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Showing posts with label Morgan Stanley. Show all posts
Showing posts with label Morgan Stanley. Show all posts

Wednesday, August 22, 2012

Buy Malaysian shares, sell Facebook stocks?

Malaysia ranked in top spot by Morgan Stanley analysts for third quarter investment

PETALING JAYA: The local bourse may see renewed interest among investors as robust domestic demand and government spending on infrastructure drive earnings among companies.

Morgan Stanley Research analysts said in a recent report that the country was ranked at the top spot for the third quarter based on valuation, profitability, earnings and performance.

“Malaysia's attractive ranking is driven by a combination of attractive dividend yields, under ownership levels, improvement profitability and relatively strong performance momentum,” they said.

They added that the country's current dividend yield of 3% was higher than its three-year average. They said that according to EPFR Global, a funds flow and asset allocation data provider, investors continue to position the Malaysian stock market 210 basis points underweight compared to the MSCI Asia ex-Japan benchmark.

They said profitability in terms of return-on-equity basis has improved to 12.7%, higher than the three-year average. “One quarter relative price performance for MSCI Malaysia has also been strong as it was the second best performing market in Asean,” they said.

While MSCI South-East Asia consensus earnings growth estimates had been revised down by 23 basis points last week, MSCI Malaysia earnings were revised up by 54 basis points.

“MSCI Thailand estimates was revised down the most, by 41 basis points, followed by MSCI Singapore 40 basis points, MSCI Indonesia 10 basis points and MSCI Philippines 4 basis points,” they said.

They said consensus growth estimates for 2012 were 14.4% for Malaysia, Indonesia (9.3%), Philippines (8%), Singapore (3.1%) and Thailand (14.2%).

On a year-to-date basis and relative to the performance of MSCI Asia ex-Japan, MSCI Malaysia declined 1.5%, MSCI Indonesia contracted 7.2%, MSCI Thailand gained 9.2%, MSCI Singapore rose 12.4% and MSCI Philippines jumped 14.7%.

On a sectoral basis, Malaysian utilities was revised up 94 basis points while industrials was revised down 35 basis points.

Meanwhile, The Institute of Chartered Accountants in England and Wales said in a report that although growth prospects for Asean had fallen substantially in line with the deteriorating conditions around the world, “Malaysia is still going fairly strong as domestic demand remains relatively buoyant.”

It said that like other countries such as Indonesia and the Philippines, the basic story of rising middle class incomes in Malaysia persisted despite diminished prospects for investments due to lower profits for exporters.

It forecasts growth to slow down to an annual average of 3.8% in the second half (after growing 5.1% in the first half) due to external headwinds.

“Elections this year or next year bear some political risk, but in the event of a peaceful outcome, growth should rise by 3.5% in 2013. A recovery of its trading partners should see the country's gross domestic product rise by 4% in 2014,” it added.

By FINTAN NG  fintan@thestar.com.my

Is Facebook director signalling to others to rush out of Facebook stocks?

19.16  -0.85 / -4.26%

SAN FRANCISCO: Peter Thiel was the first investor to take a gamble on Facebook Inc. Now some people are wondering whether, in selling most of his stake, the Facebook board member is signaling to others that it's time to rush for the exits.

Thiel, the co-founder of PayPal who invested in Facebook in 2004, sold roughly $400 million worth of Facebook shares last week as the first restrictions barring insider selling were lifted.

The sales, which were conducted as part of a stock sale plan that Thiel entered into in May, have dealt another blow to Facebook's reputation among some investors in the wake of a rocky debut that has wiped out roughly 50 percent of its market value. And it has raised questions about whether Thiel's move conflicts with his responsibilities as a Facebook director.

"It's a vote of no-confidence from a board member," said Max Wolff, an analyst at Greencrest Capital.

"If he wants to serve primarily as a self-interested investor, that's fine. But then you can't be the on the board. Boards of directors are not made up of people whose primary interests are in their checkbook," said Wolff, who said he believed Thiel should resign from the board.


A spokesman for Thiel declined to comment.

"From a shareholder standpoint, if a VC is going to be on the board you'd like to think that they still have a large position in the company and that they're interested in making it be more valuable," said Walter Price, a portfolio manager at RCM Capital Management which does not own Facebook shares. "It sends a mixed message when they sell most of their stock and they still stay on the board," he said.

