Finance Report: Investment Banking Products, Services, and Challenges

This report provides an overview of the investment banking sector, detailing its products and services, including debt and equity offering management, advisory services, and venture capital. It explores the usefulness of these offerings to end customers, emphasizing their role in facilitating capital...Read More

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Table of Contents
Introduction......................................................................................................................................3
Usefulness of the key investment banking products and services to the end customers.................3
Contemporary challenges that this sector is facing.........................................................................6
The impact of the recent regulatory changes on this sector.............................................................8
References......................................................................................................................................10

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Introduction
The investment banking sector refers to that specific division of banking that deals with
the creation of capital in regards to other companies, governments and other entities. Investment
banks carry out the underwriting of the debts that has been incurred by the companies. Moreover,
the debts incurred by the equity securities for all kinds or categories of corporations are also
underwritten by the investment bankers. The other functions carried out by the investment banks
are the sale of the securities, facilitation of the mergers and the acquisitions, reorganization and
broker trades in regards to both the institutions and the private investors. The primary operations
that are carried out by the investment banks are that the investment banks employ the investment
bankers for helping the corporations, the government bodies or the other entities that have the
particular desire to issue stocks or bonds. The investment banks provides the much required
assistance to the financial institutions for the purpose of maximizing the revenues and navigating
the regulatory requirements. It must be noted here that the particular method by which the
investment banks operate are the initial public offerings that are constituted by the different
corporate entities directly from the company. This facilitates the smooth running of the
concerned company by the offering of the contract of the initial public offering to the investment
bank (Stowell, Meagher and Frazzano 2017).
This particular study aims to focus on the usefulness of the key investment banking
products and services to the end customers. Moreover, the contemporary challenges that are
faced by this particular sector and the impact of the recent regulatory changes on this sector have
been discussed in this particular study.
Usefulness of the key investment banking products and services to the end customers
There are a number of key investment banking products and services that are provided to
the end customers. These can be understood from the functions or the services that are provided
by the investment banks in the concerned market. these products or services can be listed down
as follows:
 Debt and equity offering management – the management of the debt and equity offering
is one of the primary functions or the services that are provided by the investment

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bankers. The role of an investment banker is dynamic and revolves around the providence
of advices that are required by the clients in regards to raising the required funds from the
market. The major portion of the role includes designing of the instrument, issue pricing,
registration of the offer document, issue marketing, refund and allotment (Stowell,
Meagher and Frazzano 2017).
 Distribution and placement – The network of an investment banker can be categorized
into two parts that are institutional and retail in nature. The institutional investors network
consist of the mutual funds, FIIs, domestic, bank and financial institutions, pension funds.
The investment bankers operate and function in regards to these monetary components
(Stowell, Meagher and Frazzano 2017).
 Advisory services that are corporate in nature – Another primary service offered by the
investment bankers are that they offer customized solutions in regards to the financial
problem that are faced by their clients. The essential areas where the investment
managers provide the financial advice are in regards to the financial structuring. This
process refers to the determination of the suitable level of gearing and providing the
required advice to the company in regards to the degree of financial leverage or de-
leverage that the company should engage in. The role of the investment banker also
covers the exploration of the possibilities in regards to the refinancing of the funds that
are featured with high costs with alternative cheaper funds (Jeucken and Bouma, 2017).
 Project advisory – The investment bankers share an association with their particular
clients from the initial stage of a single project. They provide the assistance to the
companies in regards to development of the concept for establishing the idea of the
project. The investment banker also carries out the feasibility study in regards to the
project (Jeucken and Bouma, 2017).
 Syndication of the loan – Investment bankers make necessary arrangements to tie up the
loans on behalf of their clients. The initial step for the achievement of the tie up process
is that the particular pattern in which the cash flows into the business of the client have to
be analyzed in order to determine the terms of borrowings that can essentially suit the
requirements of business in regards to cash flow. The investment bankers also prepare the
loan memorandum that is detailed in nature (Jeucken and Bouma, 2017).

