Merchant banking today
What is a merchant bank today? It’s not easy to come up with a widely accepted definition. To begin with, one of the great strengths of merchant banking limits our understanding of its history and current status: the strong tradition of confidentiality, of closely guarding information about clients and their businesses. Also, the evolution and shifts in the merchant bank’s form and substance have yielded wide variations among public perceptions and professional attitudes toward the term and the institution itself. One thing is certain, however: over the centuries, the tremendous success and growth of merchant banks have been built on the centrality of the relationship, not just the transaction.
Reflecting this closeness, the merchant bank’s tremendous versatility and willingness to change with their clients was – and continues to be – invaluable. As its clients’ wealth began to grow, for example, a traditional merchant bank would create an investment management division to manage client assets. If needed, the bank created a foreign-exchange business that was a department in its own right, or a commercial banking department that would cover more traditional commercial functions such as lines of credit and term loans. At Hambros, for example, many of our clients had fleets of large equipment, such as airplanes, where leasing was clearly the solution – so we developed a lease finance department. As we grew along with our clients, working in more industries, we developed new expertise. For example, the corporate finance department was often organized in teams reflecting a particular sector such as shipping, or the financing of oil and oil platforms.
Many institutions label themselves as “merchant banks” today. Only a few can rightfully claim the title, however: Lazard, Greenhill, and Rothschild, among others, and for the most part they limit their clientele to huge accounts of a billion dollars or more. Otherwise, merchant banking services are provided by highly specialized “boutiques”, with each offering only its own specialty. Very few offer the traditional range of services that are still available through some European merchant banks.
Updating the classic merchant-bank model for contemporary small business
Many small businesses struggle to achieve their full potential. The reasons for this are as wide-ranging and diverse as the businesses and their environments. For inner-city small businesses, these challenges are often exacerbated by their lack of access to high-quality financial advice and growth financing. Without these supports, urban small businesses face an uphill battle in tapping opportunities that emerge.
