Underwriter (Investment Banking) - Explained
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A Little More on What are Underwriters in Investment Banking
Investment banking underwriters usually work in investment banks that help in the Initial Public Offering (IPO) process of a firm about to become publicly-traded. These banks can choose to purchase shares with the aim of selling them off to other individuals or entities at a higher price. However, if the performance of the company declines over the years, these banks are either required to sell them at a lower price and take a loss, or hold them at their own peril and not that of the company which owns the shares. In a situation where the shares are in high demand, the investment bank can choose to sell their part at a higher price, thus raking in profits for them. For instance, say Bank CX bought 30,000 units of Company PBs shares at $60 per unit when it launched an IPO, and now the price of the share has skyrocketed to $600 per unit in a period of five years. In this case, theres a possibility that demand will be high, and if Bank CX wishes to share their 30,000 units at $600 each, they can make up to $18million excluding the cost involved in acquiring such shares.