Merchant banks operate in the highly specialized field of finance. If the traditional commercial bank takes deposits and loans, investment banks offer a range of services focused primarily on the capital markets (underwriting of bonds, shares and IPOs) and, secondarily, on securities trading (trading and brokerage). ).

Its functions are to assist institutional investors in managing the risk coverage of their portfolio companies and to assist clients with financial instruments in the governance of their assets.

Activities can be classified into five different areas:

1. Investment banking services in the strict sense.

2. Corporate finance

3. Structured Finance

4. Commercial banking services in the strict sense

5.Risk management

1. Investment banking services in the strict sense: these services are historically associated with the commercial bank. These services range from the support provided to commercial clients in the decision on how to finance their activities, through the issuance of shares and debt securities, to the structuring of these services, which is generally carried out in three phases: preliminary stage, advisory/arrangement, distribution or sale of issued securities. .

a) Preliminary stage – broadcast and promotion

This is the phase during which shares or debt are issued. It is triggered by the financial intermediary with a strong promotional activity in companies, governments or financial institutions.

b) Advice / arrangement (consulting / organization)

These are They are the organization of economic activities (pricing) and fiscal legality.

c) Distribution and sale (sale)

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

2. Corporate Finance: This is the stage to optimize the financial options of the client companies with a strong connotation of consulting that is an essential tool for corporate finance.

The processes that are the basis of corporate finance are:

1. Preliminaries;

2. Advice;

3. Raise actual funds or research funds necessary to complete the operation. Typically these are syndicated loans with the investment bank acting as the arranger. This is a characteristic that differentiates investment banks from commercial ones;

4. Mergers and Acquisitions (M&As) of other companies;

5. Corporate restructuring, solution of business difficulties.

3. Structured finance services: are services to organize operations based on cash flows from activities or investment projects defined in the management of client companies and often “wrapped” in specially incorporated companies (special purpose vehicles). Also included in this family of services are the search for resources for the implementation of the programs:

A. Project financing

b. put in safety

against leverage trading and leveraged buyouts are among the most famous).

4. Commercial banking services: These services refer to the acquisition of shares in the capital stock of non-financial corporations. For example, the investment of funds from the same financial intermediary (the bank’s business model) or funds administered and managed by the financial intermediary.

5. Risk Management: This business area has two different, but related branches.

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

b. The second is related to research on models to measure and manage market risk and credit risk.

In a world of words, choose the right one!