How do investment banks make money themselves issuing bonds for companies?
Actually its pretty easy: Making it a lot simpler then it is here goes: So a company wants to issue $1 Million in bonds and hire’s an investment bank to sell them (usually the number is MUCH higher) The investment bank in the hireing phase agrees with the company to take a percentage of the funds as a commision. Lets say 10% Which means that the company will be issuing 1000 bonds at $1000.00 each. However they will only get $900.00 for each bond and the investment bank gets to keep $100.00 per bond. At the end of the sale the Investment Bank has $100,000.00 as their commision and the Company issuing the bonds gets $900,000.00 The cool part is that though there is a lot of paperwork and legal mumbo jumbo most bond issues are completely sold out prior to actually coming to market. So if the above issue was a real the investment bank would have made $100,000 in a matter of months free and clear!!
