During Facebook’s Inc (NASDAQ:FB) high profile IPO in May, 33 banks acted as underwriters on the deal. The biggest three of them were Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC). The mutual funds run by these three banks were the first to pick Facebook stock at the initial public offering.
And a recent analysis by the Wall Street Journal of data from the investment research firm Morningstar, Inc. (NASDAQ:MORN), and filings with the SEC show that they were also the first to sell Facebook stocks soon after the IPO, when the share prices started tumbling. The mutual funds managed by these three banks purchased 8.4 million Facebook Inc (NASDAQ:FB) shares worth $319 million. By the end of May, they had sold off 3.5 million shares. During that period (May 17 to May 31) the company’s stocks plunged from the IPO high of $45 to $29.60 on May 31. Currently, it’s trading at $21.18.
The SEC strictly wants to keep a bank’s asset management and underwriting teams separate. But WSJ couldn’t find any proof that these banks kept their two teams separate during the Facebook IPO. Mutual funds aren’t allowed to buy shares directly from their firm, they have to go through another firm.
Anyway, the immediate selling, which resulted into the firms incurring losses, was a bit unusual for some of these mutual funds given their excellent trading history. Additionally, it quickly spread the lack of confidence in Facebook shares. Usually, mutual funds that invest in IPOs want to earn quick profits as the stocks often rise in the coming days once they enter the public market. But the funds that invested in Facebook were not so lucky, because the initial bounce that they were waiting for never came.
Though the identity of IPO investors is kept a secret, funds managed by underwriting firms are required to disclose their sales and purchases to the SEC at least twice a year. Most of the mutual fund units of firms involved in Facebook Inc (NASDAQ:FB)’s IPO report their investment activities to investors monthly, others report quarterly.
JPMorgan Chase & Co. (NYSE:JPM) Large Cap Growth Fund, which has $8.7 billion of assets under management, bought 561,400 Facebook shares during the IPO, but sold them all by the end of May. It’s a bit surprising, because the firm usually holds stocks for at least three years. Overall, 14 JPMorgan Chase & Co. (NYSE:JPM) funds had purchased a combined 1.1 million shares, and 13 of them had sold their shares by the end of May.
Morgan Stanley (NYSE:MS) was another underwriter. Its Focus Growth Fund, which has more than 40 percent of its portfolio in tech stocks, bought about 2.8 million shares during the Facebook IPO, but got rid of 1.2 million of them by May 31st.
I wonder if they already knew the fate of the social media site‘s stock.