What is a 'Lead Bank'

A lead bank is a bank that oversees the arrangement of a loan syndication. The lead bank receives an additional fee for this service, which involves recruiting the syndicate members and negotiating the financing terms. In the eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate.

BREAKING DOWN 'Lead Bank'

Lead bank can also refer to an investment bank that manages the process of underwriting a security. In this sense, the bank can also be referred to as a lead manager or managing underwriter.

A third meaning of this term is simply the primary bank of an organization that uses several banks for several different purposes.

The Role of the Lead Bank in Loan Syndication

In loan syndication, multiple banks will work together to provide a borrower with the capital needed. Loan syndications generally form for corporate borrowing purposes, including for mergers, acquisitions, buyouts and other capital projects. Situations that require loan syndication will usually involve a borrower who needs a large sum of capital that may be too much for a single lender to provide and/or outside the scope of this lender's risk exposure levels.

A lead bank, in this case, is often responsible for all aspects of the deal, including the initial transaction, fees, compliance reports, repayments throughout the duration of the loan, loan monitoring and overall reporting for all lenders within the deal. Lead banks of loan syndications may charge high fees because of vast reporting and coordination efforts needed to complete and maintain loan processing. These fees can be as high as 10% of the loan principal.

At times the lead bank may rely on a third party and/or additional specialists throughout various points of the loan syndication or repayment process to assist with reporting and monitoring.

The Role of the Lead Bank in Securities Underwriting

In an initial public offering (IPO) or other form of issuing securities, a lead bank may organize a group of underwriters, also called the underwriting syndicate, for the deal. As with a loan syndicate, the purpose of an underwriting syndicate is often to spread out risk and/or merge funds in a large deal.

Lead banks will assess an issuing company’s financials and current market conditions to arrive at an initial value and quantity of shares to be sold. Newly issued shares may carry a hefty sales commission for an underwriting syndicate (at times, nearly 6%–8%); however, the largest portion of shares will go to the lead bank.

RELATED TERMS
  1. Breaking The Syndicate

    Breaking the syndicate refers to the dissolution of a group of ...
  2. Syndicate

    A syndicate is a temporary alliance of financial services entities ...
  3. Distributing Syndicate

    Distributing syndicate is a group of investment banks that work ...
  4. Competitive Bid Option

    A form of the commercial loan syndication where banks submit ...
  5. Paid Syndication

    Web syndication is the promotion or inclusion of content on a ...
  6. Web Syndication

    Web syndication is a marketing strategy for websites that equates ...
Related Articles
  1. Personal Finance

    The Rise of the Modern Investment Bank

    Get to know a little bit about investment banks, the institutions whose actions help guide free markets.
  2. Insurance

    What is Underwriting?

    Underwriting is a term most often used in investment banking, insurance and commercial banking. Generally, underwriting means receiving a remuneration for the willingness to pay for or incur ...
  3. Personal Finance

    Getting a loan without your parents

    Do you want to receive a loan without the help of your parents? Use these five tips to finance your dreams without banking on a second signature.
  4. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  5. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  6. Investing

    Analyzing a bank's financial statements

    In this article, you'll get an overview of how to analyze a bank's financial statements and the key areas of focus for investors who are looking to invest in bank stocks.
  7. Personal Finance

    Different needs, different loans

    When it comes to loans, there are many different types according to your needs. Find out what options are available when it comes to borrowing money.
  8. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  9. Managing Wealth

    Personal Loans: Compare the 6 Biggest Banks

    Need a personal loan? You may stop by one of these big banks for help. Their offerings vary in size, rates and loan types, which means you have options.
RELATED FAQS
  1. What is real estate underwriting?

    See how underwriters for major lenders scrutinize real estate loans and manage their risk, and learn the origin of the term ... Read Answer >>
  2. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
  3. Do underwriters make guarantees to sell an entire IPO issue?

    Underwriters do not necessarily make guarantees concerning selling an initial public offering (IPO). Read Answer >>
Trading Center