Underwriting Cycle

Categories: IPO, Banking

Just like the business cycle, underwriting IPOs and Secondary Offerings undergo cycles. Booms. Busts. This volatility explains a lot about the way in which investment bankers are paid: a senior banker might have a base salary of just a few hundred grand (which is like $32,487 in Des Moines, Iowa), but then get $5 million (or way more) in bonus money in a good year, and maybe $500k in a meh-to-bad year.

By having pay scale along with the markets, investment banks don't go bankrupt trying to pay huge guaranteed salaries along the way.

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Finance: What is an Underwriter?82 Views

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finance a la shmoop what is an underwriter Undertaker underwriter

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taking your company public well then you need one of these guys and yeah if [Woman writing at a desk]

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things go poorly well then you may need one of these guys but if things go well [Gravestone]

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an underwriter will get to know your company audit your financials give their

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Good Housekeeping Seal of Approval to the investment community with whom they

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deal regularly and introduce you as part of their family selling a piece of your

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company to that world you know hedge funds mutual funds private wealthy [List of benefits that come with an underwriter]

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investors such that they are the you know financial wind beneath your wings [Skyscraper flying away]

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for a brief moment in time the underwriter usually an investment bank

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like the vaunted Goldman Sachs or Morgan Stanley or JP Morgan or UBS or Sumitomo

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will actually themselves own whatever piece of your company you are bringing [Logos for the banks appearing]

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public like if you're selling 18 million shares at 20 bucks the bank's our

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underwriters take a new public will own all 18 million shares having paid you

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$19.60 for them and then turning around five minutes later and selling them for

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20 bucks to John Q invest or making 40 cents a share in spread or markup or in [Spread calculation shown]

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this case 40 times 18 million or 7.2 million dollars just for the pleasure so

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that's an underwriter and if they screw up well yeah and ironically the [Underwriter stamp]

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announcement he'll see in the digital paper is usually in the shape of a

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tombstone announcing everything why a tombstone well because it represents the

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death of ambiguity or confusion in that company's former life as a private one [Gravestone for ambiguity]

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The Undertaker's hopefully have far far away [The Undertaker running away with the word confusion]

Find other enlightening terms in Shmoop Finance Genius Bar(f)