Cash Flow From Operating Activities Cash Flow From Financing Activities Financial Glossary – Do You Know What a Merchant Bank Is?

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Financial Glossary – Do You Know What a Merchant Bank Is?

Commercial banks operate in a highly specialized field of finance. While traditional commercial banks collect deposits and loans, investment banks offer a range of services focused primarily on capital markets (underwriting of bonds, shares and IPOs) and secondarily on securities trading (trading and broking).

His duties are to assist institutional investors in managing risk coverage for their portfolio companies and to assist financial instrument clients in managing their assets.

Activities can be classified into five different areas:

1. Investment banking services in the strictest sense of the word.

2. Corporate finance

3. Structured finance

4. Merchant banking services in the strictest sense of the word

5. Risk management

1. Investment banking services in the strictest sense: these services are historically associated with merchant banking. These services range from supporting business clients in deciding how to finance their activities through the issuance of shares and debt securities to the structuring of these services, which is generally in three phases: preliminary phase, consulting/negotiation, distribution or sale of issued securities . .

a) Preliminary phase – publication and promotion

This is the stage during which the stock or debt is issued. It is launched by a financial intermediary with strong promotional activities in companies, governments or financial institutions.

b) Consulting / arrangement (consulting / organization)

These are the organization of economic activity (price determination) and legal tax.

c) Distribution and sales (sales)

This phase includes activities where the securities are classes in the portfolio.

2. Business finance: It is a phase for optimizing financial decisions for client companies with a strong advisory connotation, which is an essential tool for corporate finance.

The processes underlying corporate finance are:

1. Preliminary competition;

2. Tips;

3. Collecting the actual funds or research funds necessary to complete the operation. These are usually syndicated loans where the investment bank acts as an organizer. This is the characteristic that distinguishes investment banks from commercial banks;

4. Mergers and acquisitions (M&A) of other companies;

5. Restructuring of companies, solving business problems.

3. Services in the field of structured finance: are services for organizing operations based on cash flows from activities or investment projects, which are defined in the management of client companies and are often “entangled” in specially established companies (special companies). This family of services also includes services for finding resources for running programs:

a. project financing

b. securitization

c. among the most famous are leveraged financing operations and leveraged buyouts).

4. Merchant banking services: these services relate to the acquisition of shares in the capital of non-financial companies. For example, investment of funds of the same financial intermediary (bank business model) or funds managed and managed by the financial intermediary.

5. Risk management: This business area has two distinct but related branches.

a. The first refers to products and services for risk management (interest, foreign exchange, credit).

b. The second concerns the research of models for measuring and managing market and credit risk.

Choose the right one in the world of words!

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