The term investment banker is applied to a firm that engages to an important extent in originating , underwriting and selling new issues of stocks and bonds . To underwrite means to guarantee to the issuing corporation or other issuer that the security will be fully sold . A number of the brokerage house carry on a certain amount of underwriting activity .
Generally this is confined to participating in underwriting groups formed by leading investment bankers . These is an additional tendency for brokerage firms to originate and sponsor a minor amount of new issue financing , particularly in the form of smaller issue of common stocks when a bull market is in full swing .
Investment banking is perhaps the most respectable department of the stock market community because it is here that finance plays its constructive role of supplying new capital for the expansion of industry . In fact , much of the theoretical justification for maintaining active stock markets , notwithstanding their frequent speculative excesses , lies in the fact that organised security exchanges facilitate the sale of new issues of bonds and stocks . If investor or speculators could not expect to see a ready market for a new security offered them , they might well refuse to buy it .
The relationship between the investment banker and the investor is basically that of the salesman to the prospective buyer . For many years past the great bulk of the new offerings in dollar value has consisted of bong issues that were purchased in the main by financial institutions such as banks and insurance companies . In this business the security salesman have been dealing with shrewd and experienced buyers . Hence any recommendations made by the investment bankers to these customers have had to pass careful and skeptical scrutiny . Thus these transactions are almost always effected on a business like footing .
But a different situation obtains in a relationship between the individual security buyer and the investment banking firms including the stockbrokers acting as underwriters . Here the purchaser is frequently inexperienced and seldom shrewd . He is easily influenced by what the salesman tell him especially in the case of common issues , since often his unconfessed desire in buying is chiefly to make a quick profit .The effect of all this is that the public investor's protection lies less in his own critical faculty than in the scruples and ethics of the offering houses .
The intelligent investor will pay attention to the advice and recommendations received from investment banking houses , especially those known by him to have an excellent reputation but he will be sure to bring sound and independent judgement to bear upon these suggestions - either his own if he is competent or that of some other type of adviser .
0 comments:
Post a Comment