Underwriting

A common way to guarantee a minimum level of proceeds when a public company issues new shares is for the issuing firm to involve an underwriter.

When a public company issues new shares it needs to know how much money it will raise. In an open market there is no way of knowing this for sure as on the offer day there may be more or less demand for the shares and this will influence the number sold. One common way to guarantee a minimum level of proceeds is for the issuing firm to involve an underwriter.

This is usually an investment bank, such as JP Morgan or Goldman Sachs. In exchange for a fee usually a percentage of the amount raised they commit to buy up any shares that are not taken up on the offer day by other buyers. As such they are acting as a kind of insurer, hence the term underwriting. In most cases the bank will hope to take the fee and not have to buy any shares, assuming an offer is popular. However, if the issue price is too high they may end up owning a block of shares.

Most Popular

Wood-burning stove vs central heating ‒ which is cheapest?
Personal finance

Wood-burning stove vs central heating ‒ which is cheapest?

Demand for wood-burning stoves has surged as households try to reduce their heating costs this winter. But how does a wood burner compare with central…
29 Nov 2022
Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Best regular savings accounts – November 2022
Savings

Best regular savings accounts – November 2022

You can earn an attractive rate on the best regular savings accounts. We tell you the best on the market to take advantage of right now
29 Nov 2022