NYU Stern School of Business

Undergraduate College


Spring 2013

Instructor Details

Murphy, Charles


998 0013

See below

KMC 9-67

Office hours Monday through Thursday 9am till 5pm, unless in class.

Please email me to schedule a meeting. Do not just " show up" at my door.



Course Meetings

MW, 9:30am to 10:45am

Tisch T-200

Final Exam:On or about May 15

Schedule exceptions
    Class will not meet on:February 18 , week of March 18th
    Class will meet on:


Course Description and Learning Goals

This course provides a broad overview of investment banking, the financial service industry and of the forces that are continuing to change it worldwide. This business has evolved into an integrated group of products and services as part of a large financial service firm or a smaller group of specific products or services within a boutique framework. It focuses on three big questions:  (1) How are things done in this business?  (2) Why are they done that way?  (3) How are they likely to be done in the future?  Our approach will be to examine each of the principal businesses in which various financial service firms have been involved, including: raising capital; financial advisory; broker/dealer positions; trading; investing the firm’s own capital; managing the assets of others, both institutions and individuals and risk management and administrative functions..


Throughout, there are a number of integrated themes. Among these are: the interplay of regulation , politics, globalization, and technology; the emergence of private equity funds and hedge funds as both critical clients and potential competitors for the major investment banks; the search for new, high-margin products, and whether that process has reached its limits; and the changing relationships among the different groups within a financial service organization.


By the end of the semester, each student should be well prepared either for an entry-level position in a financial service firm or for a comparable position at a client firm, where he or she needs to interact with financial service firms. All students should find that they are able to understand the financial press and economic commentary with a new perspective of the global financial system.



Course Pre-Requisites

C15.0009 Corporate Finance


Course Outline

Schedule of Classes


January 28 & 30 —Overview of the Financial Services Industry and the Role of Investment Banking

  • The landscape is changing
  • A complex DNA
  • Financial intermediation
  • Trusted advisor : relationship vs. product
  • Transformation of the investment banking business
  • The legal/ regulatory framework of investment banking

Readings: Course Packet (“CP”), Articles starting with: JPMorgan; JPMorgan; Morgan Stanley

February 4, 6 & 11 — Private Equity and Hedge Funds

  • Evolution of the Private Equity Business
  • Business objective and organization of the Sponsor firm
  • GP/LP structure
  • The PE fund: structure,operations,participants,investment objectives
  • Conflict and opportunities for the bank - " we can do that"
  • Evolution of the Hedge Fund industry
  • Business objective and organization of the hedge fund firm
  • The hedge fund: structure, operation, participants, investment objectives
  • The prime broker and prime brokerage business
  • Conflict and opportunities for the financial service firm - " we can do that"

Readings: CP, Articles starting with: The Economics of; david Rubenstein; Profits for Buyout Firms; The Operators; Wasserstein's;  Hedge Funds

February 13,20 & 25 —Raising Public Equity

  • Why go public?
  • Role of the investment banker
  • Origination, underwriting,distribution and after-market support
  • Stock demand vs. allocation
  • Structure and justification of the spread
  • Is there a better way???
  • The Dutch Auction: A taste of Googling
  • Primary, secondary and seasoned offerings
  • Privatizations
  • Rights offerings " cash call"
  • SPAC's and PIPE's

            Readings: CP , Articles starting with: Overview of the Securities Act; Inside the Deal

February 27 & March 4 — Investment Grade Public and Private Debt

  • Credit : counterparties,covenants and ratings
  • The role of the rating agencies
  • Critical review of the rating function
  • The fixed income research analyst
  • Importance of credit analysis
  • Competitive vs. negotiated fixed income deals
  • Rule 415 : Shelf Registration
  • The private placement market
  • Rule 144 A : Private/public product

Readings: CP, Article starting with: Shelf Registration

March 6 & 11-- Syndicated Lending, Leveraged Lending and Leveraged Finance

  • Evolution of a bank loan to a syndicated facility
  • Creative syndicated lending
  • High yield : developing a theory
  • Milken's competitive advantage
  • High yield to distressed to vulture financing
  • Leveraged lending  - " we can do that"
  • When it all works and when it does not : effect on the business

     Readings: CP, Article starting with: Stars of the Junkyard; Bankers of the Apocalypse; Encouraging Signs of Distress


March 13 - MIDTERM  EXAM


March 25 & 27 - Convertible Securities and Structured Products

  • The Hybrid
  • Debt plus equity option in a single security
  • Client rational
  • Logic  of a convertible security
  • Optionality
  • Cross- over product
  • Changing nature of convertibles
  • Options, futures & The Olive Press
  • Swaps : foreign exchange, interest rate and credit
  • Indexes : real estate, market, weather and heart attacks
  • Risk : Who doesn't want it , who does and why?
  • Future of structured product and the financial service industry


