Terminal value- 2 choices

Exit multiple approach What is ebitda or earnings in year 5, what is appropriate multiple in year 5 (probs smaller than current) get terminal value year 5 and discount back to time 0 and add to sum of other 5 divs Perpetuity approach using div discount model and constant growth rate - where does g come from Free cash flow assumed paid out as dividend - discount them back to time 0 - then do terminal value for year 6 to infinity - perpetuity method with term growth rate and do d6/(r-g) to get PV5 - get PV time 0

The job of investment banker

Facilitating the transfer of assets (mostly companies and securities) from one party to another Requires keen sense of what things are worth in order to provide good advice and facilitate the transaction (s) Where are the buyers? Can we help you find them? And know what hoops we have to jump through Simple process but to do it well is complicated - requires data and info, organization So we need the knowledge to advise clients, be tech good at executing

Loose margin lending limits (10%) and crash of 1929 - more bankruptcies

Fell 11% on oct 24, 13% on oct 28, and 12% on oct 20 Fed tightened monetary policy everywhere but with margin lending (amount of money you put down as investor to buy stock - today is 50% bc you need skin in game to reduce risk taking) - 1929 only required 10% margin - excessive leverage so if asset values fell you go bankrupt Stock market fell a few times by over 10% and they went bankrupt - anyone on margin got wiped out - with three of these drops then everyone on margin get wiped out - they have other obligations so those banks get wiped out Demand for fed intervention

rise of NY - maybe remember years

Formation of NYSE (buttonwood agreement in 1972) and erie canal (completed 1821) led to rise of NYC as dom fin power vs phili or boston - bc of the canal last city before europe was NY so they had most of commercial businessSig econ split between nothern manu economy with stronger fin infrastructure and souther, plantation based, agriculture based (and slave based) economy - slave based economies are weak

glass steagall ending in 90s

Gradual erosion of glass- steagall by regulation Nationwide branch banking - 1994 riegle - neal Gramm leach bliley - 1999 repealed glass steagall - can have 10% bus in comm bank, then raised % a bunch so ultimately repealed In 90s branch banking was repealed so they could form banks across state lines - banking less regulated today than 85

Elon musk twitter - CE

Has taken 9% stake in twitter - prosecuted by SEC for tweets - he took stake and filed 13G - vs 13D 13G means certifying to SEC that you will be passive investor - elon musk has never been passive investor in anything and wont seek to take control of company - if he changes mind he will need to file 13D bc you cannot seek control as passive investor which is notice to company and world of potential takeover Passive investors like mutual funds to 13G - file 13 days after quarter (check this) 13D you have 10 days after position, cant wait until after quarter end - he chose to file early - didnt need until may 15 if he wants to hide position so he was happy to file early -other ppl dotn want others to know trading position and file may 14/15

Bank of england - 1694 nicknamed "the old lady of threadneedle street"

Helped finance wars South sea company- created special purchase vehicle to acquire BOE bank and privatize it to pay it off - england wasn't in warfare for while so had surplus - but then started war again and debt rose - south sea had stock and their stock price went up like crazy and then crashed in 1720 - BOE made profit on it and got some debt paid off but late investors lost everything Most banks outside of US and UK have traditionally been Universal Banks which can lend, invest or control other enterprises (so commercial and IBs - japanese banks were always universal, same w germany - so never situation where bank couldn't be both lender and underwriter) - glass steagall in US separated commercial from IB but over time when world more global, there was pressure to be able to do everything - so clinton repealed glass steagall in 1999?? Power of Deutsche bank in 1990s led to call for glass-steagall repeal - was successful universal bank in 1990s - today has credit issues but was more dominant back then

Greenback vs gold - curious case of salmon chase

Helped pass first legal tender act and put his face on $1 bill As chief justice, ruled that legal tender act was partially unconstitutional (With the Legal Tender Act of 1862 Congress revolutionized the U.S. monetary system by making paper notes legal tender and creating a national currency for the first time.) On the 10k bill (out of circulation now)

34 act 13E rules

If you take a company private you need 13E rules- disclosure rules for public saying who you are, source of money, and reasons why - so that public investors aren't taken advantage of- why is company so cheap that it's worth buying and why do you think you can do more privately - Dell id that and accused of not disclosing stuff - if working with PE client trying to take private then you need 13E

