Session 2 - The different businesses of CIB Flashcards
Which are the areas of CIB?
The Business Areas that potentially qualify CIB are:
* Investment Banking (or “Pure” Investment Banking or Capital Market)
* Corporate Finance
* Private Equity (or, the old British name “Merchant Banking”)
* Structured Finance
* Asset Management (or, wealth management)
* Risk Management (or, corporate risk management)
* Corporate Lending (or, simply, Lending)
What consideration we can have about Corporate Lending?
The corporate lending is more than a business area,
but is a support to all the other ones
What is Pure Investment Banking or Capital Markets?
Pure Investment Banking
Support to customers to raise money in the financial markets by issuing securities and trading securities
What are the main areas of Investment Banking and how are they divided?
Pure Investment Banking
- Primary markets
- Secondary markets
They are divided in equities, bonds, and derivatives
What is primary market activity? What are the phases/jobs?
Pure Investment Banking
Advisory and support for the first issuance through IPOs or private placements.
There are 4 phases:
- Origination
- Advisory and arranging
- Underwriting
- Placement and selling
What is secondary market activity? What are the phases/jobs?
Pure Investment Banking
Secondary market activity is based on 3 different jobs:
- brokerage
- dealing
- market making (with or without specialist clause)
Has primary market activity effects on regulatory capital? On what is it based? And what about secondary market activity?
Pure Investment Banking
Primary market: no effects on regulatory activity and wholly based on fees
Secondary market: impact on regulatory capital usage only for what concerns dealing activities (and specialist case, if necessary). It is based on fees and capital gains)
What is Corporate Finance?
Corporate Finance
Very huge area that covers all the services devoted to manage (and to optimize) the liability side of customers. Strongly liked with services to allow customers to implement strategies for growth, acquisitions, internazionalization, restructuring, turnaround, and privatization.
What are the phases of Corporate Finance?
Corporate Finance
- orgination
- advisory
- arranging
- fundraising
Traditional split for Corporate Finance
Corporate Finance
- Mergers & Acquisitions (M&A)
- Corporate restructuring
- Pure Advisory
Most common deals in M&A
Corporate Finance
- Acquisitions
- Mergers
- Spin-offs
- Break-ups
- Joint ventures
- Carve-outs
M&A business is driven by what?
Corporate Finance
Fee driven. Driven by big privatization processes, consolidation of banking systems, and international expansion of corporations
What is Corporate Restructuring?
Corporate Finance
Corporate Restructuring covers the services devoted to enhance the restructuring of companies that are in a state of distress, which can be financial and/or operational
How can we classify corporate restructuring deals?
Corporate Finance
- the nature of the intervention: asset side deals (asset restructuring) or liability side deals (liability restructuring)
- the stage of the crisis: in-court processes (bankruptcy, etc.) or out-of-court (before application of insolvency law procedures, like private negotiations)
What is Pure advisory? Who does it? What are the services?
Corporate Finance
Pure Advisory is tout court a provider of consultancy, i.e., without providing other M&A or corporate restructuring services. This stand alone activity is developed by first-class banks whose distinguished advisory activity can be considered a tradable service. Services are: company and project valuation, tax planning, international legal advisory.
What is Private Equity? And how can it be managed?
Private Equity
Very specific area based on the financing of a customer providing equity capital.
Can be managed directly by the bank (usage of regulatory capital) or by a dedicated vehicle like a closed-end fund (no usage of regulatory capital).
How can Private Equity be classified?
Private Equity
- amount of share capital acquired: minority and majority investors (with hands-off and hands-on style)
- investment stage: seed financing and start up, early-growth financing, expansion financing, replacement financing, distress financing
What is Structured Finance? How are SF deal named and why?
Structured Finance
Covers deals based on three specific features:
- the presence of an asset generating cash flow
- the use of a SPV to isolate the asset
- the cash flows that are devoted (through a contract) to repay the debt
Named asset-based deals or self-financing deals as the asset is able to repay the financing with its own cash flows
Phases of SF deals and do they use regulatory capital?
Structured Finance
- Origination
- Advisory
- Fund raising
- Financing
All with the exception of financing, don’t use reg capital and generate economic impact through fees
Typical delas of SF
Structured Finance
- Securitization: asset is represented by real estate, mortgages, etc.
- Project Financing: asset is represented by large projects and infrastructures whose size cannot be managed by corporates
- Leveraged buy out (LBO): the asset is the target company to be bought
What is Asset Management? How can it be divided?
Asset Management
Covers all the activities devoted to manage the wealth of customers (i.e., to allocate it, to protect it and to make it grow).
It can be divided in financial asset management and management of other assets (real estate, arts, …)
What are the technicalities of Asset Management?
Asset Management
- Asset allocation capabilities
- Asset specific knowledge (for real estate, for private
equity, etc…) - Taxation and legal expertise (managing holdings and
trusts, managing tax arbitrage, etc…) - Strong insurance know-how
- Country-specific knowledge
What is Risk Management? How can it be classified?
Risk Management
Covers all the activities involved with and devoted to the management of the different risks of customers.
By nature, risks can be classified in:
* Financial risks: like price, interest, exchange rate risks. Represent the volatility of the underlying phenomena and can generate both positive and negative economic results
* Industrial and pure risks: like death, damage. Can generate only negative economic results
On what are Risk Management services based?
Risk Management
- Internal matching of risks: typical approach adopted for financial risk
- Insurance services (like insurance contracts): contracts are more effective for industrial risk
- Financial services (like financial derivative contracts): more effective for financial risks
