Facebook In Addition To The Lamentable Representative Of Ethical Investment Bankers

In an IPO an investment banking concern takes a fee from a concern to house that stock inward fiscal markets.

Or, to a greater extent than precisely, they bring a fee from a concern to sell purpose of that business.

Their client is the fellowship doing an IPO together with they cause got a legal together with moral obligation to larn the highest toll for the fellowship they are selling. No more. No less.

However investment bankers have, every bit a practical matter, a wishing to expand together with meliorate their franchise. Their franchise consists of a huge publish of buy-side investors (some retail, some institutional) who volition purchase from them whatever they sell together with so long every bit it comes inward a prospectus.

Investment bankers expand that franchise past times making certain the things sold inward a prospectus cause got excess demand. If they tin sell for $38 they chose to sell for $33 to guarantee a stag. Every fourth dimension they produce together with so they ready their ain franchise every bit an investment banking concern at a cost to the client to whom they owe a legal together with moral duty together with who is paying them fees.

The buy-side customers of investment banks cause got got used to playing inward this footling game of theft. We – every bit buy-siders – similar to hold upwards able to purchase IPOs together with cause got minute stag profits. Indeed inward the 1990s the game of giving favours to investment banks inward telephone commutation for minute stag profits became the fashion concern was done on Wall Street.

The moral corruption of investment banks non entirely became accepted simply nosotros redefined morality unopen to what investment banks did rather than what they should do. We though the procedure of systematically ripping off the sellers of IPOs inward society to ready the buy-side franchise of the investment banking concern was right-and-proper.

It is non right-and-proper together with it never was right-and-proper.

The investment banking concern owes a duty to the seller of the IPO together with that is all. Whining fools who complain otherwise cause got allowed their ain greed to distort their morality until they cause got buy the farm argues it was their foolishness that cost them money. I disagree. The thought that Wall Street has an obligation to them (thus guaranteeing stag profits) cost them money. And that thought came from their complacent immorality - a complacent immorality pervasive on Wall Street.

But non entirely cause got people amongst wound hip-pockets complained well-nigh the Facebook IPO their supplicants inward the press cause got been sucked into supporting the buyers same self-interested immorality. The Wall Street Journal (a magazine captured past times Wall Street non Silicon Valley) derides Michael Grimes (the Morgan Stanley Banker) for non standing upwards to David Ebersman (Facebook's CFO) together with allowing Facebook to sell besides many shares at besides high a price. This is tits-up-backward. David Ebersman inward this context is the client. He paid the fees. Michael Grimes had a duty to deed inward Ebersman's interest. Ebersman wanted to sell to a greater extent than shares at a higher price. Michael Grimes together with Morgan Stanley obliged fifty-fifty at the cost to their ain franchise.

And for that he is existence pilloried inward the press.

What nosotros cause got hither is an investment banker acting ethically. And the whole fiscal press is a twitter well-nigh it.

And the SEC is investigating.

No ethical demeanour goes unpunished inward America.




John


PS. Joe Nocera seems i of the few people inward the fiscal press who sees this the correct way. My abide by for Joe rises every year.