Home / Finance / Some differences between investment banking and merchant banking

It is not necessarily easy for the neophyte to distinguish between different types of financial institutions. One of the first problems is to better understand the differences between an investment bank and a merchant bank, even though the two functions are regularly present in some banks.

There are several ways to differentiate them. The first element of distinction naturally stems from the nature of the tasks performed. While a merchant bank will deal more with corporate finance, for example by offering accounting analysis exercises or by working on mergers and acquisitions projects, an investment bank will rather be involved in related activities Markets, such as the sale of stocks, bonds, derivatives, fund raising for newly listed companies or foreign exchange transactions. Of course, investment banks and investment banks may be required to work together. A company seeking to buy a competitor by issuing debt, for example, will use the various services of the bank.

Another element of strong distinction is the management of time. Investment banks tend to work on long-term operations, requiring numerous presentations, in-depth analyzes and general advice. The bank supports them and gains a substantial commission, materialized by the completion of the operation. Several years may elapse before a merger takes place. An investment bank, however, is working on short- and medium-term deals. It is the repetition of these transactions that generates a large profit. A wealth manager seeking to buy an exotic option, for example, will call a seller, who will then structure the derivative with its traders before selling it, most likely, on the same day.

The quality of life is not the same depending on whether one walks through the aisles of a trading room or one settles in the cozy rooms of a department specialized in mergers and acquisitions. Sellers and traders are usually the first to arrive in the bank, but also the first to leave. Nothing really holds them back after the close of the stock exchange, except for the customer problems that could not be closed during the day. The market halls are empty on weekends and public holidays. Conversely, investment banks suffer from a bad reputation. Their analysts are known to work late into the night or stay on weekends and holidays in the office. Their transactions are like real marathons.