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CH 9] Business 101 9-3

Figure 9.2 The Role of the Investment Banker

Stock or Bond Goldman Sachs
Offering
Secondary Dean Witter; and
Underwriters Morgan Stanly
This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these Securities.
The offer is made only by the Prospectus

New Issue November 24, 2020

Investment Banker
(primary underwiter)

1,000,000 Shares

Common Stock

Price $9 Per Share Charles Schwab &
CO., Inc.
Copies of the Prospectus may be obtained in any State from only such of
the undersigned as may legally offer these Securities in compliance with
the securities laws of such state

Charles Schwab & Co., Inc.

Bear, Sterns & Co. Inc. Alex, Brown & Sons Dillon, Read & Co. Inc.
Incorporated
Donaldson, Lufkin & Jenrette Hambrect & Quist E.F. Hutton & Company Inc.
Securities Corporation Incorporated
Kidder, Peabody & Co. Merrill Lynch Capital Markets Montgomery Securities Purchasers Individual
Incorporated
L.F. Rothschild & Co. Wertheim Schroder & Co. Dean Witter Capital markets investors and
Incorporated Incorporated
First Analysis Securities Corporation institutional buyers
such as insurance
companies,
mutual funds, and
pension funds
Primary Market—Underwrite Stocks and Bonds
When corporations need to raise capital to grow by expanding their productions
facilities, develop new products, acquire another firm, they can raise those monies by
offering either stocks or bonds to the public. A stock offering gives investors the
opportunity to purchase ownership shares in the firm and to take part in its future
growth in exchange for current capital. In other instances, a corporation or a
government agency may choose to raise funds by issuing bonds. Figure 9.1 illustrates
these two methods. Similar announcements of stock and bond offerings appear daily in
such business newspapers as The Wall Street Journal in the form of simple
black‑and‑white announcements called tombstones.
Figure 9.1 shows an example of a tombstone announcing Clean Harbors' initial
public offering of 1 million shares of stock. The second example summarizes
supermarket giant Albertsons’ decision to acquire $1.25 billion in debt capital through
the sale of two series of bonds: half paying 8.9 percent annual interest and due in the
year 2024 and the remainder paying 9.75 percent interest and due in the year 2028.
Governmental use of primary markets to generate funds ranges from the sale of U.S. investment banker
Specialist in selling new
Treasury bonds to finance part of the federal deficit to a bond issued by Kansas City, a issues of securities for
municipality, to finance additions to its public transit system. business and government.
Although a corporation could market its stock or bond issue directly to the public,
most large offerings are handled by investment bankers, and underwriters as financial
specialists. An investment banker is a financial intermediary who specializes in
selling new issues of stocks and bonds for business firms and government agencies. 9
Well‑known investment bankers include Bank of America Merrill Lynch, Wells Fargo
Securities, J.P. Morgan Chase & Co, Morgan Stanley, First Boston Corporation,
Lazard Freres & Co., and Oppenheimer, in addition to such major securities brokerage
firms Charles Schwab & Co.
Investment bankers and underwriters advise the issuer on such things as the
characteristics that their offering should possess, its pricing, terms, and timing in the
market. Investment bankers find the underwriters and work with them as a team to
offer the stock or bond to the public.

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