Underwriting
Capital MarketsA bank taking securities onto its own book and reselling them, so the issuer's proceeds are certain and the placement risk sits with the bank.
Also written: underwriter, underwriters
In a firm commitment underwriting the syndicate buys the entire issue from the company at an agreed price and resells it. The issuer's proceeds are fixed the moment the deal prices, and any stock the banks cannot place stays on their books. That transfer of risk, rather than the advice, is what the fee pays for.
The alternative is a best efforts arrangement, where the bank agrees to market the securities but does not buy them. Placement risk stays with the issuer, and it is used where demand is genuinely uncertain or the issuer is small.
The risk is real but bounded. Underwriters price the deal only after building a book of demand, so by the time they commit they know roughly where it will clear. The greenshoe and the stabilisation period then give them tools to support the stock in early trading.
The same word covers debt. A bank underwriting an acquisition financing commits to provide the loan so a bidder can bid with certainty, then syndicates it down, carrying the market risk in between.