MERCHANT BANK

History  -  Rothschilds  -  Warburgs  -  Schroders  -  Barings

A Merchant Bank is a financial institution engaged in long term loans and International finance for (usually) large corporations and Governments. The merchant bank would normally arrange credit finance and assess worthiness, prior to passing the loan into the investment portfolio of another financial institution.

For this service the merchant bank charges a fee for the 'set up' of the facility, effectively acting as a large scale finance broker. The merchant banks itself is not subject to the long term credit risk associated with many bank investments, but naturally does not expect the same returns as a long term investor.

In addition to debt financing, merchant banks also get involved in other acquisitions from Land banks to Venture Capital (where the bank advances capital in exchange for equity in the business). In such circumstances the merchant bank would typically take funds from a range of 'backers' for a pro-rata share in the expected returns, once again the merchant bank is more likely to gain profit from an arrangement fee than a share of the term investment spoils.

History

The Merchant bank was invented in the Middle Ages in Italy by grain merchants.

At the time the Jews were not permitted to hold land in Italy and so set up their own benches alongside local traders in the great trading halls in Lombardy. The Christian locals were strictly forbidden from lending money for interest, as it was considered a sin so the Jews took advantage of this and began lending money using the locals' crops as security. The word bank is actually a corruption of the Italian word for bench, banca as the trading took place at the merchant's bench or counter.

These medieval markets were spoilt by wars and many of the next generation of bankers who moved to Polish and German wheat growing areas came from the very same families who had developed the banking process back in Italy.

As links via family members in other countries increased trade for the merchants the rise of banking names began. Some of these are still known today. Rothschilds, Warburgs, Schroders, and the doomed Barings were all descendants of the continental grain trade.
 

Rothschilds

The Rothschild's banking started with Mayer Amschel Rothschild, the son of a moneychanger, he set up a finance house and in order to further his empire he established each of his five sons in different European countries so that they could conduct business. His sons were sent to Frankfurt, Vienna, London, Naples and Paris.

The modern day saw the Paris and London banks unite in 2003 through Concordia BV, a holding company, with David Rene de Rothschild as chairman. The Rothschild banking businesses in Continental Europe and France are controlled by Rothschild et Cie Banque while Rothschild Continuation Holdings AG controls any other Rothschild banking including London's N M Rothschild & Sons who's business is mostly as a mergers and acquisitions advisor.

Warburgs
 

The Warburgs are of German-Jewish descent and took their name from the German city Warburg which they moved to from Bologna in the 16th Century before moving in the 17th Century to Hamburg. The banking company M.M. Warburg & CO was founded in 1798 by Moses Marcus Warburg and his brother Gerson Warburg and it is still in existence.

The company’s main business is in private banking, investment banking and asset management and has been held only in private hands for over 200 years. 

Schroders 

Schroders plc has it's headquarters in London and is a leading global asset management company. The company has over 200 years experience in the worlds financial markets and is traded on the London Stock Exchange.
Schroders was very involved in the UK Government's privatisations in the 1980s and now operates in 26 countries.
 

Barings

Until its collapse in 1995, Barings Bank was the oldest merchant bank in London. It was founded in 1762 by Sir Francis Baring, the son of John Baring who was originally from Germany. The family lives in both England and Germany.
 
The collapse of the bank was caused by a rogue trader, Nick Leeson who lost £827 million speculating on futures contracts, the bank was declared insolvent in February 1995 and later bought by a Dutch Bank ING for £1.00. Barings Bank no longer has a corporate existence although the Barings name still exists as a subsidiary of MassMutual who bought Baring Asset Management from ING in 2005.

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