SEC re: climate disclosure

Pushes on climate disclosure - what will SEC require companies to say - ex: oil refiner needs to disclose regulatory risks - but what if not in energy business, what if computer or retail - what is yoru impact as a company on climate and is that a risk to investors? Changes: will have separate disclosures than normal risk factors - separate section where companies will have to discuss how they impact climate and quantify that impact - including your vendors and customers Will likely be challenged in court bc companies not obviously polluting - already requirements for risk exposure and mdna (?) but if going public and drafting S1 you should over disclose on these issues bc big button for SEC and don't want registration statements held back Partisan in some sense too

1933 securities act - primary guidepost to follow

How to take company public, how to do secondary offering or private placement, disclosure, registration, if ECM doing block trades you also need 1934

American banking: lincoln and the civil war (1861-65)

Huge cost of civil war m- 6.2 billion for north and 2.1 for south - north was richer tho and richer in financial assets area - southern wealth mostly land North financed its efforts with bonds - sold by jay cooke , major investment banking effort 5-20, 5%, 20 year bonds and 7-30 (7% 30 year) totalled over 1.3 billion Also nationalized banking - national associations (NA) like citibank NA - banks are on federal level South financed its effort with paper money (similar to continental during rev war)

Venture capital - a diff approach - cant really run DCF - look at proxies for earnings

Look at TAM (total addressable market) + what is chance of capturing some percent of this market Look at mgmt - do you want to back this team Look at "scalability" - want companies that can scale/ quickly within 5-7 year period become 5 or 10 or 50 times bigger - social media is scalable, chip production, etc which can reach this type of scale - some investments go ot 0 so look at home runs to drive return Rules of thumb for diff "rounds" 10 million premoney - or 50 - if you don't get that level valuation then you won't raise money - cutthroat in this regard Beware of preferred/common house of mirrors House of mirrors is liquidation preferences? - valuation that gets headline may not say if it's real valuation or not - what % is preferred

argument for bitcoin as form of money

Increasing digitization of money - argues in favor of bitcoin becoming form of money over time - money becoming less tangible and more conceptual - transaction costs have declined over time so money more global

Leadup to CB

Panic of 1893 - jp morgan - US ran out of money like literally ran out of gold - went to jpm (the individual) and asked for gold so he lent gold - embarrassing Election of 1896 - mckinley vs byran Mckinley shot and killed - TR takes over and gov becomes much more active Second event leading to CB was 1907 stock market crash - JPM again helped - but he died soon Went back to what hamilton suggested ages ago Jekyll island - 1910 and paul warburg; carter glass arrives and reps VA in US house and interested in fin matters- these ppl put together fed reserve act framework Federal reserve act in 1913 - was central in some ways but also distributed 12 districts to spread power out and elected by members, not politicians - fed reserve notes, gold system initially Wanted to clean up check clearing mass - wanted central clearinghouse function so if check written in some state then it cashes at 100% of amount - most business by check so they needed clearinghouse Trend was more efficient system less reliant on local bus activity

4 part test for security - 33 act

Is there an investment of money - if you are just providing free labor (like volunteering) then that is not security Expectation of profit - if you give contribution to georgetown then that is not a security Need common enterprise - if you just purchase water at a store then taht si not security bc you're just purchasing something - if you wanna farm yourself then there isn't another company involved Depending solely on the efforts of a third party - if you are farming yourself then that is not security - if you depend on howey and expect them to harvest and sell div check then you are dependent on them - the word solely got removed and they use primarily (investor could have really small involvement - if you went to annual shareholders meetings and voted then you did do something, but you are still not super involved) If you do it yourself with one other person then that could be security - if you sell 20% interest and manage yourself but send div, then that is security ICOs seen as securities- is sale of interest in crypto company or otherwise - is foreifn currency and investment in company that does crypto mining or trading - banking is creating new structures so need to think about if it is a security - and comply w 33 act

Religious views of money and interest

Jewish - very pragmatic Christian - anti-money changer for many centuries - money seen as basis for corruption; no usury - why is that important? - anti lender bias for many years which opens up jewish ppl to monopolize banking industry for many centuries - now religion less prevalent so a lot of this faded, except for islamic countries they still are against cash interest Islamic - anti-cash interest - cant have cash interest- in saudi arabia you can't get loan for cash - needs to be a quasi equity security with payment besides cash (maybe profit share)

Global market cap v global production - what is largest stock exchange

Market cap: app $110 trillion v GDP of about $125 trillion (just under 1x sales) - so market cap is huge Global market cap similar to GDP - price to sales metric of 1:1 Sizes of these exchanges varies greatly - NYSE is largest worldwide (about 25 trillion)

