invbanks - 1 Investment Banks Economics 71a Spring 2007...

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Unformatted text preview: 1 Investment Banks Economics 71a Spring 2007 Mayo, Chapter 2 Lecture notes 2.2 Outline What is an investment bank? Role in fnancial markets Investment banks and new securities IPO mechanics What is an Investment Bank? Not a bank! Help frms sell securities to public Stocks/Equity Bonds/Debt TransFers Funds From public to frms Savings -> Investments Example: Goldman/Sachs Initial Public OFFering (IPO) ¡irst sale oF stock by frm Originating investment bank Key player in bringing the shares to market “Originating house” Handles most administrative details Reputation 2 Underwriting A form of price guarantee Agree to purchase shares from Frm for a given amount Then sell to the public Example: Purchase stock from Yahoo ($10/share) Sell on the market ($11/share) Risk of Underwriting Market may not be willing to pay the price paid by investment bank ($10) It would lose money Investment banks often spread this risk over several investment banks “Underwriting Syndicate” Also, try to reach more sellers “Selling group” IPO Scandals Most involve investment banks giving special deals to some favored customers (low prices)...
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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invbanks - 1 Investment Banks Economics 71a Spring 2007...

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