Bloomberg News

Facebook Banks Spent $66 Million Buoying IPO, Fed Economists Say

October 31, 2012

Facebook Banks Spent $66 Million Buoying IPO, Fed Economists Say

The JPMorgan Chase & Co. headquarters with a Facebook Inc. "Like" logo in New York, on May 4, 2012. They met with Morgan Stanley, the lead underwriter of the $16 billion IPO of Facebook. Photographer: Scott Eells/Bloomberg

Facebook Inc. (FB:US)’s underwriters may have spent an estimated $66 million supporting the stock’s price in the first day of trading after the company’s initial public offering, Federal Reserve Bank of New York economists said.

The underwriters of Facebook’s IPO probably put in bids at $38 and $40 per share as the stock threatened to fall below the $38 offer price during the May 18 trading debut, according to a blog post by economists Thomas Eisenbach and David Lucca.

The cost of supporting the stock probably eroded about 40 percent of the underwriting commissions Facebook paid banks to take it public, according to the article. Morgan Stanley (MS:US) was the lead underwriter of the $16 billion IPO of Facebook, the largest on record for an Internet company, data compiled by Bloomberg show. Shares of Facebook, owner of the world’s largest social network, slid (FB:US) to less than half their offer price by the end of August.

“If this estimate is correct, underwriters’ reputational concerns and obligations to the firm may have outweighed their short-run profit motive,” the economists wrote.

Morgan Stanley, which was also the stabilization agent in Facebook’s IPO, was responsible for placing bids for the stock in the open market to prevent the price from falling below the offer level, a person familiar with the process said at the time. Mary Claire Delaney, a spokeswoman for the New York-based bank, declined to comment on the economists’ analysis.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net


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Companies Mentioned

  • FB
    (Facebook Inc)
    • $77.62 USD
    • 1.99
    • 2.56%
  • MS
    (Morgan Stanley)
    • $35.12 USD
    • -0.18
    • -0.51%
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