Comparison of listing criteria

NYSE- 2 tiers - NYSE and NYSE MKT (formerly Amex) - largest Direct ownership in shares vs ownership in trust or holding company - foreifn companies sometimes deposit securities with depository smth - doesnt change risk tho bc risk is geopolitical/ economic Nasdaq- 2 tiers- common for tech or high growth Nasdaq global and nasdaq capital markets Exchanges have listing criteria - many pages of detail, but 2 key tests - want to make sure they are large enough to be legit public companies - exchange is gatekeeper to public markets Also want them ot trade well bc they get fee Dont want complaints- if illiquid then bid ask spread is huge and they pay more and lose half of spread each time And want to sell your stock at some point then you need liquidity Some goals here for what exchanges want to do NY and Nasdaq have 2 levels of companies - bigger and smaller

Nielsen - CA - two factors in M&A acquisition (duty and time period)

Nielsen accepted offer- after rejecting it last time - this is classic case study of how acquisition hurts - big happens, board says not adequate, bidder comes back with higher bid and it's accepted - is 10 billion dollar deal - elliot, brookfield AM, involved and will pay 28 dollars a share - was 25.40 before so they raised price and now accepted - 16 bn transaction value including debt - one of largest this year- windacker was big stakeholder in nielsen with about 25% ownership and they now say 24% stake and was notified but has not commented, quietly saying they they will likely take the offer- if they say noting that means they go along Fully funded deal - want that if sell side banker - they have the money Includes 45 day go shop period - mechanism by which a company that has signed purchase agreement can find a better bid - why would buyer allow that? Not required in private companies (buyers have lockup and no shop condition) this is go shop condition Revlon duty - when selling company as public board you need to maximize value for shareholders- they decided to sell and have fiduciary duty to maximize that result - so if they offer 28, the board's lawyers need to check if it's the best price - this is delaware law where most hq's are located- when you sign deal hte seller looks for 45 days to find buyer who will pay more and have fully funded deal - need to be very large company, liquid, and interested - so many ppl wont bother - and brookfield and elliot can top your offer and they are both huge companies - you want seller to go shop bc then the lawyers wont be able to sue - they will sue but they wont win - they always end up in court bc plaintiff's bar sues every time- they will always come up with something - will say it was an inside deal and didnt get best deal - lawsuit will be filed within 60 days and can protect yourself with this go shop period - so go shop protects integrity of deal so that probability of closure goes up and prob of successful lawsuit goes down

banking in US constitution

No mention of banks, power to regulate interstate commerce, power to coin money and regulate the value thereof, necessary and proper clause Mccullouch v maryland - 1819, based on maryland tax on bank notes on second bank of US

Structure of ECM - who are the buyers

Pension funds- lot of money there - retirement funds - public employee fund (calpurs???) look this up maybe - invest tons of money and need to meet certain return - top institutional investors - new york, cali, illinois, quebec has big pension fund - need to invest so they are active Mutual funds - active vs index - esp actively manages ones are potential buyers of equity securities - index funds may be required to (often not participants in IPO bc there is lag when public before included in index, but once included if you do secondary then index will participate) Family offices - growing source of cap - 100m net worth or higher and have their own CIO - wealthy families Retail investors - ppl like us- regular ppl w money to invest but in aggregate is big number even tho normal retail investors are small Hedge funds- big participants in equity world - esp PIPES, public investment in equity - often sole investor in PIPE bc arbitrage diff between PIPE and normal equity For private companies - VC funds - institutional form of cap - VC don't often do public firms, usually selling when become public PE firms (for control transactions) - two types - growth equity and control equity - most are control if you are public company looking to sell control to private, or private company looking to sell control - these ppl buy stock

IPOs - CA

Playbook is changing with drought and IPOs Last year was all time record for IPOs - and year before that too Lot of SPACs last year and traditional IPOs Now market cooled - window for IPOs opens and closes 79 companies down to 22 at this point last year vs this 36 vs 2.3 billion - huge drop - markets correct and riskiest part gets hit first - IPOs risky bc not seasoned companies

mcfadden act of 1927

Prohibition of interstate branching - mcfadden act of 1927 - also nativist streak in 1920s - prohibited interstate branching - each bank in own box- banks worked short hours

34 act - proxies - 14A

Proxies - in public companies you do voting on annual meeting and just have proxy material (not in person) you just fill out proxy card and vote - proxies are interesting and useful for activist investors to try to take control or get board seats through proxy fight when they wanna elect new people - they say why they are qualified or better- and rules to disclose stuff in proxy statement - whether company or insurgent This is 14A

stock repurchase rules (manner of purchase, timing, price, volume) - why would you do one? conflicts, signals - RULE NAME

