| Topic Name: |
Goldman's most embarassing deals? |
| Message Name: |
You're close but not |
| Date Posted: |
05/09/2000 |
| In Reply To: |
Isn't a lot of the bank's responsibility to determine the prices of the new issues? If the price rockets, the company got screwed at the expense of the Investors, if if falls the investors got screwed at the expense of the company (and the bankers).
correct me if I'm wrong but it seems like pricing is a lot of the value added by Investment Banks, I'm not in IB yet. |
| Message: |
You're close but not quite all the way there. IBs price deals to guarantee a minimum pop on the issue date. Internet companies are usually significantly underpriced b/c a bigger pop gets the company name on CNBC all day long, and the heightened awareness that comes from this publicity allows the issuing firm/IB to issue a second round of equity financing six months later at much higher prices.
When deals swoon, as Goldman's have recently, it looks bad for both Goldman and the companies they brought public. If GS's deals tank, what separates them from the rest of the pack? Why should I pay GS the 7% u/w spread if the stock is going to puke in a few weeks? Some firms planning a second round of equity financing are left high and dry and in a cash crunch, and they can't issue more equity with their stock price in the pooper.
Now remeber, young grasshopper, you want the stocks you underwrite to go UP, not DOWN.
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