A brief, generic guide to corporate banking for beginners.
Overview:
Corporate banking is a broad category within finance that primarily involves sell-side services to corporate clients, typically large corporations. As mentioned in the previous post, corporate banking revolves around traditional banking services like loans, cash management, and trade finance. Its core purpose is to satisfy a company's financial needs, e.g. raising capital for working capital, expansion activities etc, while cultivating strong client relationships.
Key Services:
1) Relationship Management (Coverage): Focused on business development through enhancing and establishing client relationships - the relationship managers. The modus operandi of this team is to develop relationships to facilitate cross-selling of multiple products to any one client to maximise banking revenue while optimising costs (e.g. KYC, opportunity cost, and client acquisition).
Note: Not all banks have the same structure/setup. For example, some banks may have a dedicated, sector-agnostic coverage team to focus on relationship management, while other banks have sector-specific coverage bankers who focus on that particular sector. Both have their pros and cons, but it is important to note that both roles entail different skill sets and strategies.
2) Corporate Finance: Relates to debt financing to corporations, including (a) general corporate lending like vanilla term loans and revolvers; (b) acquisition financing; and (c) dividend recaps.
3) Project Finance: Relates to raising capital via long-term debt for large-scale infrastructure or industrial projects, ringfenced to a specific project. A special purpose vehicle ("SPV") is created through which cash flows are channelled. Risk is primarily predicated on the project's own cash flows and assets, and is generally non-recourse to the sponsors.
4) Asset Finance: Relates to raising capital secured against a tangible asset, such as a ship, equipment or machinery. It is a corporate-level financing and typically has recourse to the sponsor.
5) Transaction Banking (Cash Management & Trade Finance): Primarily provides solutions to help clients optimise their liquidity and facilitate business transactions. These include bank guarantees and cash accounts for payments.
6) Corporate Sales (FX/Rates): Supports the clients' FX and hedging needs.
7) Capital Markets: While the ECM and DCM businesses typically sit separate from corporate banking, they may work hand-in-hand when a large corporate requires more capital and intends to do so via issuing debt or equity.