Public market rule- 10b-18- safe harbor for repurchases Manner of purchase - can only hire 1 broker - can't hire 6 or 8 brokers to buy shares back - more than one broker gives appearance of buying interest (which SEC doesnt want bc that would spike price) - doing buyback w 1 broker makes it seem like company demand, not new demand Timing - no purchases in last 10 minutes (30 for illiquid) of trading - bc there is historical market manipulation technique called painting the tape - closing price matters bc it is overnight price, where ppl look at stock portfolio results at end of quarter, what matters for margins - so closing price really matters- also HF or MF performance (mark to market at 4pm) - so SEC doesnt want manipulation to drive price up at EOD - company cannot manipulate price higher at end of quarter Price - does not exceed highest independent bid (can match it) have bid and offer, bid is low and offer is high, 100 bid and 101 offer, then this means company cannot come in higher than that - if it went higher then it would drive price higher - if they bid 101 then market will move - company has to be price taker not giver Volume - < or = 25% of average daily volume Disclosure in 10Q and 10K - can't be a secret buyback - buying back is bullish for stock, but need to disclose it Why would you want to do a buyback - fewer shares in market - EPS goes up when shares go down - and management % of total shares will rise - conflict is about stock options - makes CEOs hit bonus target (of certain EPS) to be easier, and stock options could move out of money into the money Costs of buybacks - have less cash on hand, also some need to borrow for buybacks- either shrinking cash or increasing debt, reducing financial flexibility Telling market we have nothing better to spend money on - no projects with high rate of return Buffet didn't buy shares back for decades bc he thought it admitted he couldn't find anything Sometimes companies do good things with buybacks or good - GE was buying back at all time high and then got into fin distress and had used their cash up and stock price crashed - american capital was very smart with buybacks, announced that they will only do buybacks when stock price is less than 80% of book value, so when they buy shares back and then stop at 90%, above 90% is divs, only buy shares back when stock is objectively cheap which was really smart - don't buy back when stock price is high Get paid at per share fee - IBs get this on share buyback programs

other parts of 1933 sec act (section 11 + 12)

Remedies - section 12 against issuers of rescission (if they want money back - or sue for damages), section 11 against underwriters and issuers for damages Due diligence defense - section 11 Lawyers assume you understand the business - so we help, we also help bc we as bankers can be liable if we help company sell securities and their disclosure is not adequate - do due diligence or we get sued - make sure we reviewed filings and risk factors, and we do due diligence - ask questions, review documents - if you do due diligence you can say to someone who sues that the company misstated something but we have due diligence of 6 weeks talking to exec team so we did our part - not guaranteeing successful offering but we did due diligence

Enterprise value

Remember that valuation is typically looked at first on an enterprise value basis (ignoring cap structure, consistent with M&M prop 1) - subtract net debt? Enterprise value then must be allocated to debt, hybrid, preferred, and common equity (both shares and warrants/options)

American banking 1913- 1933 - fed issues - two main problems- name of doctrine***

Rise of fed Gradual centralization of power Tight money of 1920s led to bank failures- tightened money too much - didn't recognize that centralizing power of fed means most local banks not cost effective - went bankrupt - banks out of business tightens money supply bc less lending - fed didn't see that - also second problem was econ theory of economy that was misplaced, believed in real bills doctrine that as economy grows, fed should feed more money, if it shrinks then give less money - good times have inflation and bad times you have depression - today they try to lean against wind - so fed had very tight monetary policy

American banking - to 1913 - Rise of trusts

Rise of trusts - standard oil, US steel Having one enterprise is more efficient but can exploit consumers - has anti trusts laws over time to limit this - but bigness vs competition, private vs public sector is still argument - antitrust keeps deals from getting done Gold standard vs bimetallism (see blank, allison act) (a system of allowing the unrestricted currency of two metals (e.g. gold and silver) as legal tender at a fixed ratio to each other.)

