A common thing you read in articles like this (and I think Michael Lewis has mentioned it a few times) is that when clients go to Goldman Sachs, they know that Goldman is going to screw them somehow, but that the outcome in the end is still better than what they would get from any other investment bank.
Well, it's actually fairly complicated. Banks underwrite the sale of equity in an IPO, meaning that in one way or another they are providing a guarantee to the issuer - i.e., in the price of the sale, in the amount sold at a certain price, etc. So when it comes to the price of the guarantee (implicit in the terms of the arrangement), the issuer and the bank are sitting at opposite sides of the table.
As a consumer, you probably don't go directly to insurance companies to get underwritten for something (health, life, home, etc). You go to to a broker, who has a legal obligation to act in your best interest.
The investment banks are playing the line between moral and legal obligations. They will win, of course. And then hopefully we will see "IPO brokers" and corresponding laws appear.
Comments
The line I find most telling:
> ...Goldman has argued that, contrary to popular belief, underwriters do not have a fiduciary duty to the companies they are underwriting.
Why would anyone use a financial institution who doesn't think they have a fiduciary duty to their clients?
A common thing you read in articles like this (and I think Michael Lewis has mentioned it a few times) is that when clients go to Goldman Sachs, they know that Goldman is going to screw them somehow, but that the outcome in the end is still better than what they would get from any other investment bank.
Well, it's actually fairly complicated. Banks underwrite the sale of equity in an IPO, meaning that in one way or another they are providing a guarantee to the issuer - i.e., in the price of the sale, in the amount sold at a certain price, etc. So when it comes to the price of the guarantee (implicit in the terms of the arrangement), the issuer and the bank are sitting at opposite sides of the table.
As a consumer, you probably don't go directly to insurance companies to get underwritten for something (health, life, home, etc). You go to to a broker, who has a legal obligation to act in your best interest.
The investment banks are playing the line between moral and legal obligations. They will win, of course. And then hopefully we will see "IPO brokers" and corresponding laws appear.