Let's look at the client base in corporate banking in a bit more detail and how clients are typically segmented. Firstly, we've got business banking or retail business banking. This is normally where your typical local business starts. They probably have a turnover of less than a million dollars, and the bank will typically offer them simple solutions that are prepackaged by the bank centrally. This tends to lead to higher margins for the bank, due to the lack of tailoring solutions to clients with risk managed centrally due to the relatively simple client requirements. These typically focus on financing facilities and day-to-day operational banking. Next up in size order is commercial or corporate banking. The categorization of clients differs by bank, but these groups will typically service businesses with revenue of between $1 million to $1 billion. The solutions offered to these clients tend to be relatively simple, but with a more tailored approach towards lending, specifically. Depending on how the bank structures things internally, you may get a mixture of local specialists. That is someone who specializes in corporate banking for a country or region, no matter what type of business the corporate is doing. Or you may see sector specialism where a corporate banking team looks after clients from a specific type of industry, no matter where that corporate has its head office. If a bank makes use of sector specialists, more bespoke solutions are offered to meet the specific needs of a particular industry. Next, we have multinational corporates where the corporate has very large revenue numbers, certainly into the billions per year. For these clients, almost everything is a bespoke solution with pricing set by negotiation and high levels of discretion being given to senior corporate bankers managing the relationship. A client here could be a huge domestic client, say a major high street retailer, for example, target in the US or Sainsbury's in the UK, or a substantial company that operates in many different geographies such as Unilever, Nike, or Microsoft. There's a final and quite separate group of clients, financial institutions, which includes other banks, insurance companies, and asset managers. This type of client will often require bespoke solutions, and a high level of discretion is given to these teams within corporate banking. There is generally less lending provided to financial institution clients with the focus instead being on providing payment facilities services as financial institutions are more likely to have a very high volume of transactions. Since corporate banks already have the infrastructure for this, financial institutions clients have the potential to provide strong income without increasing the cost of infrastructure. Financial institutions look at corporate banking solutions with both the eye of the seller, just like the rest of corporate banking, but also as the buyer, since they will create a range of reciprocal agreements with other banks to use the other bank's banking capabilities in other currencies or geographies when their own bank has limited or even no presence. Both the multinational corporates and the financial institutions teams work very closely with their bank's investment banking teams. Introducing the investment banking teams should the client be looking for investment banking services, for example, to raise capital from public markets or to acquire other businesses? Corporate banking clients can also be split by sector. There are many different ways that companies could be split into different sectors with some of them being shown here. However, the bigger issue to think about is why clients are split by sector. The rationale is that if a bank is successful in understanding and servicing the needs of a client in a specific sector, then it is likely that another company, broadly speaking, will also benefit from the same type of solutions. In servicing the sector specific requirements of one company, the members of that corporate banking team can build an understanding of the business needs of the industry as a whole, so will be able to service the banking needs of other clients in that sector and even be seen to add extra value within companies in that sector because they understand what happens in both the operational and treasury finance areas of businesses in that sector. As a corporate banker gets more established in a sector, the further up the trusted advisor ladder they go within the industry. In the end, even becoming an industry advisor for all matters regarding banking in that sector, if this is then duplicated across many sectors, it enables the bank to always put a client-focused industry banking expert in front of a corporate, should the opportunity arise, resulting in a better chance of gaining more business, and therefore more revenue and profit for the bank.