Rules governed by 1934 securities exchange act - TO filings, going private

Schedule TO if third party owns more than 5% at beginning of tender Schedule 13D if third party owns more than 5% at end Regulation 14D applies to person or entity making offer "All holders rule" 0 same price and terms to each person you sell to - diff than buyback where you have diff price to diff people Timeline: 20 business days before buy If company seeks to "go private" it needs to comply with rule 13(e) and file schedule 13e-3 - means public company will no longer be public - sometimes through LBO - dell was taken private a few years ago and had to file the tender offer forms but also additional forms bc no longer publicly traded - disclosure of conflict of interest bc CEO taking own company private (he was CEO and biggest shareholder) Mini tenders (less than 5%) only have the anti-fraud rules - no 14d Want potential sellers to have as much info as possible 3 tiers 1) share repo 2) mini tender 3) big tender All done in capital markets desk - transactions that are very market oriented and run through ECM desk

Major crises occur (name the two) when there is excessive leverage in the system which is then triggered by catalyst such as tightening money

See 1929 (margin debt), 2008 (mortgage and deriv debt) Relevant to chinese bonds rn - trading low bc they took on too much National power is commensurate with national financial power and the ability to convert that capital into political and military power - excessive debt weakens a country just as it weakens a company (weak financial means weak politically and militarily)

IPO fees

See slight reduction in fees when IPOs that big - usually charge 7% and still rate today - if billion or 2 billion then can negotiate lower fees bc so expensive to take company public

1933- glass-steagall act

Separated commercial from investment banking Created deposit insurance Securities act federally regulated offers and sales of securities IBs can't do commercial banking now - this created cartel for IBs - made tons of money bc they had gov sanctioned cartel (less competition) - and fed passed federal deposit insurance (FDIC created which eliminates bank runs) and mitigated cost of bank failure - FDIC regulates so banks don't fail as often, and limits domino effect when banks fail

1933- 99 effects of glass steagall on banking + bretton woods

Separation of banking created a protected niche with fixed commissions - amount of fees for selling bonds was fixed - couldn't discount - violates antitrust laws but for these years bond sellers made a lot of money Movement from partnerships to publicly traded corps DLJ - 1970 - merrill lynch 1971 Bear 1985, morgan stanley 86 Goldman, sachs 1999 Bretton-woods 1944 - nixon closes the gold window until august 1971 - dollar was tied to gold at $35 an ounce and other currencies fixed to US

is bitcoin money

Some accept as medium of exchange, but it's not universal - cant pay taxes in bitcoin Dollar worth of gold was 1/35 in 1971 - now much less - too volatile to be store of value No one keeps track of wealth in bitcoin - fails unit of account rn So bitcoin does not pass test for being money rn but could maybe in future

American banking 1565 - yorktown + first colonial money + paper money + currency acts

St augustine 1565 (spanish) and santa fe 1610 - settlements were spanish - pieces of eight as money so 2 pieces of eight is quarter - hence two bits or a quarter - dollars not pounds Jamestown 1607, plymouth 1620 - reliance on british money, barter, self sufficiency First colonial money was mass bay - fiat paper money in 1690 to pay for war (pounds, shillings, pence) pennsylvania - paper currency secured by land 1723- not enough gold or silver so got fiat paper money - underlying premise that gold was behind currency but started with land behind currency (like acre of land) CHECKDATES-Conflict with british over taxes, currency acts of 1751 (limited paper currency in new england), 1764 (other colonies) 1773 (slight lessening of restrictions) regulated colonial paper money - british passed currency acts to prevent US from using own currency - colonists were broke most of time and bills were not getting passed bc you needed unanimous consent of all states to pass stuff - could veto paying taxes

34 act tender offers - 14D + who is subject to SEC oversight

Tender offers - alternative to share repurchase program - 10b18 is over tiem- tender offer is all at once 14D form - buying shares at this price on this date - 20 business days in future - everyone gets same price - 10b18 you get diff price depending on when you sell 34 act regulates broker dealers and affiliates with MS - regulated by SEC under broker dealer regulation - FINRA and SEC have joint jurisdiction over us as IBs - self regulatory organization SRO Exchanges themselves subject to SEC oversight - comply with rules, opportunity for comment - and can enforce these rules if exchange is not doing so

S&L crisis and fall of drexel - 1979

US gov bailed savings and loan industry - volker elected to fed in 1979 to raise interest rates and fight inflation - prime rate was high - inverted yield curve (st rates up more than lt) banks make money on borrowing short lending long so if yield curve inverted then banks lose money - had lt fixed rate mortgages and st variable so many savings and loans went bankrupt - cost a lot in taxes- this industry mostly gone today but still have savings institutions

United health is insurance company bought LHC group - CA

United health is insurance company bought LHC group - home care business - for 5.4 billion dollars Maybe to cross sell - business in medicare supplement insurance - stock market against conglomerates - likely to do worse if conglomerates (like GE) 1) Data they will get by running home healthcare company - can track patient data and learn things that make them better underwriters 2) Insurance company worst nightmare is ppl hanging out in managed care facilities which charge a lot - if you can find gentle way to have them go into home health care (which is much less expensive) then that is cheaper for insurance Move even 3% from managed care to home health care then they could save a ton of money Regulators will watch and if it seems like they put profit ahead of ppl then they will be sued - need to document very well but if they succeed it goes well

VC pricing - dilution - Questions: market or book value? Call or put features? As-converted v face value for hybrids? Preferred liquidation preferences?

