http://maxkeiser.com/2012/07/29/why-facebook-ipo-proves-can-never-trust-bank/#more-50200
Why a decline of “the Facebook” shares by 47% proves you can never trust a bank
Before the Farcebook IPO, I wrote on my blog that Facebook was heading for a ridiculous valuation when it was launched on the stockmarket. That wasn’t because I think it’s a bad company – pretty clearly a company that makes a billion dollars in profits after only a few years of life is a remarkable creation. I have only respect for Mark Zuckerberg, its creator.
But it’s not Zuckerberg who gets to choose the company’s valuation. It’s the banks he retains to manage the transaction. I wrote that the firm was being ‘vastly and obviously overvalued at the levels currently being discussed.’
Unfortunately, I’m being proved right at sickening speed. The firm had its IPO (Initial Public Offering) on 18 May – that is, the date when its shares first began to trade on the market. Since the IPO date, the firm has lost 47% of its value, in comparison with the intraday high of $45 per share. Friday’s close was $23.70.
But let’s not talk about the firm. Let’s talk about you. If you invested $1000 in the company’s shares, that money is now worth around $530. Realistically, given various costs and fees, you might well find that money worth just $450. And you’ll lose more before things stabilise.
So what happened? Well, quite simply, the banks did what banks do: they looked after their interests and didn’t give a damn about yours. Here’s how the whole ugly operation proceeded.
Step one: they pumped up Facebook’s valuation as high as they could. Since a bank’s fees are in general a percentage of total money raised, the more highly they valued the firm, the greater the fees they got to rake off the top. They were assisted in this by irresponsible cheerleading from across the mainstream financial media.
Step two: since banks know that professional investors aren’t that easy to fool, they didn’t try too hard to do so. Facebook is a company with a huge profile amongst ordinary retail investors, so it’s pretty easy to ensure a huge retail following for the IPO. Morgan Stanley, one of the firms involved in running the whole operation, stands accused of effectively differentiating between different classes of investor.
Allegedly, one of its analysts shared negative news about Facebook with institutional investors that it did not also share with retail ones. If those allegations prove true, Morgan Stanley was effectively protecting its most valuable clients and letting the retail investors – that means people like you – go hang. Or to put it at its starkest, the suggestion is that Morgan Stanley sold a stock that they knew to be overvalued to retail investors while protecting its wealthiest clients.
Step three: they launched the IPO, took their fees, watched the share price plummet, and will now wait until a sensible price has been reached, before going back to their original rich clients in order to start the business of actually trading the stock in the normal way.
Have I left anything off? Well, yes actually, Step Four – the one step no Wall Streeter would ever forget about – the bankers involved will almost certainly pay themselves giant bonuses.
Now, I want to be clear that Morgan Stanley vigorously denies these accusations. (No surprise there: it is possible that a serious criminal offence has been committed). A spokesman for Morgan Stanley said in a statement, ‘Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations.’
OK. So one of two things is true. Either, Morgan Stanley did not follow those regulations, in which case I personally would argue that the only fair penalty would involve a significant number of Morgan Stanley bankers serving a long sentence in jail. Remember that during the London riots, we saw people jailed for breaking a couple of windows and nicking a couple of TVs. The destruction of value in the Facebook IPO has so far run to many billions of dollars and we haven’t seen the last of it yet. My own rule of thumb – call it the Feierstein rule – is that for every million dollars criminally destroyed by a bank, one banker should spend one year in jail.
It’s a pretty gentle rule, in all honesty (the London rioters were dealt with far more harshly), but even so, thirty billion dollars translates into thirty-thousand years of banker jail time. Sounds good to me.
That’s option one. Here’s option two: what Morgan Stanley says is correct. Let’s say it scrupulously followed every regulation, every procedure, every last detail of compliance. If so, those regulations have totally failed to protect retail investors. Who cares if the rules are followed, if they don’t do what they need to do?
Or actually, now I think about it, there’s a third option. Which is both of the above. Maybe, Morgan Stanley didn’t follow those rules and maybe, in any case, those rules are inadequate. Maybe the regulators are feeble; the banks dangerous, slipshod and unethical. Maybe the courts just can’t cope with the money and sophistication of the bandits they’re struggling to deal with. Perhaps, in fact, the entire, ugly, destructive machinery of Wall Street and the City of London is the same as it was in 2007: destroying value, threatening economies, beyond reach of the law.
Time will tell which of these options is correct. But until we see the ‘too big to fail’ firms broken up and until we see bankers in jail for ruining the lives of countless retail investors, the system is failing. The end can’t come too soon.
and....
http://truthingold.blogspot.com/2012/07/the-great-american-swindle.html
FRIDAY, JULY 27, 2012
The Great American Swindle
Facebook is turning out to be the poster child for everything that is corrupt on Wall Street. From fraudulent representation of financials to the fleecing of widows and orphans. - Dave in Denver, May 22, 2012After posting its first earnings report as a full-blown public company, Facebook stock is down over 14% from last night's close as I write this. It hit a new low of $22.28 earlier. From IPO ($38) to low, Facebook stock has lost 41.3% of its value in just 51 days of trading as a public company. That represents a $33 billion dollar loss in wealth. Given that the reported number in the Madoff Ponzi scheme is around $20 billion, this makes Facebook the largest swindle in U.S. history (next to the U.S. Government's $16 trillion Treasury debt swindle).
