The lead underwriter will assess the company financials and current market conditions to arrive at the initial value and quantity of shares to be sold. These shares carry a hefty sales commission (as much as 6-8%) for the underwriting syndicate, with the majority of shares being held by the lead underwriter.
Being the lead underwriter for a stock offering, especially an initial public offering (IPO), can bring a large payday if the market shows high demand for the shares. Often the stock issuer will allow the lead underwriter to create an over-allotment of shares if demand is high, which can bring in even more money to the underwriting firm. There are substantial risks involved in underwriting stock offerings - any one company could plummet in the open market once public trading begins. This is why the large investment banks, such as Merrill Lynch, Morgan Stanley, Goldman Sachs, Lehman Brothers and others will look to conduct many diverse offerings in the course of a year.
One or two great stock offerings a year can be enough to meet company earnings targets, but market conditions as a whole will determine the relative amount of profit the investment banks can earn. In the zooming market phase of the late-1990s, investment banks were making money hand over fist as eager investors gobbled up any new shares that came to market, and traded them much higher once on the exchange. However, when the market collapsed in late-2000, the underwriting community went into hibernation mode, advising even the best private companies to "wait out the storm" before going public.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
lead underwriter — USA lead manager, Also known as lead underwriter. If there is more than one managing underwriter participating in a registered offering of securities, one (or sometimes more) of the managing underwriters is designated as the lead manager(s), with … Law dictionary
lead underwriter — The head of a syndicate of financial firms that are sponsoring an initial public offering of securities or a secondary offering of securities. Could also apply to bond issues. Bloomberg Financial Dictionary * * * lead underwriter UK US noun [C]… … Financial and business terms
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lead manager — Subordinate to an arranger. Bloomberg Financial Dictionary * * * lead manage ˈlead ˌmanage verb [transitive] FINANCE to organize a syndicated loan (= a loan to one borrower by many lenders ) or aSecurities Issue … Financial and business terms
underwriter — / ʌndəraɪtə/ noun a person or company that underwrites a share issue or an insurance COMMENT: When a major company flotation or share issue or loan is prepared, a group of companies (such as merchant banks) will form a syndicate to underwrite the … Dictionary of banking and finance
lead manager — (U.K.) Fin a lead underwriter … The ultimate business dictionary