When you go to an investment
bank, their loan structuring team can give you advice on how your company can construct
its loan. They follow different parameters and conduct a thorough analysis as
to what elements can be incorporated. However, if they happen to have a commercial banking division, it does not necessarily mean that they will also approve your
loan, just because you have consulted them on the same. Financial institutions
usually operate two separate divisions for commercial and investment banking.
Relationship between the Two
So, irrespective of whether
the structuring bank provides the loan or another bank sanctions it, two
separate fees are charged. While one is for the advice provided, and other is for
loan processing. Nonetheless, an investment bank with a lending division might
give you the best terms. This means that if a bank offers multiple products,
such as in the above explained illustration, it can afford to charge less for
its products.
From this we understand that
the primary function of a commercial banking entity is loans and advances,
while an investment bank provides strategic advice to companies in the areas of
acquisitions, divestments, capital market products and loan structures.
Commercial Banks
A commercial bank caters to
millions of customers. They charge interest on loans, which is their primary
source of revenue. They also provide standardized services, such as:
1.
Accounts
management – Savings, Current and Overdraft accounts
2.
Credit and debit
card facilities, both international and domestic
3.
Insurance and
related services – Home, vehicle, travel, life, accident cover, etc
4.
Mortgage and
personal loans – Home, student, car, etc
Owing to the fact that commercial
banking services are their forte, these institutions do not specialize in
providing strategic advice to businesses. However, they do provide a detailed
presentation of their various products to the consulting company. These options
are made available to the company, without the remittance of expert
advice.
Investment Banks
Unlike commercial banking, investment
banks are a niche establishment, catering to just a few hundred core customers.
They offer bespoke advisory services. So, a layman cannot go in to deposit money
or ask for a personal loan. They assist companies with mergers and
acquisitions, and provide advice on corporate related financing. Their main
source of revenue is their charging fee and said commissions for their
business. They usually have different teams of experts on board, in order to
provide specialized subject-related aid and services.
