On the Down Low at the Roadshow

An analyst had a quick word
With investors his bankers preferred:
"We've cut our projections
For those with connections,
But won't tell the rest of the herd."

The fallout from the Facebook IPO continues. On Tuesday a spotlight was shown on the practice of IPO underwriters' not disclosing their analysts' estimates of companies' earnings, except to a small group of large institutional clients. Already a troubling practice, these quiet revelations appeared to skirt the letter of the law in the Facebook case. Analysts for Morgan Stanley and the other underwriters all made substantial cuts in their Facebook earnings forecasts during the pre-IPO roadshow, evidently based on information quietly provided by the still-private company. Joining Goldman Sachs in contempt for the retail "muppets" clamoring for $FB shares, the Morgans - J.P. and Stanley - have still not disclosed their estimates, as indeed they may not until 40 days after the IPO date. Reuters finance blogger Felix Salmon gives a full explanation of the issues and facts of the case, in a post that is worth the time of those who would like to gain insight into the world of stock underwriting.

A Facebook Underwriter's Confession

"Before I'd put retirees in 'em,
I've got to confess my unease in 'em;
The shares would be splendid
If they were still friended
In one or two months, just to season 'em."

Facebook has finally priced its IPO at $38 a share, valuing the social networking company at $104 billion. The global frenzy for $FB was so great in the weeks leading up to the initial pricing that US demand alone would have bought 30 times the 421 million shares on offer. Under such circumstances, a double-digit "pop" in the price is to be expected on the first day of trading, and those who did not count themselves among the fortunate few to receive allocations of IPO shares had better wait for the hysteria to die down before "liking" Facebook stock with their retirement savings.