Photo: CNBC screenshot
Morgan Stanley’s chairman and CEO James Gorman spoke with Maria Bartiromo today on CNBC’s “The Closing Bell” following the Facebook IPO fiasco.The main takeaway is that Gorman is defending his bank’s role as a lead underwriter for the social network’s IPO.
If you’re just coming into this story, Reuters reported earlier this month that research analysts at the company’s lead underwriters (Morgan Stanley, Goldman Sachs and JPMorgan) cut their earnings estimates for Facebook during the IPO roadshow. That information was subsequently conveyed to institutional investors.
Our Editor-In-Chief Henry Blodget, who has been around the tech IPO business for more than 20 years, called it “a highly unusual and negative event.”
“All this occurred before during the period of the roadshow and the demand was still there,” Gorman said in an interview with CNBC, adding, “There was no nefarious activity. This was standard operating policy.”
He explained that the policy Morgan Stanley and other underwriters operated under is that there’s individual disclosure to institutional investors interested in what that analyst says and that’s policy.
Gorman said that his bank acted “with great integrity” and alerted the marketplace what the trajectory was in an amendment to the S1 that went out to every investor.
“I saw 20 news organisations who reported that revision, which was frankly a modest revision,” Gorman said.
To be fair, the news organisations did not report the estimate revision. Or the old and new estimates. What was reported was the vague language added to the prospectus about Facebook’s users growing faster than revenue. Morgan Stanley’s big investors got news of the estimate cut. Morgan Stanley’s small clients didn’t.
Here are some of Gorman’s other comments from the interview.
- Gorman described the Facebook IPO as “a very complicated story” in one of “the most volatile markets.” He added that there’s hype “in every single direction.”
- He said the exchange handling the exchange, Nasdaq, was having problems. “That confusion and frankly in a deal of almost unprecedented size against a macro backdrop of everything going on in Greece, if you will, created a potent elixir.”
- Here’s what he said about investors hoping for a pop on the first-day of trading in the social network, “I’d like to think the people buying those stocks were both naive and bought it under the wrong pretenses.”
- He said investors “have to be a little bit patient.”
- “Let’s have this discussion again in 12 months,” he added declining to comment on where he sees the stock price.
- The IPO was 26% retail investors and the demand was “unprecedented,” Gorman said. “It’s not that unusual for a company that has very high retail interest. We had unprecedented retail demand wanting in on this deal.”
- Gorman said he does not personally own any shares in Facebook.