What is a main bank?
A lead bank is a bank that oversees the loan syndication arrangements. The lead bank collects additional fees for this service, which involves recruiting union members and negotiating financing conditions. In the Eurobond market, the lead bank acts as the agent for a subscription syndicate.
DISTRIBUTE Lead Bank
A lead bank may also refer to an investment bank that manages the securities underwriting process. In this sense, the bank can also be qualified as lead manager or underwriter.
The third meaning of this term is simply the main bank of an organization which uses several banks for several different purposes.
The role of the lead bank in loan syndication
As part of loan syndication, several banks will work together to provide the borrower with the necessary capital. Loan syndicates are generally formed for corporate borrowing purposes, including mergers, acquisitions, buyouts and other investment projects. Situations that require loan syndication will generally involve a borrower who needs a large amount of capital which may be too much for a single lender to provide and / or outside the scope of that lender’s risk exposure levels .
In this case, a lead bank is often responsible for all aspects of the transaction, including the initial transaction, fees, compliance reports, repayments over the life of the loan, loan monitoring and global reports for all lenders in the transaction. Major loan syndication banks may charge high fees due to the extensive communication and coordination efforts required to complete and maintain loan processing. These costs can reach 10% of the capital of the loan.
Sometimes the lead bank may use a third party and / or additional specialists at various stages of the loan syndication or loan repayment process to facilitate communication and monitoring.
The role of the lead bank in underwriting securities
As part of an initial public offering (IPO) or other forms of securities issuance, a lead bank may organize a group of underwriters, also known as the underwriters’ syndicate, to surgery. As in the case of a loan syndicate, the purpose of an underwriting syndicate is often to spread risk and / or to merge funds in a large transaction.
Lead banks will assess the financial data of an issuing company and current market conditions to determine the initial value and the quantity of shares to be sold. Newly issued shares may have a high sales commission for a subscription syndicate (sometimes around 6% to 8%); however, most of the stock will go to the main bank.