With the number of lawsuits and discontent rising over the Facebook (NASDAQ:FB) IPO, fingers are still pointing in different directions on who to blame. Now, the latest one may be directed at Morgan Stanley (NYSE:MS)’s investment banker Michael Grimes.
After successfully gaining the opportunity to underwrite Facebook’s IPO, veteran Silicon Valley banker Grimes is starting to look like the bad guy. Since Facebook Inc (NASDAQ:FB) infamous May 18 IPO, the company has lost $22 billion in market value, according to The Wall Street Journal. A lot of the problems have focused on NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) trading glitch but now stories are painting a picture that perhaps decisions made by Grimes, Morgan Stanley (NYSE:MS) and Facebook Inc(NASDAQ:FB) in the weeks prior to Facebook’s offering are contributing factors to an IPO that has gone very wrong.
The Electron Global Fund was up 2% for September, bringing its third-quarter return to -1.7% and its year-to-date return to 8.5%. Meanwhile, the MSCI World Utilities Index was down 7.2% for September, 1.7% for the third quarter and 3.3% year to date. The S&P 500 was down 4.8% for September, up 0.2% for the third Read More
- They excluded the other two lead banks J.P. Morgan Chase (NYSE: JPM) and Goldman Sachs GroupInc (GS) from numerous meetings with potential institutional buyers. This resulted in difficulties for these bankers to gauge share demand.
- They supported raising the amount of shares offered and the price range–not the norm.
- They assigned to individual investors, 26 percent of the IPO shares when a typical number is around 15 percent. In addition, some of these investors received shares they didn’t really think they’d get.
Facebook’s shares remain off 21 percent from its offering price and according to Dealogic, its IPO represents the “steepest-ever” fall in the first month of an IPO at $1 billion or greater for a U.S.-based company. Since the problematic IPO, the U.S. IPO market hasn’t seen any new deals priced.
Morgan Stanley has maintained that it executed its job for clients and because Facebook’s stock did trade higher than its $38 offering price on its initial day, the deal had been priced o.k.. A corporate spokesperson said via The Wall Street Journal, “The price and size of the transaction were consistent with the institutional order book of demand as indicated to the lead underwriters, and confirmed by the trading of the stock prior to the impact of the Nasdaq trading issues.”
Nasdaq officials have apologized and said they can be blamed for the May 18 trading problems.
Time to Strangle Grimes?
Morgan Stanley as the lead underwriter will likely make a great chunk of change from the deal, possibly seeing $68 million in fees (or 38.5 percent from the $176 million divided between the 30 underwriters). J.P. Morgan could grab about 20 percent with Goldman at 15 percent.
In addition, Facebook is the only U.S.-listed IPO since 1995 that came in above $5 billion to include a fee structure that was not equally split at the top, said Dealogic.
In 2011, Grimes made around $6 million but thanks to his responsibilities with Facebook, he could see a greater compensation this year. He aggressively went after the Facebook IPO (the man loves a good Powerpoint presentation) and supposedly said to a senior Facebook executive that he would the “single driver” of it; he added that if the deal went south, it would be his “throat to choke.”
Helping to move the deal along, Grimes was able to grab the ear of Facebook’s CFO David Ebersman reported The Wall Street Journal. The pressure only rose for the Morgan Stanley banker as Ebersman said in March to a group of analysts that he wanted Facebook’s IPO to be the most successful one in history.
But with the bad news rising for Facebook, is Grimes’ star falling or will it rise thanks to the hefty amount made by Morgan Stanley? Only time will tell.