Financial Services Jargon

Analysis that determines the change in a company's projected EPS due to a potential M&A or capital markets transaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive" when there is a negative change.

The interest earned on a loan or note between two interest payment dates.

The act of one corporation acquiring control of another corporation or asset.

The bank responsible for administering a project's financing.

A certificate of ownership issued by a U.S. bank representing a claim on underlying foreign securities. ADRs may be traded in lieu of trading in the actual underlying shares.

Writing off an intangible asset investment over the projected life of the assets. Also the spreading out of intangible costs over several years, such as amortization of stock option expense.

Entry level position typically filled by graduates or lateral hires in a U.S. investment bank. Usually 2-3 years until promotion to Associate.

Buying securities in one country/market and selling them in another, while taking advantage of dislocations/inefficiencies in the market.

A fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction. It includes fees to be paid to participating banks.

A bank or other financial institution responsible for originating and syndicating a loan transaction. The arranger always has a senior role, is often the agent, and usually participates in the transaction at the most senior level (it holds the largest share of the loan).

The relative weightings of regions, sectors and types of investments (i.e. equities, bonds, etc) within a portfolio, determined by client's risk and return requirements and the market outlook. This is central to financial planning and investment management.

Percentage of holdings in different types of investments (i.e. large stocks, international, bond, etc.).

The bond's swapped spread, in basis points. The asset swap spread, or gross spread, is derived by valuing a bond's cash flows via the swap curve's implied zero rates. This gross spread is the basis point amount added to the swap curve, which causes a bond's computed value to equal the market price of the bond.

Position above an Analyst and below a Vice President. Typically filled by Analysts promoted after 2-3 years of experience, lateral hires or MBA graduates.

Professional examination and verification of a company's accounting data.

A final debt repayment that is substantially larger than the preceding repayments.

A group of banks that have been banded together to underwrite and sell a specific issue of securities/loans.

The first currency quoted in a currency pair on the Foreign Exchange.

A unit that is equal to a hundredth of a percent, a basis point is used to denote the change in a financial instrument. It's commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

An investor who has a negative view on the market.

A market in which traders and investors are feeling negative and prices are falling or static.

The informal term for the competitive process by which clients choose an investment bank to mandate for a deal.

An index that correlates with a fund, used to measure a fund manager's performance.

Term used by banks in selling an entire new security issue by a certain date. They agree to make their best effort to sell an issue to the public. Instead of actually buying and reselling the issue (that would be called an underwrite), the banks leave the risk with the issuer by maintaining an option to buy and the authority to sell.

Mathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared with rates of return on the market (a diversified portfolio) as a whole. A beta of 1.0 indicates that an asset closely follows the market; a beta greater (smaller) than 1.0 indicates greater (less) volatility than the market. Hence, beta is a measure of risk: the higher the beta, the higher the risk.

A bill made out by one party addressed to another requiring the addressee to pay a fixed sum of money by a certain date. The bill is then traded on the money markets.

The price at which a market maker is willing to pay for a security.

Bid Offer is the difference in price or spread between where one can buy a security and one can sell it at the same moment.

The whole dollar price of a quote often used to reference foreign currencies. For example, if a foreign currency (EUR/USD) was trading at 1.5520, the big figure would be 1.55.

Computer terminals providing real time quotes, news and analytical tools, often used by traders and investment bankers.

A debt security in which an investor loans money to an entity (corporate or government) that borrows the funds for a defined period of time at a fixed or floating interest rate. Principal is paid back at maturity.

The investment bank that runs the debt or equity offering in the primary market.

The net-asset value of a company as determined by subtracting its liabilities from its assets.

Bonds issued by developing countries under a debt-reduction plan.

Interim or temporary financing - usually shorter than 12 months.

Someone who earns commission for providing the link between buyers and sellers. Brokers generally take little to no risk, as they match buyers with sellers.

The largest and most prestigious firms on Wall Street.

An investor who has a positive view on the market.

A market in which traders and investors are feeling positive and in which prices are rising.

1. Investor end of a capital markets transaction.
2. M&A process when J.P. Morgan is working with a potential buyer. It refers to the entity acquiring the asset.

Act of adjusting company financials to a December 31 year-end in order to standardize financial performance across companies with different fiscal years.

The right to buy shares at an agreed price at a future date (see put option).

Money put into a business by its shareholders.

An economic model for valuing stocks by relating risk and expected return. Based on the idea that investors demand additional expected return (called the risk premium) if they are asked to accept additional risk.

Money spent to acquire or upgrade physical assets such as buildings and machinery. Also called capital spending or capital expense.

