Corporate & Investment Banking

1.  THE FUNDAMENTALS OF CORPORATE & INVESTMENT BANKING

The definition of Corporate & Investment Banking (CIB) is not unique and common worldwide. Usually, definitions range between a quite strict approach coming back to the tradition of investment banking and a broad approach following the evolution of the market.

The definition of CIB more appropriate is that CIB is a system of financial services, produced and managed by financial intermediaries, devoted to corporations, financial institutions and public authorities.

Advisory approach is the backdrop of all CIB services.

Def: CIB offer a portfolio of financial services produced and managed by financial intermediaries where customers are corporates, financial institution and Govs.

Portfolio: - cross selling   - tailor made   - advisory

Taxonomy and story

Investment banking is the old definition and the “core” of CIB and is related to underwriting and trading of securities. For this reasons (mostly in US), sometimes CIB is simply named IB and very often financial intermediaries managing CIB are named Investment Banks.

In the UK tradition, the “core” was Merchant Banking and for this reason financial intermediaries managing CIB are named Merchant Banks.

In the European and in the Japanese tradition, Universal Banks offer CIB and for this reason are named very often simply Banks.

Even traditions are important and everybody agrees that CIB is characterized by:

• A system of very different business
• An approach based on consultancy and advisory
• A strong interaction with customers’ financial choices
• A medium-big ticket dealing (i.e., CIB is not retail)
• An international perspective
• An interaction with three groups of customers:
• Corporate (SMEs and large)
• Financial Institutions and Governmental (i.e., the FIG)

Approaches to CIB

US+UK approach

: identified clear business separated from the others

CONTINENTAL Europe approach

: born to interact with all customers, retail as well.

In the story of whatever system, the big issue is: “Does CIB stay together with commercial banking?” (i.e., corporate and retail together)

The pros:  integration, economy of scales, universal offering, higher capability to satisfy customers.

The cons:  conflict of interest, higher risk, potential lack of control.

Both EU and US story moved from separation to integration (respectively, in 1993 and 1999) so nowadays they can do whatever they want.

The different business of Corporate & Investment Banking (CMP)

(1) Capital Market

The leading and most prestigious activity of CIB is the support to customers to raise money from financial markets by issuing securities and trading securities 

This definition implies that Investment Banking is made by two big different areas which are Primary market and Secondary market respectively divided in (equities) (bonds) and (derivatives).