BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Capital Markets, Financial

Gorman calls Facebook investors ‘naive’

Posted on May 31, 2012

James Gorman, Morgan Stanley chief executive, dismissed outrage over Facebook’s botched initial public offering, calling investors who had expected immediate gains “naïve” for having “bought it under the wrong pretences”.

The remarks by Mr Gorman addressing Morgan Stanley’s role as lead underwriter came in a CNBC television interview on the day that Facebook enjoyed its best session since it started trading two weeks ago.

    The share price rebounded from new lows to end 5 per cent higher on a wave of buying in the last minutes of trading. The stock closed at $29.60, after 13m shares changed hands in the final 10 minutes.

    Nevertheless, Facebook has broken previous records for dollar value lost on a new flotation two weeks after its initial offering, with some $23bn, or 22.1 per cent, wiped from its $104bn original pricing, according to Dealogic.

    Its poor performance has already put pressure on other internet companies such as Zynga and Yelp and drawn criticism and regulatory scrutiny to Morgan Stanley as the lead underwriter on the offer.

    Facebook raised $16bn on May 17, after Morgan Stanley and Facebook decided to raise the offerings’ price range and the number of shares available. Those decisions have been widely cited for the subsequent slide in the stock.

    Speaking for the first time publicly about the offering, Mr Gorman defended the decision to expand the size of the deal, saying that “we had unprecedented retail demand” and “people calling in from every part of the country”. He confirmed that 26 per cent of the shares were placed in the hands of individual investors.

    He said traders should not have expected the immediate “pop” that smaller internet IPOs have enjoyed and any that did “were both naïve and bought it under the wrong pretences”.

    Mr Gorman also pinned blame on Nasdaq for sowing “confusion” on Facebook’s first day of trading due to a trading systems glitch which meant that some traders did not know for several hours whether their trades had been honoured.

    Pressure on Morgan Stanley could abate if Facebook’s stock rallies further. Mr Gorman alluded to this hope, saying, “Give this a little bit of time … We’re only on day eight here.”

    Mr Gorman also said he was “confident” that Morgan Stanley followed acceptable procedures when communicating to investors Facebook forecasts of slower growth, made just days before the IPO. The question of whether only selected clients received the information has drawn regulatory scrutiny, from the state of Massachusetts and the Financial Industry Regulatory Authority.

    Scott Sweet, senior managing partner at IPO Boutique, an investor advisory, said: “Anything that makes it seem as though it wasn’t that bad is wrong. This does not happen with deals like this. This happens with fourth-tier underwriters.”