The 44-year-old Thiel still owns roughly 5.6 million shares of Facebook, worth around $107 million at Tuesday's closing price of $19.14 per share.

That stake means he still has "skin in the game," said James Post, a professor of management at Boston University who specializes in corporate governance issues.

"The worst you can say is that it may reflect perhaps a questionable judgment about getting rid of all these shares at a time when such big questions are looming about Facebook's future," said Post. But he said he believed that Thiel's sales do not disqualify him from serving on the board.

The stock sales are the latest in a seemingly endless string of setbacks and controversies to plague Facebook since its highly anticipated IPO in May.

The world's No. 1 online social networking website, with roughly 955 million users, experienced brisk demand for its shares when it was a private company and became the only U.S. company to debut with a market value of more than $100 billion.

But technical glitches with the Nasdaq stock exchange marred the stock's first day of trading and concerns about the company's slowing revenue growth have pressured the company's shares since then.

Thiel, who has an undergraduate degree from Stanford University in philosophy and a law degree from Stanford Law School, was among Facebook's first believers.

He invested $500,000 in Facebook at a $5 million valuation in September 2004, seven months after the company was created by Mark Zuckerberg in a Harvard dorm room. In 2006, one of Thiel's investment firms, the Founders Fund, participated in a $27.5 million funding round along with Greylock Partners, Meritech Capital Partners and Accel Partners.

The Facebook investment is by far the most successful of Thiel's investments, which have also included stakes in LinkedIn Corp , Yelp Inc and SpaceX.

Thiel sold 16.8 million shares of Facebook at the IPO for $38 a share, for total proceeds of roughly $640 million. And he sold a significant number of shares through a private transaction in 2009.

Facebook, which declined to comment on Thiel's stock sales, said in its prospectus in May that the company believes Thiel should serve on the board because of his "extensive experience as an entrepreneur and venture capitalist, and as one of our early investors."

It's common for early investors, such as venture capitalists and angel investors, to have seats on the boards of companies they've backed. And venture firms typically distribute shares of the company to their limited partners following an IPO, so that the venture fund's investors can get a return on the investment.

But there are no "hard and fast rules" for when those investors should exit the board after a company's IPO, said Nick Sturiale, a partner at venture capital firm Jafco Ventures.

"It's usually a discussion between the CEO and the board member and the partnership whether they stay, and for how long," he said.

John Doerr, a partner at venture capital firm Kleiner Perkins Caufield & Byers, is on the board of Google Inc and was on the board of Amazon.com Inc until 2010 - both companies that Kleiner funded.

If the fund that a director represents sells its stake after the IPO, the director should also consider stepping down, said Charles Elson, a University of Delaware finance professor specializing in corporate governance.

The topic sparked a lively debate on Tuesday, as venture capitalists and technology company executives unleashed a rash of Twitter messages and blog posts to defend or criticize the insider sales.

Fred Wilson, a principal with Union Square Ventures, noted in a post on his personal blog that insider selling is to be expected following an IPO.

"Those who took the risk of losing all the capital they bet on 20 year old Mark Zuckerberg are entitled to their return," wrote Wilson.

Earlier report from print edition

WASHINGTON: If you bought Facebook shares in the May initial public offering (IPO) and held onto them, by Monday you would have lost more than half your investment and not see any encouraging signs of making your money back.

Three months after the largest tech share issue ever on US markets, Facebook fell to a new low below US$19 (RM60) a share, compared to the US$38 (RM120) underwriters charged for the 421 million shares they sold.

Although the stock bounced back to close at US$20.01, IPO investors were still holding huge losses with not much hope of a quick reversal, analysts said,.

Some key investors were still cashing out on Thursday and Friday, billionaire Peter Thiel, who invested in Facebook first in 2004, sold off nearly 80% of his huge holding, according to a filing with the Securities and Exchange Commission on Monday.

Thiel's average price for 20.6 million shares was US$19.73 still a handsome profit for such an early backer of the website, but not a demonstration of confidence in the company's potential to rebound.

Facebook raised US$16bil when it went public on May 18, giving it a nominal market value of a stunning US$104bil and raising hopes of a new dotcom boom on US markets.

The company's business promise was huge marketing access to the 900 million users of the world's leading social network and data about them that marketers prize.

But analysts said that the large number of shares sold, the high IPO price, and the overall skittishness of investors in a soft overall economy, had undermined market support for the company.