The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.

At J.P. Morgan, our capital markets teams are Equity Capital Markets and Debt Capital Markets. They are responsible for the origination of equity and debt instruments respectively. They are private-side teams that report into investment banking.

1. The sum of a corporation's long-term debt, stock and retained earnings. Also called Invested Capital.
2. The market price of an entire company, calculated by multiplying the number of shares outstanding by the price per share. Also called Market Cap or Market Capitalization.

    

Chief Executive Officer. 

A certificate given by a bank to a depositor that can be traded on the money market. The depositor is able to get high levels of interest by putting their money in the bank for a fixed term but can sell the CD to someone else to get their capital back at short notice.

Chartered Financial Analyst qualification. This is the industry qualification for research Analysts on the buy side (markets) and Analysts and fund managers on the sell side (investment management and private banking).

Chief Financial Officer. 

The physical and regulatory separation between the public and private sides of a bank.

The process of matching, guaranteeing and registering transactions. 

An institution that practices clearing, which significantly reduces the number of inter-bank payments.

A traders position at the end of the trading day. Equal to the Opening Position plus or minus any trades done on that trading day.

A group of underwriters who do not need to proceed to syndication as part of fund-raising.

Assets pledged as security under a loan to assure repayment of debt obligations. 

Securities issued against a portfolio of bonds with different degrees of credit quality. 

Securities issued against a portfolio of loans with different degrees of credit quality. 

Short term debt obligations issued by corporations and bought by money market funds in large quantities. Maturities range from several days to 9 months. 

A per annum fee applied to undisbursed balances that lenders are committed to lend. The fee is charged until the end of the availability period.

Physical items such as oil, gold or grain. Commodities are traded for spot (trade date plus two business days) and also for future delivery. There also exist options to buy and sell commodities. 

Common Stock

The year over year growth rate applied to an investment or other part of a company's activities over a multiple-year period. The formula for calculating CAGR is (Current Value/Base Value)^(1/# of years) - 1. 

Analysis that uses ratios to compare company trading performance (trading comps) or previous M&A and capital market transactions (transaction comps). Often used as part of a valuation analysis. Simply put, comps are used to compare different companies on price/ valuation to one another. 

A set of preconditions that must be satisfied before the borrower can request drawdown or other credit facilities be made available under a lending agreement. 

A bond that can be converted into shares in a company at a certain conversion price. Because convertible bonds provide the option of converting debt into equity, their coupon rates are typically low.

The rate of change of duration as yields change. A security exhibits positive convexity when its price rises more for a downward move in its yield than its price declines for an equal upward move in its yield.

Chief Operating Officer. 

The opportunity cost of an investment. This is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.

The cost of carry specifies the cost involved of carrying a security (i.e. bond) on the balance sheet. The cost of carry is calculated as difference between interest income (income generated by the security, e.g. coupon payment) and the cost of financing the purchase of the security (e.g. Libor).

The interest payment on a bond.

An agreement by a borrower to undertake (a positive covenant) or not to undertake (a negative covenant) a specific action. Breaching a covenant is considered an event of default. Breaching a covenant can be a pre-cursor to an event of default.

A measure of a corporation's ability to meet a particular expense.

CDS is an insurance contract in which the buyer of CDS pays a quarterly fee in return for the insurance contract which protects them in the case of default by the reference entity. Buying CDS represents a bearish view on a credit, selling CDS represents a bullish view.

Offsetting buy and sell orders without recording the transaction on the exchange. This is prohibited as it may mean the investor does not get the best price for the transaction.

The quotation and pricing structure of currencies traded on the Foreign Exchange (FX) market.

A bank or institution that holds securities for safe-keeping and handles administrative arrangements such as collecting coupons and dividends.

The retention of assets (e.g. stock certificates) on behalf of mutual funds, individuals and corporate clients. This invovles lending of securities, collecting income, and the information of positions, and reporting this to clients.

Acronym for Depreciation & Amortization. Often combined into a single line item on financial statements due to the non-cash nature of both items.

Collection of documents (physical or virtual) used for due diligence surrounding potential M&A and capital markets transactions.

Acronym for Debt Capital Markets - the area of an investment bank responsible for the issuance and pricing of bonds and other debt securities.

A debt obligation secured by the borrower's general credit rather than being backed by a specific line on property. In other words, the debt obligation is not collateralized.

Money owed to creditors or lenders or buyers of debt securities.

The total amount of debt a company can prudently support given its earnings expectations, equity base, and asset liquidation value.

Markets where capital funds (i.e. debt) are traded. This includes private placement as well as organized markets and exchanges.

