What is Investment Banking?

Investment Banking (IB) refers to financial business that involves dealing mainly with institutional clients such as large corporations, large financial institutions (eg. Asset Management and Hedge Funds), governments or supranational entities. 

IB activities are typically classified under three broad categories of: (i) corporate finance activities, (ii) capital market activities, and (iii) bespoke financial solutions.

Did you know? Between 2016 and 2019 H1, local IPOs and foreign IPOs accounted for 52% and 48% of all listings on the Singapore Exchange respectively

 Investment Banking in Singapore 

• Singapore is an important financial hub. In 2018, market capitalization of Singapore’s stock exchange is ranked in the top 20 globally, and registered record volume of debt issuance. 
• Singapore’s capital market is highly integrated into the international financial markets. 
• Singapore has also developed into Asia’s preferred bourse for listing of Real Estate Investment Trust (REIT) and Business Trusts. This has  contributed immensely to the vibrancy of Singapore’s IB and other ancillary professional services.
• Government policies are prescribed to strengthen the attractiveness of Singapore’s capital markets through initiatives and grants administered by various agencies including Monetary Authority of Singapore (MAS) and Inland Authority Revenue of Singapore (IRAS). 
• There is a perse range of IB operating in Singapore to cater to the needs of their clients. These include global investment banks (eg. Goldman Sachs and Morgan Stanley) and local banks with an IB pision (eg. DBS, OCBC and UOB) who have strong expertise in IB activities and in-depth pan-Asian knowledge.

Did you know? The first real estate investment trust (REIT) listed on Singapore Exchange was CapitaLand Mall Trust (CMT) in July 2001. The lead underwriter for this IPO was DBS, with OCBC and UOB as the sub-underwriters.

​Financial Solutions 

Investment Banking provides a wide array of financial solutions to suit their clients’ needs. Here's a brief summary of the main IB activities.

1. Initial Public Offering (IPO) - refers to the process of offering shares of a private company to the public in a new stock issuance.  

Services provided include:

• Performs due diligence to ascertain the valuation of the company. 
• Generates market awareness for the listing including roadshows. 
• Serves as an underwriter to assume the financial risk for the listing.  
• Advises clients on rules and regulations of the Exchange related to IPOs.
  

2.  Merger & Acquisition (M&A) - describes the process of consolidation of companies or assets into a combined new entity. 

Services provided include:

• Financial and strategic advice to companies on M&A matters. (eg. IB advise clients on the most suitable funding approach and the structure of the combined entity by utilizing its knowledge based on industry coverage). 
• pestment, privatization, and corporate restructuring advisory.
  

3. Debt Capital Market (DCM) - refers to a market in which financial institutions help companies and governments to raise funds through the sales and trades of debt securities.

This is done by: 

• Originate debts to raise funds to purchase assets (eg. bonds, perpetual, and medium-term-notes).
• Sale of financial instrument to selected groups of investors which includes insurance companies, private banking clients and fund houses (private placement). 
• Provide liquidity in market and ensure market’s efficiency by being a market-maker to trade debts with counterparties.
  

4.  Equity Capital Market - refers to a market in which financial institutions help companies and governments to raise funds through the sales and trades of equity securities. Some examples are:  

• Originating from equity-linked financial instruments (eg. warrants and preference shares); 
• Sell these products through private placements. These type of equity-linked instruments are also known as secondary issues. 
• IBs involved in trading and market-making of equity-linked products. 
  

5.  Structured Finance - an instrument customized for its clients with specific and complex needs that cannot be met by traditional financial products. Structured financing products are not liquid and cannot be sold easily in the market. 

Examples include:

• a combination of different financial instruments such as a basket of securities, or
• hybrid of a traditional instrument and a derivative. 
• For example, DBS was appointed as the financial advisor for SIA on its issue of mandatory convertible bonds (MCB) in April 2020. 

Mandatory Convertible Bond is a fixed income corporate debt that will be converted into a predetermined shares on maturity. 

Value Proposition 

• A one-stop shop for institutional clients providing broad range of financial solutions (corporate finance, capital markets and bespoke solutions). 
• Access to global financial networks complemented by local market knowledge. For example, raising capital in foreign markets. 
• Expertise in structuring bespoke financial solutions to help clients with unique continuum of risk-return profile to fully meet their financial needs. 
• Corporate restructuring, balance sheet restructuring, pestment, and other activities can help clients to enhance or realise the company’s value. 

Did you know?   Biggest IPO ever Saudi Arabia's state-owned oil company Saudi Aramco's IPO is the biggest IPO ever in history which raised US$29.4b in 2019 on the Saudi Arabia stock exchange Tadawul.

 
Current and Emerging Trends

• Traditional clienteles are mainly institutions, but increasingly, clienteles have broaden to include ultra-high-net-worth inpiduals and even governments.  
• Investment banking helps governments to raise capital for infrastructures or increase involvements in green finance sectors.
• Digital transformation will accelerate in pursuit of efficiency.  The business operating strategy will move towards data-driven and analytical service offerings. Working remotely, collaborating across different time-zones, and digitized workflows and processes will improve efficiency.  

​Key Challenges 

1. More stringent regulatory requirements 

Regulatory requirements were strengthened since the global financial crisis in 2008/09. These regulations include Basel Accord III (globally), Volcker Rule (United States) and MiFID II (European Union). 

The impacts are: 

• escalating operational cost to comply new regulatory requirements has compressed profitability. 
• causing an indirect stifling of financial innovation. 
  

2.  Trend of disintermediation accelerated 

Disintermediation refers to the process whereby traders trade financial instruments directly in the financial markets without going through a bank. 

Some IB biggest institutional clients had invested in networks or systems to trade amongst themselves and rely less on IB.

Disintermediation accelerated due to: 

• high operating cost
• proliferation of technology, and 
• Challenging economic situations. 
  

3.  Disruption from FinTech 

Technological advancement and its proliferation has   resulted in the growth of FinTech companies where some progressively providing financial solutions in the IB space.

Examples include:

• Growth of crowd-funding platforms and peer-to-peer lending platforms have reduced the demand for IB services.
• Increased popularity of electronic market-makers has perted   business volumes away from IB.
  

4.  Fluctuating income  

Business volume and income is volatile and highly dependent on deals (eg. IPO and M&A) due to unforeseeable events resulting from economic uncertainties, geopolitical tensions, or knee-jerk reactions in financial markets.  

5. Niche skills demand

IB’s response to various challenges have seen them scaling up its investment in technology, resulting in targeted hiring of talents with niche skillsets and competencies. 

Popularity of FinTech companies and volatile income (or increased job insecurity if deals run out) have further capped the attractiveness of IB as a career of choice.

A Career in Investment Banking 

To better understand the possible career pathways in Private Banking, you may refer to the Skills Framework for Financial Services.

The Skills Framework (SFw) is a SkillsFuture initiative developed for the Singapore workforce to promote skills mastery and lifelong learning, and is an integral component of the Financial Services Industry Transformation Plan.

Jointly developed by SkillsFuture Singapore (SSG), Workforce Singapore (WSG), Monetary Authority of Singapore (MAS), and the Institute of Banking and Finance (IBF), together with industry associations, training providers, organisations and unions, the Skills Framework for Financial Services provides useful information on:

• Sector information;
• Career pathways;
• Occupations and job roles;
• Existing and emerging skills; and
• Training programmes for skills upgrading and mastery.

Banking Glossary

Please refer to commonly used banking terms and acronyms here.