Conflict of Interest in Investment Banking
February 12, 2025
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The primary function of investment banks is to help their clients raise equity capital. This is often done by initial public offerings. This is where investment banks provide their biggest service i.e., underwriting. Most people have a basic understanding of underwriting. They know that when an investment bank underwrites a share issue, they guarantee to the issuer that their issue will be subscribed to at a certain price. However, there is much more to underwriting. In this article, we will have a closer look at what underwriting means from the point of view of the investment banker.
There are various types of underwriting commitments that investment bankers can make to their clients. Let’s have a look at some of the most frequently used agreement types.
Investment bankers are often taking significant risks when they decide to underwrite any public issue. This is why they often consider several important factors before deciding whether or not to underwrite an issue.
The bottom line is that underwriting is a core part of the investment banking profession. It is also a complex activity wherein a lot of financial skill and acumen is required to predict the future performance of an issue. This is the reason why investment bankers are highly compensated for these activities.
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