The settlement of a futures contract, or upon settlement of a trade, securities are delivered.

1. A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.
2. A decline in the value of a given currency in comparison with other currencies.

A synthetic instrument whose market price depends on the value of an underlying security such as a share or a bond. A derivatives market is a market in which derivative securities are traded.

The interest rate used in discounting future cash flows. Often determined using CAPM (see Capital Asset Price Model) analysis, its intended to approximate the level of risk to the cash flows.

A common means of valuing companies. This is done by forecasting the cash flows expected from a company in the future and discounting them back to today.

When a company sells off a subsidiary or assets of the business to a buyer which acquires the subsidiary or assets. This differs from a spin-off arrangement under which a company establishes a subsidiary as a new and separate business and distributes shares in the new company to its shareholders.

A payment by a company to shareholders of its stock, usually as a way to distribute profits to shareholders.

Price-weighted average of 30 actively traded shares of blue-chip US industrial corporations listed on the New York Stock Exchange.

A weighted average maturity of all future cash flows of a bond. In more practical terms when trading bonds, duration is used as a measure of a bond's sensitivity to changes in interest rates/yields (i.e. a bond's price volatility).

Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement.

Acronym for Equity Capital Markets - the area of an investment bank responsible for structuring and pricing the sale of equity.

See Executive Director

Developing countries with fledgling capital markets. Banks make loans to emerging markets nations and also assist them in issuing bonds and other debt securities.

A measure of what the market believes a company's ongoing operations are worth. Enterprise value is equal to the company's market capitalization minus cash and cash equivalents plus preferred stock plus debt and plus minority interest. The number is of importance both to individual investors and potential acquirers considering a takeover attempt.

Acronym for Earnings Per Share. Total earnings divided by the number of shares outstanding. Companies often use a weighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year ("trailing EPS"), for the current year ("current EPS"), or for the coming year ("forward EPS").

Shares - certificates that represent a part ownership in a corporation.

The risk-sharing part of capital.

Markets where capital funds (i.e. equity). This includes private placement as well as organized markets and exchanges.

Equity Default Swaps are contracts structured to provide the buyer with protection (typically for five years) against a severe decline in the price of a company's stock.

A bond issued in the Euromarket.

A currency held outside its country of origin, traded in the Euromarket.

U.S. Dollars deposited in foreign banks or foreign branches of U.S. banks.

The offshore international financial market.

An index fund which is traded on the stock market.

Title given by the Investment Bank when promoted from Vice President.

The quantity purchased. Also called notional.

The professional opinion of an investment bank, provided for a fee, regarding the fairness of a price offered in a merger or takeover.

A credit that has fallen from investment grade ratings to below BBB-, into high yield ratings.

The Federal Reserve, which manages the country's economy by setting interest rates.

Collective noun for established financial contracts (securities and derivatives).

Debt securities or bonds.

The number of shares available for trade in the market times the price. Generally speaking, the bigger the float, the greater the stock's liquidity.

An interest rate that is benchmarked to other rates (such as the rate paid on U.S. Treasuries) that allows the interest rate to change with market conditions.

The Foreign Exchange Market. This market deals in foreign currency, specifically the exchange of one currency for another. In global markets, the underlying reference currency is generally the US Dollar, but "crosses" may be traded with different currencies.

Audited document required by the SEC and sent to a public company's or mutual fund's shareholders at the end of each fiscal year, reporting the financial results for the year (including the balance sheet, income statement, cash flow statement and description of company operations).

Unaudited document required by the SEC for all U.S. public companies, reporting the financial results for the quarter and noting any significant changes or events in the quarter. The Form 10Q contains financial statements, a discussion from the management, and a list of "material events" that have occurred with the company (such as a stock split or acquisition).

A document required by the SEC to announce certain significant changes in a public company, such as a merger or acquisition, a name or address change, bankruptcy, change of auditors, or any other information which a potential investor should know about.

Operating cash flow (net income plus amortization and depreciation less increases in net working capital) minus capital expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments. Future free cash flows are the discounted cash flows in a DCF (see Discounted Cash Flow) valuation.

The right and the obligation to enter into a security transaction at a date in the future and at a price fixed now.

A contractual agreement transacted through an organized exchange to buy or sell a security or commodity at an agreed price for delivery at some date in the future. Futures contracts can be freely traded on the exchange. Some contracts such as index futures are cash settled and no actual physical delivery takes place.

The Financial Times Stock Exchange 100 stock index, a market cap weighted index of stocks traded on the London Stock Exchange.

Retention of client's assets for worldwide firms. Their assets can be monitored regardless of currency and geographical location.

