Financial services are provided by merchant banks to large businesses and affluent people. They raise cash, raise venture capital, and underwrite securities however they don’t offer fundamental banking services.
Financial counselling is the main focus among all the services. These banks’ main source of income is the fee for advising services. Additionally based on predicted returns and risk tolerance the bank makes investments in financial portfolios using depositors’ funds.
When we review the early history of merchant banking in France and Italy, which developed in the 17th and 18th centuries we can see that these banks gained popularity in Europe by the end of the 18th century. They allowed for remote payments, currency conversion, and the issuance of bills of exchange. In the nineteenth century itself JP Morgan and Citi Bank were established in the US.
Merchant Bank Services:
The banks provide a range of services and make a profit. The services are distinct from those provided by conventional banks.
1. Project Counselling:
Merchant bankers support their clients throughout the whole project lifecycle, from concept generation to report writing, budgeting to funding. This is especially true for new business owners.
2. Leasing Services:
Banks provide leasing facilities that allow customers lease equipment and assets to earn rental money.
3. Issue Management:
To issue equity shares, preference shares, and debentures to the general public, high net worth individuals opt to work with merchant banks.
Additionally, banks help with equity underwriting. They launch the public issue and distribution of stocks after evaluating the price and risk associated with a specific security.
Bankers assist private enterprises in raising money from local and international markets through a variety of services like underwriting and the issuance of securities.
These bankers invest in various financial products on behalf of their clients hence helping them build a strong portfolio.
They fund term loans to support financing projects.
Merchant banks are financial middlemen that support start-up businesses.