Using your balance sheet...
Hi all,
Question: how had investment banks used their balance sheets to promote their deals?
I think I have a misconception of this aspect of banking. When a bank commits its balance sheet to a deal, I'd thought that it just buys the issued securities for itself at first and then sells them to outsiders? It seems to me that these securities would sell quickly after the initial risk assumption, so they wouldn't stay along and hurt the bank. Is this true? I am aware that another very dangerous way of using balance sheets that has really hurt banks has been to buy up investment vehicles (esp risky assets). Anything else?
Thanks a lot!
co-invest?
The way BB's used their balance sheets to win deals was by financing acquisitions. If a company wants to make a large acquisition, a bank with a big balance sheet can afford to finance that deal because it has a large balance sheet to support large credit facilities. This is a selling point for BBs over boutiques/MMs, whose balance sheets cannot support such lending at high levels.
Oh I see. So they didn't go to outside lenders to finance these LBO's, for example. They just lent a given financial sponsor however much money they needed to smooth out the deal?
Wasn't this the reason that Moelis left UBS? The bank didn't want to keep financing deals at low rates?
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