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Definition: Merchant Banker
A merchant banker is a consultant who advises businesses in matters of mergers and acquisitions, corporate loans and assists them in raising capital from the equity markets. They work with merchant banks.
Merchant Bank-A merchant bank is a financial institution that engages in underwriting and business loans, catering primarily to the needs of large enterprises and high net worth individuals. Merchant banks do not accept deposits or give loans. Rather, merchant banks are intermediaries that provide brokerage, fund-raising, and financial advisory services on a large scale to businesses and a smaller scale to wealthy individuals for a fee. They assume market risk but not any credit risk. They usually operate on an international level.
A Merchant banker acts as an agent of Merchant bank and engages with its clients on its behalf.
A merchant banker may perform any of the following services:-
Management of capital issues
Advisory services for mergers and takeovers
Corporate advisory services
Suppose a firm ABC ltd. wants to takeover XYZ ltd. For this purpose, it might engage the services of a merchant banker. The merchant banker will fulfill all the requirements associated with the acquisition and also assist ABC ltd. in arranging the capital if the need arises.