AN APPRAISAL OF INVESTMENT BANKING IN NIGERIA ( A CASE STUDY OF IBTC BANK)

ABSTRACT

The research proffers an appraisal of investment banking in Nigeria. It provides a structural appraisal of

the nature of investment banking , its functions and significance.the research analyses investment banking activities as pivotal to the growth and development of  investment in Nigeria.

A case study is provided to determine the nature and significance of investment banking in IBTC  bank .

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND   OF THE STUDY

Investment Banks offer a variety of services but their most notable business is selling newly created securities.

When a private firm wants to become a public firm,it will obtain the services of an investment bank to design and sell  the new stocks  for the investing public to purchase.When an already public firm wants to raise additional

Capital to finance its on going activities or future growth, it will also obtain the services of an investment bank to sell its newly created securities to the public .One can think of investment banks as intermediaries who sell new securities on behalf of firms. Both investment banks and analyst are in  a good position to monitor the firm and to indentify problems for shareholders. We would expect investment bankers to sell good securities(i.e they should not be selling securities of a poorly run firm) and for analyst to recommend good securities(i.e they should not be recommending stocks that they think will go down in value) .Therefore, they both do represent an important and integral part of the corporate governance system.

The basic investment banking service is to help companies issue new debt and equity securities. A firm Can issue several different kinds of securities. The bank advises the company on the optimal security (stocks,bonds, etc,) for the amount of capital being raised, while taking into account the companys situation

The investment banks charge the company a fee for this service.The size of the fee depends on how much risk the investment banks takes to issue the securities.There are two methods that banks can use to issue stocks and bonds; underwriting and best efforts

Think about the case of issuing stock. When underwriting an issue, the bank will quarantee that the company Will receive a specific amount of capital .That is ,the banker  assure the company that a certain number of shares will sell at a target price,If too few shares sell at that price, the investment bank must buy those shares, For example, if a bank guarantees that it will be able to raise N100 MILLION in capital for the issuing firm but Is only able to sell    N70 MILLION worth of stock, then the bank would have to buy N30 million worth of stock.

If the investment bank did not want to assume the risk on a security issue, it could use the best effort method. 

Here the bank does not quarantee that the firm will get its desired amount of capital. The bank does its best tosell as much of the new security as possible for the company. In  this case the company takes the risk of not receiving enough capital. Because the risk is low for the investment bank, the feecharged is much lower for the best efforts method than for underwriting

The research therefore seek to provide an appraisal of investment banking in Nigeria.

1.2. STATEMENT OF THE PROBLEM

When companies need more capital, they turn to investment banks. Raising capital can be difficult.

As a result of the complex procedures involved in going through the formalities with security and exchange commission. Many small firms do  not possess the  business model required  nor the capacity to developed a good business plan. For even firm that are going bankrupt or those needing more capital  the process of acquiring funds for investment  is beseeched with numerous complexities.

However invest bank are supposed to act as an effective intermediary to secure new capital.

Therefore the problem confronting this research is to profer an appraisal  of investment banking in Nigeria with a case study of IBTC bank plc

1.3    RESEARCH QUESTION

1   What is the nature of investment banking in Nigeria

2   What is the  nature of investment banking in  IBTC BANK

1.4   OBJECTIVE OF THE STUDY

   1      To determine the nature of investment Banking in Nigeria

1. To determine the nature of invest Banking in IBTC Bank.

1.5     SIGNIFICANCE OF THE RESEARCH

 The research shall high light   the complexities involved  in investment banking  while elucidating

 On the nature of investment banking in Nigeria

The research shall serve as a source of information to  the investing public.

1.6    STATEMENT OF HYPOTHESIS

HO     Investment banking    in IBTC    IS LOW

HI       Investment banking       in IBTC    is high

Ho       Raising capital in   IBTC  is not complex

H I         Raising Capital in IBTC is cmplex

Ho   iInvestment banking in IBTC IS NOT EFFECTIVE

H I     Investment  banking in IBTC IS EFFECTIVE

1.7 SCOPE OF THE STUDY

The study focuses on the appraisal of investment banking in Nigeria with a case study of IBTC BANK 

1.8 DEFINITION OF TERMS

INVESTMENT  BANKING DEFINED

The basic investment banking service is to help companies issue new debt and equity securities. A firm

Can issue several different kinds of securities. The bank advises the company on the optimal security

(stocks,bonds, etc,) for the amount of capital being raised, while taking into account the companys situation

SECURITY ANALYST

The  primary job of security analyst is to evaluate securities and then to make buy and sell recommendations to their client based on their evaluations 

CENTRAL BANK DEFINED

The central bank is the apex bank in the country.it is the federal government owned financial institution which monitors and regulate the activities of other banks in the country eg the commercial Banks.

COMMERCIAL BANKS

The commercial banks are banks which   provides financial services to the generality of the public by accepting deposit from customers

and providing a means of effecting payments.

LIQUIDITY TRAP

concept of liquidity trap which is a situation in which real interest rates cannot be reduced by any action of the monetary authorities was introduced by Keynesian economics. Hence, at liquidity trap an increase in the money supply would not stimulate economic growth because of the downward pressure of investment owing to insensitivity of interest rate to money supply. 

KEYNESIAN  BELIEVE

Keynesian believe that fiscal policy rather than the monetary policy exert greater influence on economic activity.

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Jeffrey l seglin (2003) THE RIGHT THING ; CONSCIENCE, PROFIT AND PERSONAL RESPONSIBILITY IN TODAYS BUSINESS

JACK N BERHMAN, ENGLEWOOD CLIFF(1998) ESSAY ON ETHICS IN BUSINESS AND THE PROFESSIONS

FEDERAL REPUBLIC OF NIGERIA (1991) INVESTMENT AND SECURITIES DECREE SUPPLEMENT TO THE OFFICIAL GAZETTE EXTRAORDINARY

GARY SUTON (2007)INDICATORS OF TROUBLE ARTICLE OF DIRECTORS AND BOARD MAGAZINE