What are the risks associated with an underwriter failing to sell an IPO at the intended price?

The risks associated with an underwriter failing to sell an IPO at the intended price primarily include potential financial losses to the underwriter. When an underwriter commits to an IPO, they typically buy the shares from the issuer at an agreed-upon price and then seek to sell those shares to the public at a higher price. If the demand is not as anticipated, or if the market conditions are unfavorable, the underwriter may not be able to sell the shares at the initial offering price or may have to offer them at a discounted price, resulting in financial losses.

Moreover, if the IPO struggles to attract buyers, the underwriter could face significant costs, particularly if they have agreed to support the issue by purchasing unsold shares to stabilize the price. This situation can directly impact their profitability and could lead to reputational damage, making it harder for them to attract future business.

While other factors such as reduced demand for future IPOs, poor market image of the underwriters, and increased regulatory scrutiny can occur subsequently, the immediate and direct financial risk to the underwriter in an unsuccessful IPO is the most critical aspect.