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 Venture capital – the venture capitalists are the newest category of the investment
bankers. The specialty of the venture capitalists was the combination of the risk capital
with the management of the selected enterprise so that the launching of the new products
and the companies could be carried out with the required degree of innovation (Grullon,
Underwood and Weston 2014).
The investment bankers provides these services (Grullon, Underwood and Weston 2014).
However, the products that are provided by the investment bankers can be listed down as
follows:
 Investment in equity – the equity refers to the degree of ownership in a company that can
be necessarily acquired via the contribution of the capital that is required for the purpose
of setting up of business. The issuing of the shares to the public or private entities can
raise the required capital.
 Investment in mutual funds – the mutual funds are ideal for the investors who would like
to invest in a varied pool of investments. It must be noted here that a mutual fund might
make the investment only in equities and the debt instruments or a mixture of the two.
The investment bankers who invest in the mutual funds carry out such an activity for the
purpose of enjoying the benefit of portfolio diversification, professional level
management, low cost and tax benefits.
 Trading of the commodities – the particular activity in regards to the trading of the
commodities. The trading of the commodities facilitates the diversification of the
portfolio, predictability and liquidity of the investments.
 Trading of the currencies – the trading of the currencies facilitates the exchange of the
currencies and the subsequent profit has been derived from such differences. The trading
of the currencies is a popular investment banking product as it facilitates the essential
features like high liquidity, lower costs and round the clock trading
 Derivatives – the derivatives is an instrument that facilitates the derivation of the value in
regards to the underlying asset. It must be mentioned here that the derivatives are
generally in the form of a contract in which the buyer or the seller is obligated to buy or
sell the asset at a specified price on a specified date in the future. The investment banking

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products are featured with the essential aspects like the hedging against risks, lower costs
and leverage
 Fixed income instruments – the fixed income instruments refer to the financial
instruments that provide a rate of fixed income to the investor. The payout in regards to
the fixed income instruments might be received in the regular intervals or by the end of a
stipulated time period. By the time the financial instrument is matured, the principal is
repaid to the investor.
 Initial public offering – An initial public offering is another potential instrument banking
instrument and proper explanation in regards to the concept has been include in the
earlier part of the study. The initial public offering comes with the essential features such
as stable stream of income, higher chances of incentives
 Small and Medium Enterprises – the investment in the small and medium enterprises is a
required investment that results in the promotion of the small and medium enterprises
which are in the dire requirement of the required capital for further investment in
business.
Therefore, these are the products and services that have been the essentialities of the
investment banking sector. The major investment banks in this particular sector are as follows:
 Citigroup
 Deutsche Bank
 Barclays Investment Bank
 J.P. Morgan
 Morgan Stanley
 The Goldman Sachs Group
Contemporary challenges that this sector is facing
The contemporary challenges that the investment-banking sector has been facing are as
follows (Grullon, Underwood and Weston 2014):
 The behavior of business has been driven by regulation – Banks have been fully engaged
in the meeting with the requirements of IFRS 9. Moreover, it has been made mandatory
by Basel III and the degree of focus on the maintenance of the core liquidity and ratios

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that are related to leveraging have also been increased. Furthermore, the pressure has
been on reduction of the short term funding, holding of the assets that are more liquid in
nature and raising the long-term wholesale funding.
 Scarce capital – the implementation of Basel III did lead to an outcome that there has
been a fundamental shift in regards to the profitability of the product. This availability of
the capital being scarce has resulted in an essential alteration in regards to management of
capital.
 Cost pressure – It must be noted here that the investment banks also face significant
amount of pressure for the reduction in the cost base at the time when the shackles of
regulation has come upon. The experts of the industry have predicted the fact that that a
number of five to six investment banks that have the capability to be successful due to the
fact that the initiatives in regards to cost may result in the failure of the delivering of the
results on the basis of the governance hurdles.
 It is the particular requirement of the banks for the utilization of the customer knowledge
for the purpose of not only holding back but growing the customer returns via an
effective cross sell. It must be noted here that the particular activity for measuring and
cross selling products has become increasingly crucial for a company to maintain a
sufficient degree of competition.
 The financial services market in Africa has been estimated to be one of the most
receptive FinTech markets on a global basis. This has effectively resulted in the
disruption of the entire value chain pertaining to the investment banking sector. it must be
further noted here that the block chain is observed as the changing face of the cross
border lending activity.
 Lower quality of infrastructure – the infrastructure of the banks including both the
technical and the physical infrastructure leads to the required restriction in regards to the
growth and movement in the present digital age. An inflexible infrastructure is the
primary reason behind the challenges faced by the investment banking sector.
 The cost of compliance with the ongoing regulations that have been established, have
been high. Moreover, this particular cost continues to rise in the recent times resulting on
the reviewing of the existing business model