I'm actually stunned that the Facebook collapse has happened this quickly. I expected the stock mania portion of the FB saga to last at least 6 months beyond FB's first earnings report. Speaking of which, the spin-meisters on Wall St. and the media are lauding FB for "meeting revenue expectations." Any idiot knew that this would be a no-brainer because FB's quarter was nearly 50% in the bag by the time the IPO occurred. Having worked on public offerings for companies, I know that the underwriter and primary analysts covering the deal have access to the inside numbers. Forecasting the revenue number was a no-brainer.
Where the "swindle" occurred was selling the "sizzle" of FB being the king of social networking and internet communication. The dreamy possibilities are endless. Just like at the height of the internet bubble. It's a "new economy and new business model with limitless profits." Well, the truth is that Facebook's operating margin plunged 10% from the same quarter a year ago and it generated negative $171 million in free cash flow. This means that it was spending more to generate each dollar revenue than each of those dollars was able generate in cash profit. This is essentially how a Ponzi scheme operates. Make no doubt about it, Zuckerberg and Morgan Stanley knew that Facebook would report ugly growth and profit margin numbers when they were hyping up the IPO. I know this because I've worked on securities offerings in the past.
What makes this most appalling is that it became apparent to the more "sophisticated" investors who were looking at the IPO during the road-show stage that the market value assumed using the likely IPO price was far higher than any true measure of value that could be assigned to FB. Many of these institutional investors were given a better look at the real numbers behind the IPO marketing spin and walked away. That left mostly the smaller investors vulnerable to the "share-stuff" done by Morgan Stanley right before the deal priced (Morgan Stanley retail customers were told they could only get 500 shares, only to end up with as much as 5,000 shares right before pricing).Let's see, Long Term Capital, Enron, Refco, Amaranth, Countrywide, Washington Mutual, Lehman, Wachovia, MF Global, JP Morgan, Madoff, now Facebook - where and when will this end? Probably not until the country collapses economically then politically. The most appalling aspect in watching this America abortion unfold is that the guy in the Oval Office who was elected on the promise to clean all of this up has turned out to be the guy who has looked the other way while the nation's wealth is being swindled away by Wall Street banks, corporate operators and politicians.
When the history books are written on this era of our country, they will not be kind to Obama. He was ushered in on the euphoria of being the first African-American to be elected President. He will be remembered ignominiously by future generations and historians as the ultimate promoter of the great American swindle.
and......
Facebook’s lockup problem
July 27, 2012, 3:15 PM
Despite meeting Wall Street’s targets in its first earnings report, Facebook shares tumbled to a new record low on Friday, which some are chalking up to concerns about looming expirations of post-IPO share lockups.
Facebook FB -0.11% has about 1.88 billion shares that will become available for trading before the end of the year, which will nearly triple the size of the company’s current share float, according to an analysis by Citigroup.
The first of these lockup expirations takes place on Aug. 15 and involves about 268 million shares. A huge lockup opens on Nov. 13, and will release about 1.24 billion shares. These shares are held by a variety of insiders that include early Facebook investors, employees and Founder/CEO Mark Zuckerberg.
Such lockups are not uncommon in IPOs, though the recent class of social media debuts has made particularly heavy use of them. Zynga ZNGA +0.16% and Groupon GRPN +1.19% in particular have also seen their post-IPO performances dragged down by lockup concerns. Zynga saw 325 million shares hit the market on May 29 and another 50 million on July 6. Another 150 million of the social game maker’s shares will become available on Aug. 16. Groupon saw 600 million shares hit on June 1.
Such lockup expirations expose a stock to the basic problem of supply and demand – which can exacerbate a trend that is already pointing down. Zynga and Groupon shares had already shed much of their IPO values by the time their lockups hit. Citigroup’s Mark Mahaney noted that Facebook shares “have already been impacted by supply pressures” because of the company’s last-minute increase of its IPO size to 421 million shares.
At least half a dozen analysts who issued notes Friday following Facebook’s results cited the looming lockup expirations as one reason for Friday’s price drop. Bullish analysts believe this will present a buying opportunity for investors to get into the stock. Those less enthusiastic see the lockups as another reason to hold off buying the shares – for now.
While conventional wisdom suggests that insiders may avoid selling at depressed prices, analysis of trading volumes on Zynga and Groupon suggest that many of those insiders sold as soon as they were able. And other factors may force the hand of Facebook’s insiders. Michael Pachter of Wedbush wrote Friday that the possible expiration of the Bush-era tax cuts by the end of the year could spur Facebook insiders to sell in order to avoid a larger capital-gains tax hit.
“Because the number of shares potentially offered is so great, and the time frame between lockup expiration and potential tax rate increase is so short, we believe that there is a real possibility for the supply of Facebook shares to overwhelm demand by year-end,” he wrote, adding “This could cause the share price to drop further.”
and...
Goldman's Rich Clients Must Feel Screwed Right Now
( the countdown to 8/15 has begun and you know those GS muppets are itching to sell and just are praying their basis holds.... )
Remember back in 2011 when Goldman Sachs made a deal with Facebook to sell $1.5 billion of Facebook stock to rich Goldman clients overseas at a $50 billion valuation?
Remember how the Facebook stock then took off like a rocket in private markets, and everyone started shouting about how good Goldman was and how lucky its clients were?
Well…
Those clients might not feel so lucky today.
According to Facebook's prospectus, those Goldman clients bought Facebook stock at a price of $20.85 per share.
After hitting the public markets at $38 per share, Facebook stock is around $23 and going south.
Meanwhile, Goldman's clients remain unable to sell their stock, as they are held through a "Goldman entity," and are therefore must wait until a 91-day lock-up period following the IPO expires.
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