Merchant Bank

Well, there’s the theoretical manner in which the merchant bank came to the party, and that was largely by providing payment options, escrow, currency hedges and other means of spraying WD40 on the tracks when American corporations did business with merchants from other countries.

The basic idea was that a merchant bank lived and breathed the banking international transaction universe and knew “every trick in the book” when dealing with shady countries who had hoped that they could get some gullible American corporation to ship them 25,000 yellow and orange rubber ducks with the squeaky sound thing and then somehow abscond without paying.

The duck seller was schooled in molding rubber and paint. They were not schooled in international transactions. So it made perfect sense for the duck-maker to hire the merchant bank to deal with international escrow complexities far beyond their core skill.

In the process of being deep in both the strategic operations of companies, and in understanding how the global marketplace for commerce worked merchant banks evolved into more or less one flavor or another of an investment bank, helping clients sell debt and equity and other money-raising devices so that they could continue selling ducks or rakes or tractors or lawn flamingos.

In the modern incarnation of merchant banks, many are actually able to not just advise, but invest IN the companies to whom they are close.

All kinds of other complexities live in border-to-border transactions, and because the personal relationships of the merchant bankers themselves ended up getting so close to management and to the government, and to the competitive marketplaces, each of which carries enormous friction merchant banks and the bankers who run them have found themselves in the middle of all kinds of commercial transactions.

So today, merchant banking is really more like just...“banking”...with fewer regulations, and a whole lot more upside when they’re right. And, of course, the most successful merchant banks are the ones that offer, um…merch.