“They just put way too many stocks out at once... before the market was ready to absorb so many shares,” said Michael Pachter of Wedbush Securities.

The price struggled around the US$30 range in the weeks after the issue, with the underwriters undergoing a beating and lawsuits for allegedly having privately lowered their earnings forecasts for the company days before the IPO.

The shares then fell to the low-US$20s range at the end of July when Facebook issued an uninspiring quarterly earnings report.

And last Thursday the price plummeted when a ban on pre-IPO investors such as Thiel selling their shares was lifted many apparently sold.

That lockup applied only to 270 million shares. A further 1.2 billion shares, those controlled by Facebook employees, will be freed from lockup on Nov 14.

While undoubtedly Facebook founder Mark Zuckerberg and other top figures will hold on to most of their shares, anything added to market liquidity is, at this point, downward pressure on the price.

Analysts are debating whether the stock is now a bargain based on Facebook's earnings potential.

“Over the long term, the trade is about the fundamentals of the business, and the fundamentals remain very positive,” Pachter told AFP. He called the problem of a share oversupply “just noise”.

Social media expert Lou Kerner also downplayed the selling pressure.

“We remain very positive,” he said. “Facebook will figure how to monetise mobile, the dollars will find their way.”

New York University finance professsor Aswath Damodaran was more sceptical. After Facebook's quarterly earnings report, he cut his original US$27 a share “intrinsic value” estimate to below US$24.

“The earnings report was a disappointment to markets, revealing less revenue growth than anticipated and an operating loss.” But at US$19, he still is not sure of the investment's merit, given the potential overhang of sellers.

“Facebook remains a company with vast potential (their user base has not shrunk), no clear business plan (is it going to be advertising, product sales or something else) and poor corporate governance,” he wrote on his blog Musings on Markets.

“Eventually, the intrinsic' truths will emerge, but it may be a long time coming.”

Another longtime bear on the stock, Trip Chowdhry of Global Equities Research, retains deep doubts even at US$19 a share. “Facebook doesn't have the technology to monetise social actions,” he said. “With what we know right now, the price should be in the low teens.” - AFP

Citadel urges U.S. to okay Nasdaq's Facebook IPO payback plan

NEW YORK: Citadel LLC urged U.S. regulators to approve Nasdaq OMX Group's $62 million compensation plan for firms harmed by Facebook's May 18 glitch-ridden initial public offering.

Citadel's market making unit bought and sold over $3.8 billion worth of Facebook stock during the IPO and "incurred losses protecting retail investors from the problems caused by Nasdaq," the firm said in a letter on Tuesday to the Securities and Exchange Commission.

Nasdaq filed its all-cash plan with SEC in July.

Regulations cap the exchange's liability at $3 million a month for problems caused by technology issues, and the Facebook accommodation plan would temporarily raise that amount, though not to a level anywhere near the upward of $500 million lost by the major retail market makers in the IPO.

"While the extent of exchange immunity from liability for mishandling orders is an important and complex public policy issue, we submit that any commission consideration of this issue should be addressed at a later time," Citadel said.

Citadel lost around $30 million due to the IPO, a person familiar with the situation previously told Reuters.

Wednesday is the deadline for interested parties to submit comment letters to the SEC on Nasdaq's proposal.

The other top retail market makers involved in the IPO were Swiss bank UBS AG, Knight Capital Group, and Citigroup's Automated Trading Desk.

UBS said it lost more than $350 million when the lack of timely order confirmations by Nasdaq caused UBS's internal systems to re-enter orders multiple times.

A spokeswoman for UBS, which has said it may take legal actions against Nasdaq to recover the full extent of its losses, said the firm had no comment.

Knight said it lost $35.4 million due the IPO. A spokeswoman at Knight said it is still unclear as to whether the firm will formally comment on Nasdaq's reimbursement plan. A source familiar with the firm's plans told Reuters Knight is likely to accept Nasdaq's offer.

A spokesman for Citi, which sources have said lost around $30 million, could not confirm if the firm would submit a comment letter.

The all-cash $62 million reimbursement plan is $22 million larger than Nasdaq originally proposed. The prior proposal was made up mostly of trading rebates, which drew loud protests from other exchanges and market makers.

A Nasdaq spokesman could not immediately be reached for comment. Spokesmen for New York Stock Exchange operator, NYSE Euronext, and No. 3 U.S. equities exchange, BATS, said their companies did not plan to file comment letters with the SEC. A spokesman for No. 4 exchange, Direct Edge, was not immediately available for comment.