VC does fully diluted - used to exist before FASB - gives max number of shares ever into existence, stock options count as full share - so per share price is lower which is good for VC, bad for company Looks at strike price and factors that in - stock trading at 100, if strike is 50 then half share if diluted - fully diluted counts as full share May have multiple rounds of preferred share, probs diff liquidation preferences Companies sometimes call convertible debt

Venture cap vs crowdfunding

VC vs crowdfunding CB is typically composed institutional and angel investors Crowdfunding is using internet to raise cap - smaller deals but lots of deals First used in 97 to fund a reunion tour for Marillion, a British rock band Specifically authorized under the JOBS Act Projected to reach 35 billion by 2026 The trend lines are clear that crowdfunding is the future although the prestige and relationships of VCs will keep them in the game Crowdfunding passed venture in 2016 in terms of $ raised Crowdfunding hit 17.2 billion in 2020 Oculus Rift raised $2.4mm in 2012; sold for $2b+ in 2014 to Facebook

The american revolution(1765-91)

Washington begging congress for money (hamilton as aide- de- camp) Issuing of 241 million of continentals (fiat money- ultimately redeemed at 1% of face bc inflation was so high - were printing money super fast Role of robert morris as financier- personally went bankrupt due in part to funding of revolution - domestic financing for war - put personal fortune on line and provided money to washington Foreign loans - europe for 12 mill - but mostly morris it seems like

American banking 1781 - andrew jackson - bank

Weak US finances coming out of war-first bank inUS- federally charteredBank of North America 1781 replacing state chartered bank of pennsylvania, shares sold publicly in first IPO in US arguably the first central bank in US

Is an investment in a company an asset

Yes - most of time unless going to zero - unless you dont have limited liability (all you can lose is what you put in) - but could be liability if you have double liability/ contingent obligation to put money in Usually investment is asset - unless worth 0 or obligation Investment in VC - put some money in and call on future obligation

34 act - reporting requirements - this is the first card on 34 act

above 5% stake then you are reporting person then you need 13G or 13D (if you wanna seek control) within 10 days of requirement - may reduce to 2-3 days - and notify SEC and public with any material change defined as 1% change in stake in either direction you file amendment - so public can see what significant holders are doing If you reach 10% then you are affiliate - which is bad thing - then you need section 16 reporting - if you buy and sell stock within 6 mo period you cant make profit, or have to give profit to company - if you take loss then you get loss - dont want short term trading - you dont want 10% ownership you want 9.99% - also affiliate if officer or director of company Form 3 when initiate position, 4 when modify, and 5 if no longer affiliate If you own more than 10% then you need antitrust filing - for companies and individuals (HSR form with DOJ saying you have 10% interest if individual)

n thursday's paper - analysis of 400 block trades

analysis of 400 block trades of stock in 3 years says that info about these sales routinely leaks ahead of time which is illegal - this is insider trading - so someone has been tipping other ppl to trade ahead of this - stocks have been sold to depress price and depress price that block sellers get - some ppl may get subpoena and they can sanction you and take broker license if they think you are guilty Insider trading not just for IB, also ECM

94 act poison pills

anti takeover device by companies - threshold set at 10 or 15% if person has above that threshold then this is triggered with negative consequences for person who triggered it

when did banking start - opened up china

around 340 years since someone dang - Opened up china - world became globalized - before china was more internally focused - now one of key IB markets in world

Starbucks terminating share repurchase plan

can announce you are done - they are conserving cash by stopping this - has been doing a lot of share repurchases recently

In 2012 - companies able to stay private longer w jobs act - how?

can have more shareholders and still stay private - how you count the 2000 is changed - if you have fam w fam partnership theen that's 1 shareholder, rather than all numbers of fam members which would force them to go public sooner

