Morgan Stanley blew $22 Billion on the Facebook IPO

Since its IPO on May 17, Facebook stock has tumbled nearly 20%, and has lost a whopping $22 billion. Investors are suing Facebook in droves, with more than 40 separate lawsuits currently filed.

The Facebook initial public offering now ranks as the second-worst IPO in the history of the American stock market.

Morgan Stanley
Morgan Stanley

For all the lawsuits and the lost billions of other people’s money, underwriting bank Morgan Stanley will still reward themselves by billing Facebook some $68 million. Much of that sum will go to the one guy at Morgan Stanley who was the “single driver” of this fiasco, managing director Michael Grimes.

Nice work, if you can get it!

Morgan Stanley was “riding the crest of that tech IPO wave, and Facebook really was the crowning glory. So the campaigning to win that assignment started several years ago,” Ms. Das told MarketWatch. “Goldman (Sachs) and Morgan Stanley were competing neck-and-neck.”

Mr. Grimes, a person whom the New York Times has called “Where money and tech meet”, was evidently able to convince Facebook to grant he and his investment bank an unusual degree of control over the Facebook IPO.

He used a “single driver” analogy to convince Facebook to avoid oversight and second opinions. While Goldman Sachs and JP Morgan were also underwriting banks, they were held out of important meetings given smaller percentages of the fee structure.

That’s highly unusual. According to the Journal, every single IPO since 1995 that was underwritten for more than $5 billion included a fee structure in which underwriting firms were all compensated equally. Not this one, because Morgan Stanley was able to wrangle the lion’s share of fees.

The unusual moves didn’t end there. Just days before the IPO, Facebook raised the number of shares they were selling, and raised the price on them as well.

“Raising the price range of the IPO, and then raising the size of the offering – that’s really rare,“ Ms. Das told MarketWatch. “At the same time, Facebook put out a statement, and updated filing, saying that revenue projections weren’t looking that rosy. So you have these two conflicting things.”

In response, Morgan Stanley told their clients about the reduced revenue forecasts – but not all of them. Only “major clients” were told that Facebook had less revenue coming than the investors were promised.

Facebook and Morgan Stanley are blaming the whole revenue loss on a NASDAQ technical glitch that occurred on Facebook’s first public day of trading.

If it makes you feel any better. Morgan Stanley and Michael Grimes, Facebook stock on Monday had its third consecutive positive day. Facebook stock had not yet before gone up for three days in a row. The stock price is now back over $30, after hitting a low of $25.32 on June 5.

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