In a regulatory filing on August 3, Nasdaq said it is the subject an investigation by the SEC, as well as eight lawsuits by investors and one by trading firms, for its role in Facebook's problematic debut.

While Nasdaq said it believes the lawsuits are without merit, it said it expects "to incur significant additional expenses in defending the lawsuits, in connection with the SEC investigation and in implementing technical changes and remedial measures which may be necessary or advisable." - Reuters

Facebook at half-price: Which way now? 


WASHINGTON: If you bought Facebook shares in the May IPO and held onto them, by Monday morning you would have lost more than half your investment -- and not see any encouraging signs of making your money back. 

Three months after the largest tech share issue ever on US markets, Facebook fell to a new low below $19 a share, compared to the $38 underwriters charged for the 421 million shares they sold.

Although the stock bounced back to close at $20.01, IPO investors were still holding huge losses with, analysts said, not much hope of a quick reversal.

Some key investors were still cashing out -- on Thursday and Friday, billionaire Peter Thiel, who invested in Facebook first in 2004, sold off nearly 80 percent of his huge holding, according to a filing with the Securities and Exchange Commission Monday.

Thiel's average price for 20.6 million shares was $19.73 -- still a handsome profit for such an early backer of the website, but not a demonstration of confidence in the company's potential to rebound.

Facebook raised $16 billion when it went public on May 18, giving it a nominal market value of a stunning $104 billion and raising hopes of a new dotcom boom on US markets.

The company's business promise was huge: marketing access to the 900 million users of the world's leading social network and data about them that marketers prize.

But analysts said that the large number of shares sold, the high IPO price, and the overall skittishness of investors in a soft overall economy, have undermined market support for the company.

"They just put way too many stocks out at once... before the market was ready to absorb so many shares," said Michael Pachter of Wedbush Securities.

The price struggled around the $30 range in the weeks after the issue, with the underwriters undergoing a beating and lawsuits for allegedly having privately lowered their earnings forecasts for the company days before the IPO.

The shares then fell to the low-$20s range at the end of July when Facebook issued an uninspiring quarterly earnings report.

And last Thursday the price plummeted when a ban on pre-IPO investors such as Thiel selling their shares was lifted -- many apparently sold.

That lockup applied only to 270 million shares. Another 1.2 billion shares, those controlled by Facebook employees, will be freed from lockup on November 14.

While undoubtedly Facebook founder Mark Zuckerberg and other top figures will hold on to most of their shares, anything added to market liquidity is, at this point, downward pressure on the price.

Analysts are debating whether the stock is now a bargain based on Facebook's earnings potential.

"Over the long term, the trade is about the fundamentals of the business, and the fundamentals remain very positive," Pachter told AFP. He called the problem of a share oversupply "just noise".

Social media expert Lou Kerner also downplayed the selling pressure.

"We remain very positive," he said. "Facebook will figure how to monetize mobile, the dollars will find their way."

New York University finance professsor Aswath Damodaran was more skeptical. After Facebook's quarterly earnings report, he cut his original $27 a share "intrinsic value" estimate to below $24.

"The earnings report was a disappointment to markets, revealing less revenue growth than anticipated and an operating loss."

But at $19, he still is not sure of the investment's merit, given the potential overhang of sellers.

"Facebook remains a company with vast potential (their user base has not shrunk), no clear business plan (is it going to be advertising, product sales or something else) and poor corporate governance," he wrote on his blog Musings on Markets.

"Eventually, the 'intrinsic' truths will emerge, but it may be a long time coming."

Another longtime bear on the stock, Trip Chowdhry of Global Equities Research, retains deep doubts even at $19 a share.

"Facebook doesn't have the technology to monetize social actions," he said. "With what we know right now, the price should be in the low teens."

Tuesday, August 21, 2012

Asian banks review US ties

Cost will rise when tough new rules on derivatives come into force

SINGAPORE: Asian banks are reviewing relationships with their US counterparts to avoid being caught by tough new American rules on derivatives trading that are about to come into force.

From the start of next year, non-US banks that annually deal in at least US$8bil worth of products such as interest rate swaps with American counterparties are expected to be subject to new derivatives rules in the Dodd-Frank Act.

In practice that means they will need to register as swap dealers with US regulators and abide by their rules on capital requirements and risk management, all of which adds to costs.

