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Monday might be considered the first day of actual trading of Facebook, the first day that the price of the stock reflects actual supply and demand. Friday was the official start of trading, but the debut was marred by technical glitches at the Nasdaq and robust support by Morgan Stanley to keep the price above the offer price. Now that the stock has fallen--in the absence of technical issues and buying support--it's becoming more of a sore point for the underwriter, the company and of course investors. Tongue-in-cheek, I suggested the underwriters got the price right, which is the expected spin for stocks that don't pop or plunge. For stocks that tank early, there's not a lot of good than can be said, even tongue in cheek. Better to keep the tongue in check. Unfortunately, more people are starting to voice negative sentiment about the Facebook ordeal. If this keeps up, it will look bad for all. The issuer and the underwriters look greedy. Investors look naïve and likely feel fleeced. The psychological importance of staying above the offer price is widely understood, and in the case of Facebook, staying above the $100 billion market cap level is also imperative. This is not a disaster. Well, not yet anyway. This is what one might expect when mature companies go public, especially after it had already been traded (so to speak) on markets for private stock. Facebook will not be another Google-like stock unless it can justify the massive gains via performance. This is how it should be. For the issuer, there are some benefits. A realistic opening will certainly help keep the staff grounded. They are richer to be sure, but the Google bucks will be determined by how hard they work. We'll see where the stock ends up over the next year. Hopefully, a realistic, fundamentally justified increase is in store. For more: Related articles: Read more about: Facebook IPO
2. Did underwriters get the Facebook IPO price right?
In the end, the tepid response to the Facebook IPO was probably the best response, one that reflects a healthy way of looking at hot companies and one that just might save us from another bubble. The positive spin is that the underwriters, chiefly Morgan Stanley, really nailed the IPO price. A big one-day gain could've been spun as a reflection of healthy retail demand for a ground breaking company. Deep down that's what a lot of people were hoping for, but it wasn't to be, so the best interpretation of events is that the deal was fair for the issuer and investors. Some people will be tempted to suggested that the active market for pre-public stocks may have played a role in this uncanny pricing feat by Morgan Stanley, offering an advance indication of the firm's true worth, which strikes me as right on. All in all, Facebook is better off for its lukewarm debut. The New York Times notes research by professors the Warrington College of Business Administration at the University of Florida, who compiled a list of about 250 companies that at least doubled in price on their first trading day. "Many quickly fell back to earth. Going back to 1975, the list provides some of the greatest hits in I.P.O. land. The top 10 first-day gainers all went public in the Internet boom. They included VA Linux, which rose almost 700 percent, to a market capitalization of more than $1 billion, and The Globe.com, which produced a gain of 606 percent on its first day as a public company. Foundry Networks and WebMethods soared more than 500 percent." Few of these companies are with us as standalone companies today. There's a lot to be said for longevity. I expect Facebook to be around for a long time. For more: Related articles: Read more about: Facebook IPO 3. Risk manager figures prominently in JPMorgan drama
Before the JPMorgan $2 billion (and counting) trading fiasco, the MF Global fiasco that resulted in the loss of $1 billion (or more) of customer money dominated the headlines. Maybe Jon Corzine should call Jamie Dimon and thank him for taking the spotlight. The cases are dissimilar fundamentally--except when it comes to the role of risk managers. At MF Global, a change in the risk manager position was scrutinized, and so it goes with JPMorgan. Bloomberg weighs in with an interesting look at Irvin Goldman, who was the top risk manager in the JPMorgan unit that suffered more than $2 billion in trading losses. He "was fired by another Wall Street firm in 2007 for money-losing bets that prompted a regulatory sanction at the firm, Cantor Fitzgerald LP." JPMorgan appointed Goldman in February as the top risk official in its chief investment office while the unit was managing the trades that resulted in the massive paper losses. "The bank knew when it picked Goldman that his earlier work at Cantor led regulators to penalize that company, according to a person briefed on the situation." This will no doubt strike some as yet another example of a trading outfit seeking a "risk manager" in title only. What the likes of Corzine and others of his ilk want is someone to rubber stamp their trades, and in the case of JPMorgan help justify the trades as hedges instead of proprietary bets, some might argue. This will surely be an area of inquiry for the many entities investigating the trading fiasco. For more: Related articles:
Read more about: Risk Management, trading 4. Nasdaq's Facebook glitches come at worst time
The debut of Facebook was marred by glitches at the Nasdaq stock market that ended up delaying the start of trading and botching the trade confirmation process, which some broker dealers found infuriating. Some confirms simply never arrived. Others were late. The high-profile fiasco couldn't have come on a larger stage, as the entire world was riveted to the Facebook offering. This ranks as a disaster in the same league as the recent disaster at BATS, which so thoroughly botched its attempt to list its own stock that it had to scuttle the deal. Nasdaq OMX CEO Robert Greifeld is doing his best to control the damage. He says that the technical woes at the exchange did not meaningfully affect the way the market reacted to the new stock. The stock ended the day at roughly the same price, which some say as a disappointment. "Greifeld said that nothing in Nasdaq's data indicated that the exchange's technical issues had any effect on how Facebook's shares had traded. He said that the firm's own data showed that the morning's delay had no impact on the opening price, and that Facebook's trading had correlated with other stocks in the market," according to DealBook. "Greifeld defended his team, saying Nasdaq had done 'a remarkable job' of responding to errors that he said had arisen out of an unprecedented volume of trade. More than 571 million Facebook shares changed hands on Friday. But Nasdaq officials were unprepared for a high number of order cancellations that came in as Nasdaq was seeking to calculate Facebook's opening price." The mention of order cancellations might give some people pause, as cancellations have been a huge issue in the on-going high frequency trading drama. All in all, you only get one chance at event such as the Facebook offering, and the Nasdaq faltered. That has to hurt. For more: Related articles: Read more about: Nasdaq, exchanges 5. What's behind the Barclays move to divest BlackRock?
Barclay's announcement that it will sell its entire stake in asset management powerhouse BlackRock, which is worth more than $6 billion, was huge news. BlackRock itself will buy $1 billion of the shares and the rest will be offered. Barclays Capital, Morgan Stanley, Bank of America Merrill Lynch will handle the deal, which is set to be priced on Wednesday. What's behind the deal? Obviously, Barclays is in the middle of a far-reaching reorganization, with an eye on raising capital. Like other investment banks, it has found that owning a large stake in an asset management company is expensive in terms of capital requirements. "The latest round of rules from the Basel Committee on Banking Supervision will force the lender to set aside capital against the stake to cushion itself against any decline in the value of the holding. BlackRock has slipped 24 percent since the purchase, prompting Barclays to write down the value of its stake in 2011 to about 3.4 billion pounds ($5.3 billion)," reports Bloomberg Businessweek. In one view, Basel III effectively disallows banks from owning asset managers, as the associated capital requirements are elevated. The deal may presage other divestments. Recall that Barclays about the its large stake in BlackRock when it sold Barclays Global Investors to the company for about $13.5 billion in 2009. For more:
Read more about: Investment Banks, Capital Reserves Also Noted
SPOTLIGHT ON... Buyback plan on hold at JPMorgan Chase Suspending a stock buyback is not as dramatic as suspending a dividend payment. Still, in the case of JPMorgan, the move is fraught with meaning at a time like this. Suspending its buyback program is a conservative move in lights of the big losses coming for the second quarter thanks to the botched hedges that have roiled the bank and the markets. I believe that the income statement and the balance sheet will be able to absorb the hit, but the open ended nature of the trades are a cause for concern, and you can't blame the bank for being safe. Article Facebook News: Industry News: Regulatory News: And Finally … Condo sells for $90 million. Article
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Tuesday, May 22, 2012
| 05.22.12 | Facebook takes a tumble
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