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Morgan Stanley Is Blamed For Facebook Flop

From an ‘inciteful’ Reuters:

Insight: Morgan Stanley cut Facebook estimates just before IPO

By Alistair Barr
May 22, 2012

(Reuters) – In the run-up to Facebook’s $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank’s consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.

The sudden caution very close to Facebook’s initial public offering – while an investor road show was under way – was a big shock to some, said two investors who were advised of the revised forecast.

"Investor road show" appears to be the new hip way of describing an IPO offering.

They said it might have contributed to the weak performance of Facebook shares, which sank on Monday and Tuesday – their second and third days of trading – to end more than 18 percent below the IPO price. The $38-per-share IPO price valued Facebook at $104 billion…

It looks like a scapegoat is being found by the news media.

The change in Morgan Stanley’s estimates came on the heels of a May 9 Facebook filing of an amended prospectus with the U.S. Securities and Exchange Commission, in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices. Mobile advertising to date has been less lucrative than advertising on desktops.

So it sounds like Morgan Stanley was just doing their job for its investors.

JPMorgan Chase and Goldman Sachs, which were also major underwriters on the IPO but had lesser roles than Morgan Stanley, also revised their estimates in response to Facebook’s SEC filing, according to sources familiar with the situation.

Morgan Stanley isn’t as closely tied to the Obama administration and the Democrat Party as Chase and Goldman Sachs are. So they are to blame.

Morgan Stanley said in a statement that a "significant number" of analysts in the IPO syndicate reduced estimates after Facebook’s May 9 disclosure. The investment bank said its procedures complied with all "applicable regulations."

Even those not yet written down by Barney Frank and his pals?

"It’s very rare to cut forecasts in the middle of the IPO process," said an official with a hedge fund firm who received a call from Morgan Stanley about the revision.

Even if if it rare, it isn’t illegal. Besides, shouldn’t Morgan Stanley advise their investors of their best thinking no matter what is going on?

Why should they wait for Facebook to overhype their stock? Especially when they know that they told the SEC a different story.

It sounds to us like Morgan Stanley should be commended. But no, they are going to be ‘crucified’ as a warning to other banks not to hurt Obama’s friend.

Here is an update, from a cheering Associated Press:

Regulators probe bank’s role in Facebook IPO

May 23, 2012

WASHINGTON (AP) — Regulators are examining whether Morgan Stanley, the investment bank that shepherded Facebook through its highly publicized stock offering last week, selectively informed clients of an analyst’s negative report about the company before the stock started trading.

Rick Ketchum, the head of the Financial Industry Regulatory Authority, the self-policing body for the securities industry, said Tuesday that the question is "a matter of regulatory concern" for his organization and the Securities and Exchange Commission.

The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley. Galvin said his office is investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.

The bank said late Tuesday that it "followed the same procedures for the Facebook offering that it follows for all IPOs," referring to initial public offerings of stock. It said that its procedures complied with regulations

Well, that didn’t take long. The SEC has taken a break from their porn viewing long enough to probe Morgan Stanley. They are probably going to ‘crucify’ Morgan Stanley as a warning to other investment banks that it isn’t wise to hurt Obama’s pals.

By the way, Morgan Stanley is currently Goldman Sachs biggest competitor. And being a competitor to Goldman Sachs does not seem to be good for a company’s health. Just ask Lehman Brothers.

This article was posted by Steve on Wednesday, May 23rd, 2012. Comments are currently closed.

3 Responses to “Morgan Stanley Is Blamed For Facebook Flop”

  1. GetBackJack says:

    Best Headline re: facebook debacle

    JP Morgan Takes Suckers For A Stroll

  2. AcornsRNutz says:

    Selectively told clients that one analyst thought the stock was overvalued? Grade A Balogna. I heard some financial analyst on the wall street journal report or Fox business report(don’t recall which) say the same thing. He said something to the effect of holding his money until Twitter goes public. I could really care less about this since I am in no way a high rolling investor, but if I overheard this snippet during the news break listening to Rush, I can’t imagine it was exactly an exclusive opinion of one shadowy analyst.

  3. Petronius says:

    No biggie.

    IPOs are always overpriced.

    Most of them just don’t drop below their IPO price as quickly as FB did. FB investors were the victims of their own herd mentality.

    The bigger question is when –– if ever –– will we have a government that is not so passionately anti-business? Until we do, avoid stocks.

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