 Insurance |
| Search News |
|
|
| Find an IFA |
|
|
| Browse |
|
| UK Spotlight |
The last few months have seen the differing strategies and opinions of the Bank of England and the government come to the fore at a time when the UK economy needs all parties to be pulling in the...
→
Read More
|
|
| Disclaimer |
| Financialadvice.co.uk adheres to the Financial
Services and Markets Act 2000. This site contains only factual and
readily available public information. |
|
|
| |
|
|
|
|
Sunday 24th August 2008
Underwriters are very common in investment markets especially stock markets and insurance markets although the specific role of the two does differ. In affect an underwriter will take some of the risk from a share issue or other financial transaction in return for a commission (payment).
Stock Market Underwriter
When a company is looking to raise funds for expansion, to secure the future of the company or any other reason, they need to ensure that the money will be raised even if existing shareholders do not take up their entitlements. This is where underwriters will come in and ‘underwrite’ a number of shares in exchange for a commission. If the fund raising is successful and all shares are taken up by shareholders they will not be forced to buy any shares and walk away with the commission as their profit.
However if not all of the shares are taken up, those remaining they will be acquired by the underwriters (on a pro-rata basis) so that the underlying company is still able to raise the total funds required. The shares will be acquired at the fund raising price and as with the Bradford and Bingley, underwriters could be left with a substantial liability if the share price falls below the cost price. In healthy investment markets it can be money for nothing, but in bad times (as we are seeing now) the liabilities are potentially enormous. |
→ Full Insurance News Archive
→ Return to Homepage
|
|
|
|
| Other top stories in this section:
|
|
|
|
