Retail banks or commercial banks worked with individuals and small companies:
received deposits
made loans. (See Unit 20)
Investment banks worked with big companies:
gave financial advice
raised capital - increased the amount of money companies had by issuing stocks or shares and bonds
organized mergers and takeover bids.
Insurance companies
provided life insurance and pensions.
Building societies
specialized in mortgages. Many have now become normal commercial banks.
bonds: debts that pay Interest fli/id are repaid at a -fixed future date (see Unit 33)
merger: wheiA, two qy more companies join together (see
Unit 39)
takeover bid: when one company offers to acquire or buy another one (see Unit 39)
stoctes or shares: certificate represei/vtli/vg one unit of ownership of a company (see Unit 29)
^^^^^
BrE: merchant bank; AmE: investment bank
BrE: retail bank, commercial bank, High Street bank; AmE: retail bank, commercial bank BrE: building societies; AmE: savings and loans associations
Deregulation
The financial industry changed radically in 1980s and 90s when it was deregulated.
Before deregulation: rules and regulations in the US, Britain and Japan prevented commercial banks doing investment banking business. Some other countries (Germany, Switzerland) already had universal banks doing all kinds of financial business.
Today: many large international conglomerates offer a complete range of financial services. Individuals and companies can use a single financial institution for all their financial needs.
deregulated: there are now fewer restrictions and regulations than before
conglomerates: companies formed by mergers and takeovers (see Unit 40)
Specialized banks
Other types of banks still have specialized functions:
central banks issue currency and carry out the government's financial policy
private banks manage the assets of rich people or high net worth individuals
clearing banks pass cheques and other payments through the banking system
non-bank financial intermediaries such as car manufacturers, food retailers and department stores now offer products like personal loans, credit cards and insurance.
Find words in A and B opposite with the following meanings.
a company offering financial services
the money a company uses, raised by way of shares and bonds
when two formerly separate companies agree to join together
a company formed by the merger or takeover of several other companies
the ending of some rules and restrictions
21.2
when a company offers to buy the shares of another company to gain control of it
Before financial deregulation, which types of financial institutions did these types of business? Look at A opposite to help you.
arranging mergers
offering life insurance
issuing shares and bonds
providing mortgages
receiving deposits and making loans to individuals and small companies
giving financial advice to companies
organizing (or defending against) takeover bids
21.1
providing pensions
21.3
The extracts below are from websites. Which types of banks do the websites belong to? Look at A and C opposite to help you.
The Federal Reserve was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.
We provide a full range of products and services, including advising on corporate strategy and structure, and raising capital in equity and debt markets.
How can we help you? We can:
Why bank with us? Because we offer:
a comprehensive range of accounts and services
over 1,600 branches, many with Saturday opening
free withdrawals from over 31,000 cash machines
online and telephone banking for round-the-clock access to your accounts
Does your company use more than one bank? Do you? Why?
A
Build a long-term, one-to-one relationship with your banker. Manage your family's diverse business and personal assets Build a portfolio tailored to your family's unique needs. Play an active rale in managing your assets.
Nearly twelve million cheques and credits pass through the system each working day. Cheque volumes reached a peak in 1990 but usage has fallen since then, mainly owing to increased use of plastic cards and direct debits by personal customers.
Investment banking
Raising capital
Ruth Henly works in an investment bank in New York.
'Unlike commercial banks, investment banks like ours don't lend money. Instead we act as intermediaries between companies and investors. We help companies and governments raise capital by issuing securities such as stocks and bonds - that is, we offer them for sale. We often underwrite securities issues: in other words, we guarantee to buy the securities ourselves if we can't find other purchasers.
As well as initial public offerings (IPOs), when companies offer stock for sale for the first time, there are other occasions when they raise funds. For example, they might want to expand their operations, or to acquire another company, or to reduce their amount of debt, or to finance a specific project. They don't only raise capital from the public: they can sell stocks or shares to institutional investors like insurance companies, investment funds - companies that invest the money of lots of small investors, and pension funds - companies that invest money that will later be paid to retired workers.
We also have a stockbroking and dealing department. This executes orders - buys and sells stocks for clients - which is broking, and trades with our own money, which is dealing. The stockbroking department also offers advice to investors.'
Mergers and acquisitions
'Investment banks often represent firms in mergers and acquisitions (see Unit 21), and divestitures. A divestiture is when a company sells a subsidiary - another company that it owns. Most of the fee - the money the company pays us for the service - will depend on us completing the deal successfully. This gives the bank a good reason to make sure that the transaction succeeds.'
Consulting and research
'Large corporations have their own finance and corporate development departments. But they often use an investment bank like ours because, like a consulting firm, we can offer independent advice, and we have a lot of experience in financial transactions. We also have a large network of contacts, and relationships with investors and companies that could be interested in a merger or acquisition.
If we've worked on a transaction with a company, we know a lot about its business. This means we can give advice about strategic planning - deciding what do to in the future - or financial restructuring - changing the way the business is financed. Large investment banks also have extensive research departments with analysts and forecasters who specialize in the valuation of different markets, industries, companies, securities and currencies. Analysts try to work out how much things are worth now, and forecasters study the prospects for the future.'
22.1
22.2
Complete the table with words from A, B and C opposite and related forms. Put a stress mark in front of the stressed syllable in each word. The first one has been done for you.
a cquire
advise
institute
invest
Complete the sentences from newspaper articles with words from the box
advised
acquiring
mer
underwritten
Deutsche Telekom's IPO was
bv Goldman Sachs.
J ^ |
During their acquisition of Mannesman, Vodafone were by UBS.
IMWWjgnHnTrffn ^^ ' -
Large multinationals are always
less successful parts of
their business as well as
successful companies.
Big Wall Street banks earned millions of