Transfer pricing in Investment Banking: A 360 degree view - Part III

June 08,2018
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Abhay Kumar (Director- Transfer Pricing, BDO India LLP)

CORPORATE FINANCE

Corporate finance division of the bank provides advisory and consulting services to its clients. Merger & Acquisition (M&A), Equity and debts raising in Equity Capital Market (ECM) and Debts Capital Market (DCM) are the main products/services in Corporate Finance department. Type of products and services provided by Corporate Finance division are tabulated hereunder:

Table No 3: Corporate Finance Segmentation:

Nature of services/Products

Description

Revenue model

M&A

Under M&A, the IB provides advisory services to corporates in respect of mergers, acquisitions and divestitures.

Upfront retainer fee+ success fee percentage on the basis of deal value

ECM

Under ECM segment, the IB provides services to its clients in raising equity capital from capital market.

Spread (difference in price at which equity is sold to public less price at which sold to IB)

DCM

Functions and fee structures under the debt capital market of the IB are similar to ECM

ORGANISATION OF CORPORATE FINANCE:

Corporate Finance team of IB group may be organised as follows:

  • Product Banker: Product bankers focus a specific product type, viz, M&A, ECM, DCM. Product bankers have in depth knowledge in respect of processes involved in a specific type of product/service offerings.
  • Industry Bankers: Industry bankers specialise in a specific industry vertical and they have in-depth understanding of the industry in which they operate.
  • Country Bankers: Country bankers specialises in a specific country and are generally employed by the IB operating in that specific country or a group of countries. Country bankers main role is developing relationship with all the potential clients and originate the deals for the banks.

Corporate Finance department of an IB may be organised in hub and spoke model. For example, there may be few global hubs, e.g., Americas, EMEA, APAC. Under each global hub there will be few regional hubs and individual country or a group of countries will report to its assigned regional hubs.

VALUE CHAIN OF “M&A” & “ECM/DCM” SERVICES WITHIN CORPORATE FINANCE:

Value chain of M&A and ECM/DCM related advisory services within Corporate Finance department of IB bank is depicted hereunder:

INTEGRATED NATURE OF ECM/DCM DEALS:

M&A deals is initiated in Corporate Finance division of IB and completed within the Corporate Finance department itself. However, ECM/DCM related deals is initiated in Corporate Finance department but spills over to Global securities segment of IB. The corporate finance team maintains the relationship, identifies deal opportunities, guide client through the entire process of issuance of equity/debt through involvement of country, industry and product bankers housed in more than one group entities.

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