“If I have the choice, I just don't want to deal with a US person',” said a treasury manager at a regional Asian bank.

“We're still looking at our compliance situation, but it may mean that in future I need to ask all my US counterparties if there's a way they can change where they book their trades with us.”

A “US person” as defined by the regulation is a relatively broad term, intended by regulators to apply to any person or entity that will have an effect on American commerce.

The Dodd-Frank Act was spurred by the 2008 financial crisis and aims to impose tighter supervision of cross-border derivatives trade following incidents such as the loss-making trades by the socalled “London Whale” at JPMorgan's UK office.

But some lawyers say even entities that deal in a relatively small amount of derivatives could be forced to execute trades on an electronic platform and put them through a central clearing house acceptable to American regulators.

That has prompted a knee-jerk reaction from some Asian institutions to consider cutting all their derivative trading relationships with US counterparties, anxious to avoid higher trading costs and the spotlight of American regulators.

In reality, few banks were likely in the long term to cut all trading with US banks given that they provided a lot of liquidity to the market, and it would be hard to remain active in the global markets without them, he added.

In Hong Kong, Singapore and Japan combined, around US$143.1bil of interest rate derivatives were traded every day in April 2010, according to the most recent figures from the Bank of International Settlements.

While still small compared with the US$1.2 trillion traded in the UK and the US$642bil in the United States, the turnover has almost tripled from the US$50.8bil recorded in 2004.

American banks are big players in global over-the-counter derivatives markets, with JPMorgan Chase & Co, Citigroup Inc, Goldman Sachs Group Inc, Morgan Stanley and Bank of America Corp accounting for about 37% of all outstanding contracts, according to the International Swaps and Derivatives Association.

Asian players have a smaller share, although Singapore banks DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank Ltd account for a large part of the S$282bil of interest rate swaps cleared at the Singapore Exchange since it launched its clearing service in November 2010, analysts estimate.

Lawyers say US banks operating in Asia are now rethinking how they structure themselves and handle their trades.

“US groups that want to remain competitive in the non-US market will need to develop a structure that enables them to trade in a way that does not scare their counterparties away,” said Theodore Paradise, a partner at law firm Davis Polk & Wardwell in Tokyo. - Reuters

Wednesday, May 30, 2012

Facebook share price drops to $28, shaves $40bn off

Facebook shares fall below $30 as US authorities begin investigation into IPO

Shares continue to slump on Wall Street as lawsuits against founder Mark Zuckerberg allege company misled investors

Facebook
Electronic screens show the price of Facebook shares after they began trading in New York earlier this month. Photograph: Richard Drew/AP

Facebook's shares dipped below $30 Tuesday as the company's shares hit new lows and continued to struggle in the wake of its massive initial public offering (IPO).

Even as US stock markets bounced back from falls last week, Facebook's shares slumped 9.62% to end the day at $28.84 – almost $10 below the $38 price set at their IPO earlier this month. Stock markets in the US, which had been closed on Monday for Memorial Day, ended up for the day.
During the Trading Day
28.84 -3.07 / -9.62%
Data as of 4:00pm ET
Day’s Change During After-Hours   Switch to standard view »
28.78 -0.06 / -0.21%
Volume: 1,246,000  


The share slide means Facebook is now valued at $61.98bn, a sharp fall from the $104bn it was valued at when the company went public on 18 May.

The IPO has proved a disaster for Facebook and its bankers. US authorities are investigating allegations that the company gave critical information to some investors and not others. Shareholders have launched class action lawsuits against founder Mark Zuckerberg, the company and its bankers, including lead bank Morgan Stanley.

Walter Zimmermann, senior technical analyst at United-ICAP, said there was plenty of evidence that the stock could fall further. He said the share sale had represented "a mania of historic proportions".

"This was an IPO that was going to save California and uplift the western world. It was so overhyped and overvalued that it could only fall," he said.

Some traders pointed to technical reasons for the stock's continuing woes. Trading in Facebook options – contracts that allow investors to make bets on the direction of a company's shares – started Tuesday. Traders can now also "short" Facebook shares, betting that the price will fall.

Sam Hamadeh, founder of analyst PrivCo, said most of the options were "bearish" meaning traders were betting on price falls and that popular contracts were putting Facebook's share price in the mid $20s for June and July. PrivCo estimated Facebook's shares were worth $25 ahead of the IPO.

