Chapter 4

Other Banking Institutions

OTHER BANKING INSTITUTIONS

Investment

banks
Discount houses

Investment Banks
Investment banks (IBs) help
Investment banks (IBs) help

corporations
corporations to
to raise
raise capital
capital through
through debt
debt
and
and equity
equity security
security issues
issues in
in the
the primary
primary
market
market
Act
Act as
as aa financial
financial intermediary
intermediary

However,
However, itit is
is not
not aa financial
financial intermediary
intermediary that
that
takes
takes deposits
deposits and
and lends
lends them
them out
out

Involve
Involve in
in underwriting
underwriting

Assist
Assist corporations
corporations in
in the
the issuance
issuance of
of new
new securities
securities
Becomes
Becomes an
an underwriter
underwriter for
for the
the IPO
IPO

IBs
IBs also
also advise
advise on
on mergers
mergers and
and acquisitions
acquisitions
(M&As)
(M&As) and
and corporate
corporate restructuring
restructuring

EXAMPLES OF IPOs

SUNWAY BERHAD
LISTING OF SUNWAY BERHAD (FORMERLY KNOW
N AS ALPHA SUNRISE SDN BHD) ON THE MAIN
MARKET OF BURSA MALAYSIA SECURITIES BE
RHAD

HIBISCUS PETROLEUM BERHAD

PUBLIC ISSUE OF BETWEEN 200,000,000 AND U
P TO 400,000,000 NEW ORDINARY SHARES OF R
M0.01 EACH IN OUR COMPANY (PUBLIC ISSUE
SHARES), TOGETHER WITH BETWEEN 200,000,0
00 AND UP TO 400,000,000 FREE DETACHABLE
WARRANTS (WARRANTS-A) ON THE BASIS OF 1

WHAT IS WARRANT?

What Does Warrant Mean?

A derivative security that gives the holder
the right to purchase securities (usually
equity) from the issuer at a specific price
within a certain time frame. Warrants are
often included in a new debt issue as a
"sweetener" to entice investors.

Underwriting
The purchase and subsequent resale of a new
security issue. The risk of selling the new issue at
a profitable price is assumed (underwritten) by an
investment banker.
An underwriter is an investment bank that buys
an issue of security from the firm and resells it to
the investor.

Using An Investment Bank to

Distribute Securities to the Public
Firm decides to issue new
securities

IB and firm agree on type

and price of security

Firm prepares prospectus

with IB help
Funds to
issuing
firm

SC reviews prospectus

Prospectus is distributed
to brokerage network;
preissue sales are
solicited
SC approval is received;
finalized prospectus is
distributed

Securities are bought by

IB and resold to public

Investment Banks

Involve in equity capital market and they

provide specialized facilities to solve
problems for private equity and equitylinked markets
Provide equity structuring services

Their objective is to make sure that any

equity capital market deal will be
syndicated, marketed and distributed as
efficiently as possible

Investment banks

Services provided by investment banks:

1. Advisory

Include mergers and acquisitions, corporate and debt restructuring,

capital structure optimization, valuations, financial modelling and
strategic and policy advisory

2. Fund-raising

The banks assist their clients to raise funds from equity capital markets,
debt capital markets, Islamic capital markets and also through loan
syndication
Becomes an underwriter

3. Equities trading

Provide brokerage services for both retail and institutional investors.

They provide a full range of equity and equity-linked sales and trading
services, including share margin financing, settlement, reporting and
custody.
Provide clients with ideas and market insights to help them achieve
maximum performance

Loan syndication
A syndicated bank loan is one in which a group (or
syndicate) of banks provides funds to the
borrower. The need for a group of banks arises
because the amount sought by a borrower may
be too large for any one bank to be exposed to
the credit risk of that borrower. Therefore, the
syndicated bank loan market is used by borrowers
who seek to raise a large amount of funds in the
loan market rather than through the issuance of
securities.
Can be used to reduce the risk of underwriting
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Investment banks

Usually earn their income from fees charged

to clients
Normally set as a fixed percentage of the deal

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Investment banks
Investment banking
Investment banking

first
first time
time debt
debt and
and equity
equity issues
issues occur
occur through
through
initial
initial public
public offerings
offerings (IPOs)
(IPOs)
new
new issues
issues from
from aa firm
firm whose
whose debt
debt or
or equity
equity is
is
already
already traded
traded are
are called
called seasoned
seasoned equity
equity
offerings
offerings (SEOs)
(SEOs)
aa private
private placement
placement is
is aa securities
securities issue
issue that
that is
is
placed
placed with
with one
one or
or aa few
few large
large institutional
institutional
investors
investors
public
public offerings
offerings are
are offered
offered to
to the
the public
public at
at
large
large
IBs
IBs act
act only
only as
as an
an agent
agent in
in best
best efforts
efforts
underwriting
underwriting
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Investment banks

Investment banks in Malaysia

Affin Investment Bank Berhad

Alliance Investment Bank Berhad
AmInvestment Bank Berhad
CIMB Investment Bank Berhad
ECM Libra Investment Bank Berhad
Hwang-DBS Investment Bank Berhad
KAF Investment Bank Berhad
Kenanga Investment Bank Berhad
Maybank Investment Bank Berhad
MIDF Investment Bank Berhad
MIMB Investment Bank Berhad
OSK Investment Bank Berhad
Public Investment Bank Berhad
RHB Investment Bank Berhad
Southern Investment Bank Berhad

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Discount houses

Discount houses began operations in Malaysia since

1963.
Generally, the discount houses specialise in short
term money market operations and mobilise deposits
from the financial institutions and corporations
The funds mobilised are invested in Malaysian
Treasury bills, Malaysian Government Securities
(MGS), banker acceptances (BAs), negotiable
certificates of deposit (NCDs), Cagamas bonds and
Floating Rate Negotiable Certificates of Deposit
(FRNCDs), as well as to provide an active secondary
market for these activities.

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Bankers acceptance

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Discount houses
Basically, the operations of a discount
house include the business of receiving and
utilizing deposits and other funds for
investment purposes
As of 31st December 2006, all discount
houses have been transformed into or
absorbed by investment banks.
Examples: KAF Discounts Berhad, Abrar
Discounts Berhad, K&K Kenanga Berhad,
OSK Securities Berhad

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