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Consolidating Securities Underwriting Services

The Chinese economy is still in an early stage of its rise. A large number of growth companies may need flotation or issue of debentures to grow bigger and stronger on an accelerated basis. Chinese securities firms need to consolidate securities underwriting services and improve pricing skills and underwriting efficiency. Such efforts may boil down to human resources development. Although innovation in investment banking is driven by a request within for the improvement of operating efficiency, it is creative investment bankers who actually push innovation forward. In fact, innovative activities in investment banking are probably the collective efforts of investment bankers. Sponsorship has higher requirements of an investment bank in terms of its comprehensive business skills. In China, the high turnover of sponsors has impaired the reputation of securities firms as well as the consistency of service quality. For the purpose of investment banking activities, Chinese securities firms should learn from their international counterparts in business process optimization and organizational restructuring. They should change strategy from solo play to group play, and make a real effort to improve incentive and restraint mechanisms. This will help reduce the chance of job-hopping and the frequency of turnover of sponsors, and shape a new business model that builds on good practice.

Promoting Restructuring and M&A Services

Securities firms can earn a lucrative income by offering professional advice on corporate restructuring, mergers and acquisitions, general planning, and others. Compared with other investment banking activities, M&A services are not heavily money-dependent, but they rely greatly on professional teams. What drives the business is not the size of funds, but the skills of employees in solution design, financial innovation, and communication (e.g., communication between buyers and sellers). M&A consulting services, which involve low risks and generate high revenues, are regarded as a "cash cow" in the United Kingdom, the United States, and other developed countries. Chinese securities firms are supposed to aggressively expand the business, offering advisory services in investment, finance, and M&As.

M&As involve some adjustments in corporate ownership structure, asset structure, and business strategy, among others. Those that push forward such change are mostly so-called key persons (including high-ranking economic officials and members of the management, such as chairmen, presidents, and CFOs). They constitute the main circle that investment bankers approach and with whom they communicate, negotiate, and maintain business contacts for the purpose of M&A services. M&As are seen as the natural high-society club business and the top-level investment banking activities. In the business system of investment banking, M&A services can stimulate or initiate other business activities due to their particular business nature. For example, along with an M&A project, substantial financial needs sometimes lead to bridge facility agreements and provide considerable interest income for securities firms. In today's well-developed direct financing market, most M&A clients raise money to satisfy their financial needs by issuing securities (e.g., stocks, debentures, preference shares, and derivatives). These may provide investment banks with business opportunities in underwriting and issuance. Also, an M&A plan usually involves financial innovation and derivatives, which may benefit the derivative business of investment banks. In China, M&As have made for exciting news in the market. Securities firms may take advantage of such attention to quickly build a reputation and effectively promote their consulting and asset management activities.

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