Investment Banking Business—Transitioning toward Equal Importance for Securities Issuance and Financial Consultancy

The underwriting business currently has a favorable return and the issuance business has few risks. Therefore, the investment banking business of Chinese securities companies is dominated by issuance, while other types of business are left in the cold. However, with the arrival of the full circulation era in the Chinese capital market, the investment banking business has to break with the traditional securities-underwriting-dominated frame. It must explore market space for investment banking services, cultivate new profit growth areas, and shift toward attaching equal importance to securities issuance and financial consultancy. Chinese securities companies should provide listing sponsor services and also use that as a breakthrough point to provide follow-up financial consultancy and M&A services. Great efforts should be made at the same time to explore business with private companies, so as to generate resources for the direct investment business of securities companies.

As the most basic business of investment banks, the securities underwriting business can make various innovations in issuance pricing, issuance methods, and issuance venues. Issuance price can be made more market driven, so that it transitions toward the globally practiced book-building pricing mechanism. The configuration of extra issuance targets and selling schemes can be more flexible. Constant efforts should be made to get accustomed to issuance provisions that require improvement of convertible bonds. More flexible coupon rates for corporate bonds should be designed. Help should be provided for small and medium enterprises to raise funds by issuing shares or bonds in the GEM board.

Financial consultancy is another important business line of investment banks. It generates bountiful revenues by providing enterprises with advice concerning M&A development, working as M&A transaction intermediaries, and making overall planning. While making innovations in financial consultancy business, securities companies should break through the constraints of traditional channel financial consultancy business. In parallel, they should expand the scope of services and come up with in-depth and innovative contents of financial consultancy to establish their own features in terms of technical skills and specialties, thereby gaining differentiated competitive strength.

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