In 1975

changed world forever - removed fixed commission and no more cartel

12-13 years ago the supreme court decided what is security under 33 act

if you buy house then that is not security, just real estate - is financial transaction but not securities SEC vs howey- which is company in florida - allowed ppl to own interest in orange grove and can be fractional owner and farm it and pick oranges and sell them - or hire howey to manage the share of orange grove on your behalf - so it could be real estate transaction or investment - raised the issue of what is RE vs security Supreme court concluded that because everyone ended up hiring the management company then this is an investment, not really RE bc not many ppl picking own oranges

Types of money throughout history

including salt, copper, peppercorns, tea, barley (origin of shekel- 160 grains of barley), cattle (pecus); gold and silver No credit cards until 1950 Tend to be things that are stable - don't evaporate, dissolve - things that will last - metals became predominant

34 act

is secondary market trading after securities issued 10b-5 is famous rule - is anti-fraud provision

1933 sec act - Section 5 - revolutionary law

it says that we are not allowed to sell securities unless 1 of 2 things true - 1) filed registration statement to SEC, or 2) exemption in 33 act that says we can do something Cannot sell securities period unless you have provision For big deals you usually file registration statement - if seasoned company then maybe S3 - incorporate by reference based on stuff in past registration statements

Election of 1828, 1832

jackson who was jefferson + madison view that banks bad - think they punish farmers and are oppressive - bank had charter through 1836 so took US money out of the CB and put in pet banks - hurt CB - so bank tried to work privately then later went out of existence

Tech influence on money

lack of digital/ internet infrastructure (post- 1969 internet and really post 1990 www); automated paper (1282); printing presses (gutenberg in 1430s) and telecom (morse's electric telegraph and codee in 1837; bell's phone in 1876), plus poor transportation (reliant on horse power until steam engine developed by Watt in 1781 although earlier ideas dated from 1606) and internal combustion engine in 1876 (otto) made money a local phenomenon for most of human history

Evergrande

largest real estate dev company in mainland china - onshore and offshore bonds - has debt inside china and debt sold outside china and not treating creditors the same - creditors outside have hard time enforcing rights of chinese companies bc chinese gov supports them - real estate is much larger share of chinese economy today than 2007 - been in fin distress since last summer - population isnt growing as quickly, more stagnant and will start declining in 15-20 years - so how do these buildings fill up - buildings sit empty - take on debt for building and get in trouble - grinding bankruptcy and clearly deep underwater - but not formally in chapter 11 equivalent but restructuring going on Banks seized 2bn cash from evergrande subsidiary Bonds trading below 25 cents on dollar - banks getting tougher

Bank of new york - mostly hamilton

learned about finance, debt, financing country, not just company - put out report of credit to advocate for central bank (first bank of US) and assumption of war debts (by fed gov - fed bought war so should be financially responsible - south did not incur much tho bc north was occupied by british) - south didnt think fair so they put cap in south in exchange for assumption - got wasing to support first bank of US (CB - chartered for 20 years- more powerful than fed today cb was also private bank that lent money individually) Hamilton's report on credit - assumption of mostly northern states' debs; pay debts in full First bank of united states - 1791 - 1811 - madison, washington, hamilton, and jefferson - mostly hamilton did this bc he wanted central bank - jefferson and someone fought this

Purposes of money

medium of exchange (buy things), store of value (there to spend in future), unit of accounts (keep score - dollars accumulated)

what is IB

moving money from savers to spenders

Second bank of US - madison 1816 v madison 1790 (monroe elected in 1816)

needed permission for corporation - first bank charter ran out in 1811 - madison was pres then and he opposed second bank - then he got into war of 1812 and US needed money to fund it - so he learned lesson that washington and hamilton knew - so banks financed war and madison signed for second bank of US In 1816 - monroe was pres later and ratified legality of these central banks

Warrant buffet CA

paid 848 dollars and 2 cents a share for company - 25% premium to friday's closing price He used to never pay a premium - biggest deal in several year - Berkshire acquisition?