An intangible asset which provides a competitive advantage, such as a strong brand, reputation, or high employee morale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the acquired company.

Holding two contrary positions in two or more financial instruments in order to offset a loss in one by a gain in the other.

A strategy that eliminates a risk through the post sale of the risk or through a transaction in an instrument that represents an obligation to sell the risk in the future. The goal is to ensure that any profit or loss on the current sale or purchase will be offset by the loss or profit on the future purchase or sale.

Bonds that are rated AAA through BBB-.

Description of investments with high rates of return. Generally, these are bonds that are rated BB+ and lower, and offer higher yields to compensate for the greater risks.

An index fund is a mutual fund that mirrors as closely as possible the performance of a stock market index. For example, many mutual fund companies have since established S&P 500 index funds to mirror that index by purchasing all 500 stocks in the same percentages as the index.

A document that describes a potential M&A or capital markets transaction (including project descriptions and financing details). It is used during the marketing and due diligence phase of a transaction and is also referred to as Offering Memorandum (OM) and Descriptive Memorandum (DM).

Organizations with large amounts of assets, who together make up well over half of the assets traded in all markets. Examples include: governments, banks, insurance companies, central banks, and pension funds.

Something of value that cannot be physically touched, such as a brand, franchise, trademark, or patent. Goodwill created during an M&A transaction is an intangible asset.

An investment rating level of "BBB" or better from Standard & Poor's Corporation, or "Baa3" or better from Moody's Corporation. See also 'High Grade'.

Initial Public Offering - a company's first issuance of shares in the market.

Internal Rate of Return. The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity. Used as a measure of return on equity in an LBO scenario.

High risk, high yielding bonds. This is an nformal term, see also 'High Yield'.

The final day on which trading is allowed in a futures contract.

Tables that rank investment banks based on underwriting volume in numerous categories, such as stocks, bonds, high grade debt, high yield debt, convertible debt, etc. High rankings in league tables are key selling points used by investment banks when trying to land a client engagement.

A company's debts relative to its equity capital. Usually expressed as a percentage.

An LBO is the acquisition of a company financed with a substantial amount of debt/ loans that lever up the balance sheet of the entity being acquired. LBO activity accelerated in the 1980s as investors looked to extract additional value for shareholders from companies. The book Predator’s Ball by Connie Bruck immortalizes the rise of the LBO market.

London Inter-bank Offered Rate. A widely used short-term interest rate that resets daily. LIBOR represents the rate banks charge one another on overnight loans. LIBOR is often used by banks to quote floating rate loan interest rates. Typically the benchmark LIBOR is the three-month rate.

A legal security interest on property to secure the repayment of debt and the performance of related obligations.

The ease with which a financial asset can be bought and sold in the market. A currency like the euro is extremely liquid; a life-insurance policy is not.

When you have bought securities you are said to be long of the market or long risk, and hope that prices will rise.

A quantity of the financial instrument being traded determined by an exchange or regulatory body.

Acronym for Last Twelve Months. Can be calculated for any income statement line item. LTM= Last full year statement - previous year quarter + current year quarter.

Acronym for Mergers and Acquisitions, also known as Advisory. This is the department of an investment bank which provides transaction advice and its execution to large  corporatations.

The annual fee charged to investors in a fund.

Title given by the Investment Bank when promoted from Executive Director.

1. The portfolio given to investment managers by clients to be managed within their risk control requirements.
2. A contract to work with a corporate client on an M&A or capital markets transaction.

The value of shares in a public company at a certain point in time. This value is equivalent to the number of shares issued multiplied by their current market price.

A firm or individual who sets a price at which they're willing to sell or buy securities, providing a stable price against which to judge any rise or fall.

Prior to closing, an event or occurrence that allows the lender to adjust the terms (i.e. rate) of a loan agreement. After closing, a MAC is an event that gives lenders the right to refuse further drawings or to require immediate debt repayment.

The percentage price change of a security for a given change in yield. The higher the modified duration of a security, the higher its risk.

Bond rating service.

A typical valuation technique in corporate finance (see Price Earnings and Comps). What multiple is a company's market value of its earnings, employees, sales or other measure = trading multiple. What multiple of earnings, employees, sale or other measure was paid in a recent similar deal = transaction multiple.

Bonds issued by local and state governments (a.k.a. municipalities). Municipal bonds are structured as tax-free for the investor, which means investors in muni's earn interest payments without having to pay federal taxes. Sometimes investors are exempt from state and local taxes, as well. Consequently, municipalities can pay lower interest rates (and therefore have a lower cost of funding) than other bonds of similar risk.