Everyone’s getting pretty sick of the whole Facebook IPO thing (ourselves included), but here’s one more tidbit for you before the holiday weekend…As you know, there was tremendous demand for Facebook stock prior to Facebook’s IPO (and prior to small investors learning what big investors already knew, which was that Facebook had reduced its outlook for the second quarter).
Basically, there was way more demand for Facebook stock than there was shares.
So Morgan Stanley and the other underwriters had to figure out which small clients to give stock to.
You might think that this decision was made by size of account (assets under management), with the bigger clients getting the most stock.
But it wasn’t!
At Morgan Stanley, a source reports, this decision was made as follows:
The individual clients who were the most profitable for the firm got the most stock.
In other words, the clients that had paid Morgan Stanley the highest fees in prior years got big allocations.
That’s fair. It’s not just on Wall Street that the best clients get the best service.
Of course, in this case, the strategy backfired–at least for those clients who didn’t flip their Facebook stock on the first day of trading.
Morgan Stanley’s best clients, the ones who got the most Facebook stock on the IPO, have now gotten the most hosed.
(By the way, this allocation decision wasn’t made by Morgan Stanley’s financial advisors, who have gotten reamed in this whole thing. It was made by corporate HQ. The FAs were pissed about it, too.)
[ I would like to confirm information like this with Morgan Stanley before I publish, but they’re not responding to my emails or calls. I can’t imagine why. ; ) ]