This is based from the article, Modern Investment Banker, written by Gary P. Cheng, President & CEO of Amalgamated Investment Bancorporation. The article was published in the Business World on January 22, 2008.
He views investment bankers as not just middlemen or intermediaries – brokers, dealers, arrangers, negotiators – but also advisors and consultants. Nonetheless, being intermediaries, investment bankers are necessarily agents, not principal. Their role is to advise clients, then clients decide; and jointly, clients and investment bankers execute decisions. They are, thus, professional intermediaries who help clients choose and realize the strategies that will best increase the clients' value. They are in the business of providing decision-making options to corporate and individual clients ranging from basic strategies to highly-sophisticated schemes, where sometimes none seems to exist.
In the article, three types of advice investment bankers normally provide were mentioned.
In determining where the company is and where it optimally might be in the value chain, the investment banker is said to be providing his industry perspective. In the example made by the writer for a telecommunication firm he cited several options that the firm could adopt for its operations, i.e., remain wireless or get wired or both, consider reselling or improve end-customer focus, bring value-added services, among others.
One recent example of a strategy that was executed using this perspective was that of San Miguel Corporation (SMC). The biggest food conglomerate in Asia decided to divest some of its food assets and forgo its focus on beer manufacturing, instead it trains its sight into a more lucrative and promising business in the heavy industries, which include power generation and mining.
In strategic perspective, the investment banker is providing growth options for the company either by expanding geographical reach or through business combinations, which may include forward, backward, horizontal, vertical, or diagonal business integrations via mergers, acquisitions, consolidations, joint ventures, commercial partnerships, and consortia.
In the Philippine banking sector, mergers and acquisitions are prevalent. Just last year, Banco De Oro completed its acquisition of Equitable-PCI Bank, while Union Bank acquired International Exchange Bank. In the power sector, the game industry players play in bidding for government power assets is consortium building because of the industry's capital-intensive nature. In fact, investment bankers themselves, a few of them, are actually members of the consortium.
The third type, financial advice, is normally what investment bankers provide to clients. However, other than advising on plain vanilla equity or debt, most investment bankers nowadays are giving more varied and complex investment and financing strategies.
According to Cheng:
“There are now sophisticated instruments proliferating in the mezzanine layers of the capital structure, which could be securitized or otherwise, with bells-and-whistles that may include warrants, convertibility and redeemability features, with prices or coupons possibly indexed to some tradeable item (e.g., bandwidth prices).”
As you will notice, the options are virtually endless, yet it is still the client or the company who will decide on what they want and ought to do.
In the ever-complicating dynamics of the market, “it is almost impossible for an investment banker to be successful nowadays simply by being a generalist advisor or a professional broker of deals”, as revealed by the writer. Cheng outlined his list of requisite qualities for a modern investment banker.
- Investment bankers are industry specialists.
- Investment bankers are product specialists.
- Investment bankers are generalists in having the intellectual capability to understand other sectors and products.
- Investment bankers are generalists in having the ability to step back and see the bigger picture.
- Investment bankers are analysts with a solid grounding in quantitative methods required to address any client problem.
- Investment bankers are analysts in being able to qualitatively interpret the results of their quantitative analyses.
- Investment bankers are psychologists with a good grasp of human motivation and behavior.
- Investment bankers are diplomats and politicians with the sensitivities to maneuver through complex situations.
- Investment bankers speak and write well.
- Investment bankers are philosophers in knowing that they need to know more.
- Investment bankers exhibit the traditional values of integrity, client focus, hard work, diversity, and passion for excellence.
- Investment bankers rarely lose their sense of humor.
- Investment bankers strive to be physically healthy.
Not one investment banker embodies all of these qualities to the same degree. That is why to become successful, investment bankers should inspire group dynamics and embrace diversity to acquire synergy.
*Source: Gary P. Cheng, "Modern Investment Banker", Business World, p. S1/5.
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