Question

Identify a bank offering corporate and merchant banking products and services. Outline, explain and discuss these products and services, how they work, advantages and disadvantages for clients. This should be supported by a bank promotional material.

Answer 1

Merchant banks

A merchant bank is a company that conducts underwriting, loan services, financial advising, and fundraising services for large corporations and high net worth individuals. Unlike retail or commercial banks, merchant banks do not provide services to the general public. They do not provide regular banking services like checking accounts and do not take deposits.

These banks are experts in international trade, which makes them specialists in dealing with multinational corporations. Some of the largest merchant banks in the world include J.P. Morgan, Goldman Sachs, and Citigroup.

For Example J P Morgan & Co,

Merchant banks perform a number of functions, including the following:

1. Equity Underwriting

Large companies often employ the services of merchant banks in acquiring capital through the stock market. Equity underwriting is achieved by evaluating the amount of stock to be issued, the value of the business, the use of proceeds, and the timing of issuance of the new stock. Merchant banks handle all the necessary paperwork and liaison with the appropriate marketing division to advertise the stock.

2. Credit Syndication

Merchant banks help in processing loan applications for short and long-term credit from financial institutions. They provide these services by estimating total costs involved, developing a financial plan for the entire project, as well as adopting a loan application for commercial lenders.

Also, they assist in choosing the ideal financial institutions to provide credit facilities and act on the terms of the loan application with the financiers. Merchant banks also ensure the lender’s willingness to participate, organize bridge finance, and engage in legal formalities regarding investment to be approved and checking the working capital requirements.

3. Portfolio Management

Merchant banks provide portfolio management services to institutional investors and other investors. They help in the management of securities to enhance the value of the underlying investment. Merchant banks may assist their clients in the purchase and sale of securities to help them attain their investment objectives.

List of the Advantages of Merchant Banking

1. You will receive corporate counseling.

2. You will receive honest project feedback.

3. You may be able to restructure your capital.

4. You receive portfolio management.

5. You’ll receive issue management assistance.

6. You can receive immediate debt funding through a merchant bank.

7. You receive lease financing services.

8. You are able to protect your IP.

9. You can have currency exchanges managed for your company.

List of the Disadvantages of Merchant Banking

1. Your account will be more expensive than a traditional bank account.

2. You have size considerations which must be met.

3. You will always have the risk of a mixed chance for success.

4. You’re not going to receive start-up funding.

5. You have no control over your interest rates or returns.

6. You may not receive complete funding.

7. You may not have access to every potential product.

8. You will be investigated as part of the funding process.

9. You do not have a guarantee of a renewal or extension.

10. You may have added reporting requirements to meet.