Corporate Banking

Quick notes and references.

Authorised shares | Authorised shares is the total number of shares a company is allowed to issue.

Back door listing | Back door listing is an IPO listing strategy that smaller organisations use to get listed without having to go through extensive regulatory filing. These organisations may not meet IPO requirements but still want to gain access to public funding. They commonly merge with larger organisations for the IPO and operate as shell companies to function independently. Back door listing, aka reverse takover, reverse merger or reverse IPOs are not common and are used to avoid time and IPO expenses.

Bill of exchange | A bill of exchange is a document like a cheque. A drawer (party that receives money) can issue a bill of exchange to a drawee (party that pays) which can be banked in for payment at a later date. A bill of exchange can be issued by banks or individuals, and payed immediately or at a later date.

Collateralised Debt Obligation | CDOs are packaged debts that an investment banks distribute to investors. CDOs are then divided into tranches. Senior tranches are low risk and have the first claim if loans default. Junior tranches have high returns but have the last claim.

Collateralised Bond Obligation | CBOs are a package of high-grade bonds and junk bonds mixed together. The package is split into tranches similar to CDOs. Overcollateralisation allow junk bonds to be graded because they are backed by higher grade bonds.

Collateralised Mortgage Obligation | CMOs are similar to CDOs, except that they contain only mortgages. CMOs receive their returns as borrowers repay their mortgages.

EBITDA | Earnings Before Interest, Taxes, Depreciation and Amortization is a measure of a company's operating performance. It indicates a company's financial performance without factoring taxes, interest, and depreciation factors. It is used as an alternative indicator to net income.

Escrow Agreement | An escrow agreement is a payments contract between two parties that involves a middle man, like an attorney, that is fulfilled only when all the terms of the contract are met. This works in favour of both parties where the depositor is ensured he will receives the good and the seller is ensured he will be paid.

Hypothecation agreement | A hypothecation agreement is an agreement where the lender pledges a security for a loan to the borrower but maintains possession of it unless he defaults. A mortgage is an example of a hypothecation agreement in which the house is a collateral to the lender but remains under the borrower's possession.

Loan-To-Value | LTV is the ratio of loan amount to the value of asset. It indicates the risk of the loan against the asset it is financing. Lower LTVs have lower risk. One factor that affects the LTV is the asset price. Borrowers may set a maximum LTV or impose higher interest rates on higher LTVs to minimise their risks.

Market capitalisation | Market capitalisation is the total number of outstanding shares multiplied by the current share price. Market capitalisation is an indication of the company's size - an alternative to using revenue and assets.

Outstanding shares | Outstanding shares is the total number of shares held by all its investors, including restricted shares. Authorised shares are always less than authorised shares.

Offshore Account | Offshore accounts are services provided by financial institutions to corporations that intend to keep its finances outside its operating country. Corporations may want to do this in favour of political stability, to avoid local taxes, avoid its accounts from being frozen, improve cash flow, and maintaining confidentiality of the account holders. Offshore accounts are legitimate but can be abused by money laundering, terrorism financing, and tax evasion.

Price-to-Research Ratio | PRR is calculated by taking the Market Capitalisation divided by the Research & Development Exposure in the past 12 months. The PPR is often used in reserach intensive industries like technology, pharmaceutical, and agriculture.

Standy Letters of Credit | An SBLC is a guarantee made on behalf of the bank for a client to ensure payment in the event the client cannot fulfill a payment. SBLCs are often used in trade to hedge against bankruptcy but are never meant to be used.

Structured finance | Structured finance are complex financial services that are usually offered to large institutions that require non-conventional instruments. Collateralised debt obligations, synthetic financial instruments, syndicated loans, and collateralised bond obligations are among some of the components used in structured financing.

Sweep accounts | Sweep accounts are accounts clients can use to maximise returns of interest on unused cash while maintaining working capital. At the end of each business day, extra funds from the other accounts are swept into the sweep account to generate interest, typically in money markets. At the open of the next business day, the funds are moved back for business. Banks charge a fixed fee or take a percentage as commission.

Synthetic instruments | Synthetic instruments simulate other financial instruments while meeting requirements that others don't. They can be structured to reduce risk or increase returns.