Saturday, May 19, 2012

How Much Money Did Facebook Underwriter Morgan Stanley Spend on "Market Stabilization? (all in?) MS; FB

On Friday the big bank's stock was down a bit more than the S&P, .82% to .74%.

From Reuters:
Morgan Stanley made big bet on Facebook
Lead Facebook Inc (FB.O) underwriter Morgan Stanley (MS.N) took a bet earlier this week when it increased the size of the social networking firm's $16 billion initial public offering and it boosted the price.
Thanks to massive hype surrounding Facebook's historic public offering, the wager looked safe. But a rocky first day of trading has raised questions about whether it paid off.

After a delayed start to trading, Facebook's shares spent much of the day struggling to stay above the $38 IPO price - and ended with just a 23-cent gain.

As a result, Morgan Stanley may have spent billions of dollars to support the stock price by buying shares in the market. Some market participants said that the underwriters had to absorb mountains of stock to defend the $38 level and keep the market from dipping below it.

The firm did this by tapping into a 63 million share over-allotment option, or greenshoe, according to sources familiar with the deal.

As an indication of the cost, had Morgan Stanley bought all of the shares traded around $38 in the final 20 minutes of the day, it would have spent nearly $2 billion. Underwriters are not obligated to prop up a stock on debut, but typically do....MORE

HT: Dragonfly Capital

Now, Morgan Stanley has really long lines of credit, up to and including the New York Fed's discount window but any weakness in the stock over the next week could have their risk managers sweating.