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Morgan Stanley and Facebook's Financial Struggles

By Edited Nov 13, 2013 0 0

While Facebook’s shares fell after the first day, and have not gotten anywhere near $38 per share, Morgan Stanley is claiming success in dealing with it's client.  The chief executive of Morgan Stanley, James Gorman, told his staff in a meeting that the bank had worked “100 percent within the rules.”  Gorman defended Morgan Stanley’s actions despite its significant role in losing billions of dollars for its investors.

Gorman remarked that “unprecedented confusion and disarray at the opening” of the Nasdaq, as well as the rather delicate state of the economic environment worldwide, were the cause of the devastating losses. “You don’t control Nasdaq and you don’t control Greece and the environment,” he said.

Gorman also claims that Facebook is happy with their bank’s performance.  The social networking site’s chief operating officer, Sheryl Sandberg, verified his statement, by telling him that Facebook is “very pleased with the way Morgan Stanley conducted itself.”  He added that Sandberg said, “that we were very professional.”

Morgan Stanley is due to gain sixty eight million dollars in fees for serving the major social media as it's lead underwriter.  The fellow banks will receive significantly less than that including J.P. Morgan, which is believed to receive 38.5 percent of the total $176 million.  Goldman Sachs will only get around fifteen percent of the total.

According to a report from the Wall Street Journal, Morgan Stanley persuaded Facebook to keep J.P. Morgan and Goldman Sachs out of a few meetings the company and its underwriter had had with potential buyers.  The report also states that Morgan Stanley pushed for an increase in “both the number of shares offered and the price range.”  Suspiciously, all of this is in spite of the “misgivings by a Goldman executive.”

As the top IPO underwriter of the United States in 2010 and 2011, Morgan Stanley has helped take public fourteen of the thirty-two Internet companies in the United States since last year.  Facebook, is the only IPO in the United States in seventeen years to have reached more than five billion dollars with a fee structure that is not divided equally at the top.

Shares for Facebook were initially set at thirty-eight bucks a piece when it went public on May 18.  At the end of the day, its stocks had gone for twenty-three cents more per share than had been expected.  However, since that time, the stock has gone down to $31.86.  The drop in price has placed the social network and its underwriter in some hot water.  The pair is currently being saddled with numerous lawsuits from investors due to the stocks dropping more than twenty percent since its initial opening. 

Needless to say, both Facebook and Morgan Stanley are being pelted heavily for their so-called financial strategies.



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