Facebook Underwriters Showed Early Lack of Commitment

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Facebook (NASDAQ:FB) changed its trading status last May in one of the most anticipated initial public offerings to date. The world’s largest social media network made a complicated debut on the Nasdaq, with shares declining more than 20 percent in only two weeks. During the sell-off, mutual funds ran by the banks that helped Facebook go public showed no confidence in the Mark Zuckerberg-led company.

Mutual funds managed by Wall Street’s biggest banks such as Morgan Stanley (NYSE:MS), JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC), purchased 8.4 million shares of Facebook worth almost $320 million.

However, according to the WSJ, Securities and Exchange Commission disclosures and new data from investment-research firm Morningstar (NASDAQ:MORN), the funds controlled by these three big banks unloaded 3.5 million shares by the end of May.

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JPMorgan’s $8.7 billion Large Cap Growth Fund, which invests in other tech companies like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), purchased 561,400 shares of Facebook at the IPO, but completely sold out of the social media company by the end of May. The fund is ran by Giri Devulapally, who typical holds investments for more than three years, as opposed to only two weeks, according to Morningstar.

“He’s generally a pretty careful stock picker and looks for stocks that he expects to hold for several years,” said Morningstar fund analyst Laura Lallos, according to the WSJ. Overall, 14 JPMorgan funds bought about 1.1 million shares of Facebook at the IPO, but those funds sold 620,000 shares by the end of May.

Shares of Facebook’s IPO priced at $38 and made a high of $45 in the first few minutes of trading on the Nasdaq, before rapidly declining to finish the end of May at a price of $29.60. Shares ultimately hit as low as $17.55 in early September.

Morgan Stanley, the lead underwriter for Facebook, also showed a lack of commitment. The WSJ explains, “All told, 17 Morgan Stanley Investment Management funds, and funds they sub-advise, bought 6.8 million shares at the IPO, and the 15 portfolios for which data are available sold 2.6 million before the end of the month. A Morgan Stanley spokesman declined to comment.”

Data also shows that Wells Fargo, another major bank involved in the underwriting process, had 11 of its funds purchase about 580,000 shares at the IPO, but data on 8 of those funds showed that they dumped almost 237,000 shares by the end of May.

Facebook shares recently found support above $20 after reporting better-than-expected third quarter financial results in late October. Excluding items, Facebook earned $311 million (12 cents per share), edging pass the average analyst estimate by one penny. As of the end of September, Facebook attracted 1.01 billion monthly active users, representing an increase of 26 percent year-over-year. Mobile monthly active users surged 61 percent to 604 million in the same time period.

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