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 The financial markets have been facing the necessary disruption due to a number of facts
like the particular component of foreign exchange reshaping the entire investment
banking sector.
 Lenders of the market place – the securitization of the debts that are incurred by the
consumers is faced with the particular challenge in regards to raising the required funds
in order to match the lending activities. This particularly carried out by 90% of the fees
acquired from the new loans and the rest from the institutional investors. Moreover, it
must be noted here that the pressure by the regulators for the purpose of maintaining the
estimated standards, have been high on the investment banking sector. The regulators
generate high amount of pressure in regards to greater transparency further making the
indication of the disclosures.
 Cyber Security – there have been numerous instances of digital theft in regards to the
investment banking sector in the recent times. Therefore, this particular banking sector is
exposed to the risks of cyber security
 A number of global regulators have also mandated the adherence to the standard in
regards to the BCBS239. Moreover, this adherence has resulted in the increase in the
investment cost.
The impact of the recent regulatory changes on this sector
The impact of the regulatory changes on this sector is as follows (Bouma, Jeucken and
Klinkers 2017):
 Decrease in the profitability of the customers and increased rate of competition – the
degree of competition in the investment banking sector has increased rapidly resulting in
the banks continuing to operate in an environment where the aspect of profitability of the
customer and the measurement of capital has been primarily focused upon. This will
result in the survival of the most efficient companies only.
 The profitability will be driven by volume, rather than being driven by margin – the
operations that are essentially driven by volume will very well take over the profitability
that has been derived by the margin driven products.

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 The emphasis on the cross selling of products – huge focus will be put upon the particular
activity in regards to cross selling of products carried out by the financial institutions.
This will be done by the financial institutions for the purpose of maximizing the capital
returns
 Political uncertainty – the political uncertainty that the world is going through in the
recent times has resulted in the regulatory bodies becoming stricter in controlling the
operations in regards to the different financial instruments market. The global regulatory
standards have not been harmonized till the recent times which have resulted in the risks,
inefficiencies and the opportunities for the purpose of arbitraging jurisdictions.
 Governance, conduct and culture – Despite the fact that an increased degree of attention
is provided by the regulators and the external stakeholders for the purpose of
strengthening the structure of governance and risk control framework across the industry,
instances in regards to misconduct and other related components has to be continuously
reported. Moreover, the cost for maintaining the regulatory standards in the investment
banks has been high.
 Digital transformation – the regulatory standards that have been established in the recent
times have resulted in the much needed digital transformation that will have to be
adopted by the investment banks. The utilization of the technology for the purpose of
driving down the costs or improving the particular process of analysis for enabling better
decision making and improvement in the accuracy. Moreover, the process of digital
transformation has to be integrated with the particular business model of the banks which
forms another risk in hand.
 IFRS 9 – the current financial instruments standard has become effective from the
financial year of January 2018. This has impacted the investment banking sector hugely
as the upgrades to the systems have to be devised for the purpose of meeting up to the
changes which have now become mandatory to follow.

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References
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Investment Banking. In High-Performance Computing in Finance (pp. 25-46). Chapman and
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Grullon, G., Underwood, S. and Weston, J.P., 2014. Comovement and investment banking
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