Saturday, April 15, 2006

Financial / Banking / Bank types 1 comments

(P.S: The following were substantially extracted from another source with minor editing and additions.)
The major banks engage in most types of banking activities, and are known as financial services companies; a prime example would be Citigroup. Many big European banks also diversify by distributing insurance, an activity known as bancassurance.

As noted in my earlier article, banking may be broadly split into retail banking and investment banking; the two main differences are the types of customer base/activities served (individuals and small business loan financing for the former, capital market financing eg. bonds & equities underwriting + M&A for the latter), as well as the nature of income (interest for the former, non-interest for the latter). Subdivisions under each main segment as follows:

Types of retail banks

Commercial bank - generically used to describe a bank or a division of a bank that mostly deals with corporations or large businesses.

Postal savings banks - savings banks associated with national postal systems eg. POSB. It can be huge, as in Japan's postal bank which houses trillions of dollars of assets.

Consumer banking/Savings banks - accept savings deposits and issue loans for the average Joe: home loans, car loans are two main loan types.

Trade finance - finance the working capital needs of SMEs (small & medium enterprises). Good examples in Singapore would be International Factors and Hong Leong Finance in Singapore.

Private banks - manage the assets of high net worth individuals. A high-margin segment.

Offshore banks - banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.

Building societies - unique to the UK; retail banking for the masses, especially for home loans.

Community development bank - regulated banks that provide financial services and credit to underserved markets or populations. China probably has lots of these.

Types of investment banks

Generally, there is only one type of investment bank, which undertake capital market activities such as underwriting (guarantee the sale of) stock and bond issues and advise on mergers. The division is more of the kind of activities they undertake, rather than distinct types of banks.

Underwriting - Of corporate bonds and equities.

M&A - Mergers and Acquisitions.

Merchant banking - traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Rather similar to the trade finance firms under the retail segment.

LBOs/MBOs - Leveraged Buyouts & Management Buyouts, involving the structuring of highly leveraged buyout deals by investors or company management. This was highly popular in the 1980s when market capitalisations were still depressed, such that insiders took the chance to acquire assets, restructure and relist at huge profits (see The 1980s junk bond and LBO boom).

Restructuring - investments to facilitate the recapitalization or restructuring of attractive businesses or real estate companies and partnerships

Mezzanine financing - equity/loan financing for firms on the verge of hitting it big (IPOs etc). Highly related to venture capitalist acvitivies.

(1) Wikipedia entry: Banking




Anonymous Value Stocks Under Four Dollars said...

This whole notion of free trade is phoney. We are becoming a nation of financial services companies All these companies do is recycle money. The result is no useful products and services are being produced or sold. The idea that the bedrock of the united states economy can be a country of bankers financial planners financial researchers dealing with numbers marketing consultents' lawyers is completly false. I could go on and on but I need not. This so called intangable economy of sorts must be replaced with a economy that produces or provides useful products and services that are really needed. Otherwise we will end up with a few bright CPA's with master degrees siting behind desks making a good living and everybody else walking around the office cleaning the carpeting and emptying the wast paper baskets. For three dollars an hour.

12/08/2011 07:17:00 AM  

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