All about Business and management

March 17, 2009

AIG bonuses and corporate America

 

AIG is not the only corporate company which gave away huge amounts to their executives.
Because of public bail out, bonuses to AIG executives became public.
But what about other corporations who already distributed various bonuses to executives in
this rough time when main street is going through difficult time. What so un usual about these executives? what different work do they do other than comman man do?

This is not only about AIG but this is about corporate world. Executives are paid with huge bonuses, money is spent
on unnecessary projects and other spendings. There is no direct oversight on these spendings.

With your hard earned money, any investment you make in stock market, do not count on it, basic assumption is you are gambling. You might get it back or may not, you can not count on it. You do not know how it is been used.

Common man has to decide whether to gamble or keep money for future survival?
Save money for your future.

Jagdish Hiray

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August 1, 2008

Functions of investment banker

Filed under: Business management — Jagdish Hiray @ 7:04 pm
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When corporation sells new securities to raise funds, the offering is called a primary issue. The agent responsible for finding buyers for these securities is called the investment banker. The investment banker purchase primary issue from corporation and arranges immediate resell of these securities to the investors. Merrill Lynch & Co., Goldman Sachs are some examples of well-known investment banking firms. Broadly investment bankers (investment banking firms) perform three functions: Investigation, Analysis and Research (Origination), Underwriting (Public Cash offerings) and Distribution. Most of time a single investor banker performs all functions, however some investment bankers are specialized in certain functional areas only.

 

Investigation, Analysis and Research (Origination):            Origination includes the subsidiary operations of discovery, investigation, and negotiation. Discovery is the finding of a prospective issue of securities; investigation is the testing of the investment credit of the prospective security issuer, and the intrinsic soundness of the issue; negotiation is the determination of the amount, the price, and the terms of the proposed issue. Investigation usually involves an analysis of the financial history of the corporation by accountants, investigation of legal factors, a survey of its physical property by engineers, and in-depth review of operations. The purpose of investigation and analysis is to determine whether a proposed issue has sufficient merit to be offered to investment community. In other words, function of investment banking is careful analysis of the soundness and reliability of the corporation whose securities are seeking the investment market. The task of investigation and analyzing the numerous factors, which govern the value of investment securities, varies considerably with the different types of issuing bodies.

 

Underwriting (Public Cash offerings): When a corporation wishes to issue new securities and sell them to the public, it makes an arrangement with an investment banker whereby the investment banker agrees to purchase the entire issue at a set price, known as underwriting. Underwriting also refers to the guarantee by the investment banker that the issuer will receive a certain minimum amount of cash for their new securities. The investment banker buys a new security issue, pays the issuer, and markets the securities. The underwriter’s compensation is the difference between the price at which the securities sold to the public, and the price paid to the company for the securities. Underwriting can be done either through negotiations between underwriter and the issuing company (called negotiated underwriting) or by competitive bidding. A negotiated underwriting is a negotiated agreed arrangement between the issuing firm and its investment banker. Most large corporations work with investment bankers with whom they have long-term relationship. In competitive bidding, the firm awards offering to investment banker that bid the highest price.

 

In certain cases, for large or risky issues a number of investment bankers get together as a group, they are referred to as syndicate. A syndicate is a temporary association of investment bankers brought together for the purpose of selling new securities. One investment banker is selected to manage the syndicate called the originating house, which does underwriting of the major amount of the issue. There are two types of underwriting syndicates, divided and undivided. In a divided syndicate, each member group has liability of selling a portion of offerings assigned to them. However, in undivided syndicate, each member group is liable for unsold securities up to the amount of its percentage participation irrespective of the number of securities that group has sold.

 

Distribution: Another function of investment banker it to market the security issues. The investment banker acts as a specialist to distribute securities efficiently for the corporation. It can be very expensive and ineffective for a corporation to sell an issue by establishing marking and selling organization by its own. Investment banker has established marketing and sales network to distribute securities. For a reputed invest banker, with its past history of selecting good companies and pricing securities builds a broad client base over time, and further increases the efficiency with which securities can be sold.

 

            Invest banker offers security to both corporation issuing securities and investors buying securities. For corporations investment banker offers definite price guaranty on a certain date for securities to offer. The corporation runs no risk of the uncertainties of the market and do not have to spend on resources with which it is not equipped with.

To the investor, the responsible investment banker offers protection against unsafe securities. The offering of a few unsound issues can caused serious loss to its reputation, and hence loss of business. Therefore, investment banker play very important role in issuing new security offerings.

 

June 29, 2008

Oil crisis and we!!

Filed under: My Opinion — Jagdish Hiray @ 12:43 am
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                     In last few months oil price at pump suddenly gone up and we do not see any signs of coming it down. It made life essentials expensive forcing people to make choice between food and commute to work. Every smallest news affecting oil supply was considered to hike crude oil prices but major drop in oil consumption in past 17 years by people, increase in price of oil in major oil consuming countries to cause decrease in oil consumption, and decision to increase production of oil by major oil producers, did not caused a penny of decrease in the price of crude oil. Is it not mysterious? No body has explanation nor wants to explain people why it is so? Regulators once again failed to avoid ‘oil boom’ created by so called ‘capitalism’. Once again common has to pay price for it.

                  

This reminds me people on ‘AXIOM’ space cruise from WALL-E movie. People’s life depicted on “AXIOM” space cruise is very much synonymous with our lives today; our lives are no more independent. This movie not only gives strange glimpse about our future but uncovers truth of our current lives.

 

How? Take couple of seconds to think, compare our lives with those on space cruise shown in the movie. Our lives are totally dependent on oil driven transportation, we are used to large luxurious cars sold by motor companies as per their business profitability model, and we are hypnotized by easily available loans and paralyzed by accumulating debt. For generations we are traditionalized by junk food chain. We are trapped in the web woven by corporate world under name of ‘capitalism’.

 

Our social position is not at all different than people on space cruise shown in the movie. Those people lost their existence, lost their thinking and could not think of anything else other than their own comfort. Are our lives different than those people from space cruise?

 

 

 

 

 

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