Lead Bank
A lead bank is a bank that supervises the arrangement of loan syndication. For this service, the lead bank receives an additional fee. The lead bank is involved in negotiating the financing terms and recruiting the syndicate members. This term is also used synonymously with the term “lead underwriter”.
The lead bank acts as a consortium leader among the bank branches functioning in the district. It also undertakes surveying of credit needs, development of branch banking, and expansion of credit to the weaker and neglected sections of society.
Main ideas
- A lead bank oversees a syndicate for underwriting loans or shares that could potentially be sold to investors.
- Because of the added responsibilities the lead bank takes on, it usually receives a generous amount of fees, compared to syndicate banks.
- Lead banks are also responsible for the coordination and marketing of corporate debt offerings and initial public offerings.
Functions of the lead bank
Functions of the lead bank include:
- Conducting an economic survey
- Examining the marketing facilities
- Providing a dynamic leadership
- Cooperating with other banks
Understanding lead banks
Generally, a lead bank refers to an investment bank that conducts the process of underwriting security together with other banks, also known as syndicate banks. In this context, the lead bank is referred to as a managing underwriter or a lead manager. Simply put, a lead bank is the primary bank of a certain organization or company that uses multiple banks for multiple different purposes.
In order to create an underwriter syndicate, the lead underwriting bank works with other investment banks, creating the initial sales for the company's securities, as a result. These shares are to be sold to non-professional and institutional investors. In order to arrive at the original value and a certain number of shares to be sold, the lead bank gains access to the company’s financial statistics and market data. Company securities can frequently carry a heavy sales commission (approximately 6-8 percent) for the syndicate.
The role of the lead bank in loan syndication
Several banks work together in order to provide a lender with the needed funds. Usually, loan syndication is required if a borrower is in need of a large amount of money that a single lender might not be able to provide.
A lead bank can sometimes be responsible for every single aspect of the deal as well as loan monitoring, compliance reports, fees etc.
Lead banks of loan syndication tend to charge large amounts of fees, which happens because of the amount of effort the lead bank puts into coordination of the completion of the loan processing. Sometimes these fees make up 10% of the initial loan size.
Occasionally, the lead bank can resort to the help of a third party during various stages of the loan syndication process. The third party usually helps the lead bank with monitoring and reporting.