April 1 & 3 - Financial Engineering and Securitization

  • Creation of the mortgage backed industry
  • A financial service problem and the investment banking soultion
  • Creative products for complex problems
  • GMNA's
  • CMO's
  • REMIC's
  • Creation of the asset backed industry
  • Creative products for complex problems
  • Dissecting a receivable
  • SPV's
  • AAA Ratings
  • Revolving periods
  • Collateralized debt obligations - too creative?
  • Sub-prime - what went wrong?

              Readings : CP, Article starting with: Securitization; Guaranteed to Fail

April 8, 10 & 15 — Secondary Market Sales & Trading

  • Functional roles and client interface
  • Physical geography and back office coordination
  • Capital allocation and risk management
  • Financing dealer positions
  • Proprietary trading vs. market liquidity
  • Exchanges, technology and order execution
  • Algorithmic trading
  • Flash trading
  • Dark pools
  • Iceburgs and co-location

Readings: CP, Articles starting with: What Traders Do; Inside the Machine

April 17, 22 & 24 — Mergers, Acquisitions, and Strategic Advisory

  • The CEO attraction: client and investment bank
  • Development of the product : a decade at a time
  • Role of the investment banking team : Buy-side assignment and sell - side assignment
  • The Big Deal
  • Cast of characters
  • Act I , Act II and Act III
  • Audience reaction
  • Critic's review

       Readings: CP, Articles starting with: The Deal of the Century

April 29 & May 1 — Asset Management and Private Wealth Management

  • The asset management business
  • Relevance to the business
  • Structure of the asset management division
  • Equity funds
  • Fixed income funds
  • Alternative investments : liquid and illiquid
  • Products, investment solutions and marketing
  • Globalization of assset management
  • Factors encouraging its development and growth
  • Confilcts and synergies
  • Should it be a part of the bank?
  • Rational for private wealth management
  • The Swiss model
  • Margins and synergies invite competition
  • From commissions to assets under management
  • Changing client needs required advanced skill set

              Readings : CP, Article starting with: The Bull Whisperer; Game Changer

May 6 & 8 — Managing  the Firm : Risks, the Administrative Functions and the Prospective Business Models

  • Measuring and managing market risk
  • The concept of " VAR "
  • Credit risk
  • Liquidity risk
  • Operating risk
  • Systemic risk
  • Human risk
  • Compensation risk
  • Hubris / Greed
  • Administrative Functions
  • Finance
  • Legal
  • Human Resources
  • Operations
  • Information Technology

Readings: CP, Article starting with: Global Banking After the Cataclysm ; Rethinking Bob Rubin

May 13  – Final Review

May 15?  - FINAL EXAM




Required Course Materials

A  digital course packet (in lieu of a text) is available at the NYU  Bookstore. Other required readings – e.g., current articles- will be distributed in class. Students are expected to keep up with the financial news throughout the course. The Financial Times, The Economist and Bloomberg.com are recommended.

For those students who would like to refer to a textbook, David P Stowell's " An Introduction to Investment Banks, Hedge Funds and Private Equity" is a good reference text. It is NOT required for this course .

All students are expected to view the movie " Inside Job" prior to taking this Course.


Assessment Components

The final grade will be allocated according to the following formula:

Midterm Exam 40%

Final Exam       60%

The answers to the exams will be posted for a few days following the exam and students are invited to compare their answers to the answer key. If you believe a grading error has occured please review first with the TA . Should the disagreement continue I will review the entire exam and determine if the grade need be revised .

I also reserve the right to add ( or subtract) up to 10 points to the student's total grade for noteworthy ( or lack thereof) contribution to the class discussion.

Attendance,preparation and class participation are an integral part of this course. In particular, students who have a large number of unexcused absences , who have consistently arrived late or who disrupt the class will have their course grade reduced as a result.

At NYU we seek to teach challenging courses that allow students to demonstrate differential mastery of the subject matter. Assigning grades to reward excellence and reflect differences in performance is important to ensuring the integrity of our curriculum.

The grade distribution will follow the Stern guidelines, I.e. ,no more than 35 % of the grades will be "A" or A-".

All students are expected to abide by the NYU Stern Honor Code.








At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.


Professional Responsibilities For This Course




In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:




Classroom Norms


Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 


Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 


Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.


Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.


Recording of Classes

Your class may be recorded for educational purposes


Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.


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