New York : Let the Facebook Inc. finger-pointing begin.
After one of the most anticipated initial public offerings in history Facebook's 11 per cent drop on Monday and a further decline yesterday prompted investors to fault everything from Morgan Stanley's role as lead underwriter to the company's greed and the Nasdaq Stock Market.
"It was like the gang that couldn't shoot straight," said Michael Mullaney, chief investment officer at Fiduciary Trust in Boston. He said he placed Facebook orders for clients. "The underwriters mis-estimated what actual demand was, and there was pure execution failure coming out of the Nasdaq."
Taking the most heat is Morgan Stanley, said Mullaney. The bank was lead underwriter among the 33 firms Facebook hired to manage the $16 billion sale of stock. The bank decided with Facebook executives to boost the size and price days before the May 17 IPO, ignoring advice from some co-managers, said people with knowledge of the matter, who declined to be identified because the process was private. Morgan Stanley talked with few of its fellow underwriters aside from JPMorgan Chase & Co. and Goldman Sachs Group Inc. throughout the IPO, one person said.
Enthusiasm overplayed
"They overplayed the enthusiasm and probably just misread the atmosphere of the marketplace," said Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati who bought some stock in the IPO.
Facebook increased the number of shares being sold in the IPO by 25 per cent last week to 421.2 million and raised its asking price to a range of $34 to $38 from $28 to $35. Had Facebook kept the original terms, investors may have had a better shot at a first-day pop. Instead, the stock was little changed in its debut because Morgan Stanley intervened to prevent it from falling below the IPO price.
The shares closed at $34.03 on Monday, and the stock dropped 7.2 per cent to $31.57 in midmorning in New York.
Some investors say they felt misled by the underwriters. According to one London-based fund manager who asked not to be named, bankers indicated demand was so strong that he placed a bigger order than he thought he would get, leaving him with 40 per cent more Facebook shares than anticipated. He sold most of that stock on the first day of trading.
Morgan Stanley and Face-book consider problems with Nasdaq OMX Group Inc.'s computer systems among the reasons for the IPO's performance so far, according to people familiar with the matter.
Nasdaq's trading platform was overwhelmed by order cancellations and updates that made the stock-market operator unable to finish the auction required to open trading. The US Securities and Exchange Commission said it will review the trading.