Post-crisis + JOBS act and age of trump

power to the fed, bank holding companies now for like every bank; dodd-frank 2012 - JOBS act- sig deregulated parts of securities issuance- raising threshold to go public - more staying private longer - The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. The Dodd-Frank Act put restrictions on the financial industry and created programs to stop mortgage companies and lenders from taking advantage of consumers. Dodd-Frank added more mechanisms that enabled the government to regulate and enforce laws against banks as well as other financial institutions. Age of trump - additional deregulation push; rise of sen warre; pres biden now partially reversing trump's push

1933 securities act - Section 4 exemptions

registering securities is difficult - so here we can sell if private placement exemption - can sell securities without registration if you comply with section 4 Means you provide disclosure to buyers - at least financials and some description of business plan and management team - has info that if you were investor Can only sell to accredited investors tho - public offering means anyone legal age and competent can buy securities in public offering For private placements you need to be accredited - smart or rich (series 7 securities license requirement) or you can be rich and - made 200k past two years or million dollars net worth excluding house - or 300k with spouse - and can participate in private placement - they have to certify they did this

SPACs - why they did well + what are they

represented 60% of all deals (613) and just over half of all proceeds (145 billion) Rates low, stock market doing well - IPOs correlated w stock market returns bc appetite for risk goes up Also road shows often take a lot of time and bandwidth - travel w clients and can only go w 1 client at time but over zoom you can do multiple clients at time JOBS act - companies can do confidential filings now SPAC is special purpose acquisition corp - blank check where they raise money without operating company in - investor team says they raise money then find acquisition after - trust that mgmt will find good deal for you - if they dont find good deal then after 18 mo or so they give money back - money in escrow - SPAC sponsors lose if they dont find company bc they put money up for deal process and therefore are risk bearers if deal isnt found - investors put money in and become perm shareholders if they find company 613 SPACs - ⅓ wont find targets - when you get to peak of SPAC cycle you have ppl late to game struggling to find good target - if SPAC is average IPO size they need to find target company 3x bigger than cash pool - 800-900 million dollar company but there aren't that many of those lying round and willing to merge into spac - some happy being private Number of available companies is smaller than number of available SPACs so many wont be completed which is okay

Tender offer - couple of types - how are they different from buybacks + what form do you file ***** form

self tenders when company itself offers to buy shares - is done at a single price, premium to market, usually small premium, will say a price and diff from share repurchase bc company sets price, is tender process where shareholder gets public and private notice saying that company is offering to buy whatever amount at whatever price - can choose to tender and offer up your shares or not, if more ppl tender than company willing to pay for then there is pro rata haircut -each person gets half of number bought - so just bc you tender doesn't mean you actually purchase third party tenders aka hostile takeover where third party will bid for shares - benefits big shareholders to tender - so shares will just change hands - nothing happens to volume bc it is a one time event, has to remain open for 20 business days before shares actually bought More formal than buyback and is regulated - including filing 14d notice of tender offer Do this if you wanna buy a lot - buybacks are less complicated

1933 securities act

so you can use stocks, bonds, etc - created rules where you need to be registered to sell securities - cant sell securities or underwrite securities unless SEC register monitoring (IPO on correct form) or private placement which requires offering circular - need one or other - can be liable if violated- created industry of IB Elimination of gold standard, illegal to own hold, attempts at inflation - repealed later

Valuation theory Finance 101: the value of any security - what is discount rate for stock - what are future cash flows

the value of any security is the net present value of its future cash flows discounted at an appropriate, risk-adjusted discount rate - price and value not the same (often different) Challenges What are the future cash flows? - look at recent past and find trend What is the appropriate discount rate? - CAPM - 60 mo correlation of stock vs market to get beta Looking at recent past and see if beta should be stable over time If more leverage then beta higher

Block trades

trades of 10k shares or more of company historically so big trades - eg recent $1b block trade by lee family of samsung - 2.4% discount - have potential to move market - if more than volume for bid price then you can move if there are shares available- dont wanna take too big of a discount - if seller you want to be close to recent price bc dont wanna take a hit - Lee owns a lot of samsung and did block trade at 2.4% discount which isn't that bad - did not disclose who was on other side of trade - block trades have benefit of more privacy and don't have to disclose everything - elon musk sold a lot and tweeted it on twitter - he sold for a lot of companies to pay taxes- and tesla's stock was lower for a little bit so it did take a little hit - but he put it on twitter so it made it seem like it wasn't his choice, but he needed to pay taxes - he got twitter to endorse the sale If it's a 100 stock then thats a big trade Institutions do a lot of block trades

Burr vs hamilton - manhattan company

wanted to be rich like hamilton - manhattan had problems with water and outbreak of e coli (? maybe) so burr made new water company that brought clean water to manhattan - bills passing super quickly so words get slipped in - said that business of company was water but profits could be invested into any lawful business which includes banking - took profits and created a bank lol - is now JP morgan chase manhattan

Rise of junk bands - milken and drexel

was no junk bond market until this - bought fallen angels and outperformed on risk adjusted basis - wanted to do that for junk bonds too - ended up going to jail