"The shares would have probably fallen anyway but this probably sped the process up a little bit," he said.

Zimmerman said discussions of technical issues missed a wider point. He said Facebook had sold so many shares – 96m – that there was little appetite from investors who had not bought shares. "Who is left to buy?" he said.

News that the company is considering building its own mobile device, an area where it has struggled to make money, seems to have been shrugged off by investors.

Last week law firm Robbins Geller launched a class action lawsuit on behalf of Facebook investors against the company and its bankers. Massachusetts' secretary of commonwealth William Galvin has sent a subpoena to Morgan Stanley demanding more details of what the bank and Facebook executives told select investors ahead of the IPO.

By Dominic Rushe in New York  guardian.co.uk

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Saturday, May 26, 2012

Malaysians should take heed of the highly priced IPO!

Malaysians should take heed that IPOs don’t always make money as the Facebook fiasco has amply demonstrated.

IF you think an initial public offering (IPO) is a sure way of making money, think again – things can go seriously wrong and companies can open a lot lower than their IPO price.

If anyone has delusions about an IPO automatically making money for those fortunate enough to have obtained the shares at that stage, the recent episode with Facebook should dispel any such notion.
Barely a week into trading, Facebook is trading at an 18% discount to its IPO price at the time of writing, hardly something that inspires confidence in IPOs in this current poor market.

Like me not: A Facebook Like Button logo is displayed on a window of a store in Palo Alto, California. Facebook and its underwriters came under legal attack as investors filed lawsuits over Facebook’s flop controversy-marred IPO and have accused the company of hiding material information from investors. If anyone has delusions about an IPO automatically making money, the recent episode with Facebook should dispel any such notion. — AFP
 
Facebook was offered at US$38 per share to raise US$16bil for the vendors that included founder Mark Zuckerberg, who became a cash billionaire after the deal and whose company was valued at US$104bil based on the IPO price.

And this for a company that had earnings of less than US$1bil and revenue of US$3.7bil, giving a historical price earnings ratio (market value divided by earnings) of over 100.

But still investment bankers felt they had a deal, secured the IPO investors and then listed the stock on May 17, only to see a steep fall from the very first day of trading, which eventually saw a cut in value of almost a fifth.

That’s amazing for a stock pushed by some of the top investment firms in the US including Morgan Stanley and Goldman Sachs and a company with such a strong brand recognition too.

Now disgruntled investors are crying foul and amidst reports of selective information given to some banks by Facebook, shareholders have started suing Facebook and Zuckerberg in an embarrassing development that threatens to overturn yet again how Wall Street does business.

The entire Facebook fiasco underlines one key important lesson – ignore fundamental valuation at your own risk. True, markets have their own madness and sometimes stocks trade way above what can be considered their intrinsic value.

But they don’t stay there for long if they ever do especially if the earnings stream does not start kicking in soon. And if there are any indications of problem, one can expect no less than a collapse in share prices if valuations were excessively high in the first place.

As the Facebook saga unfolds in the US, the applications closed yesterday for Gas Malaysia’s IPO here. Those who follow the situation here closely may realise that disclosure in IPOs, while it may seem better than before, need not necessarily be so.

Try as I might I could not find a forecast for earnings for Gas Malaysia in its prospectus, a company with a blue chip reputation owned by amongst others, an MMC Holdings-Shahpadu joint venture, Petronas Gas and Tokyo Gas-Mitsui. The Petronas name attached to it gives it a certain mystic and pedigree, no doubt.

But still I could not find forecast earnings per share or dividends for this year in the thick prospectus of over 300 pages. If it was in there – and I doubt that – should it not have been highlighted? And how does one value the company without such figures?

There was a time when every IPO had forecast earnings and dividends, sometimes for more than a year. That gave retail investors a good feel for the company they were buying but apparently that’s no more the requirement. In the light of the Facebook fiasco, that’s a retrograde step.

Whether it’s in the US or here, there is a clear need to tighten up IPO procedures and disclosures so that all investors have equal access to information and are not discriminated against. That helps in the creation of a fair, orderly and clean capital market, which people can generally rely upon.

In Gas Malaysia’s case, some analysts put the forward price earnings ratio at the issue price of RM2.20 a share at 18 times and the dividend yield at 4.4%. It is academic now since applications have closed but those don’t look particularly attractive.

At 18 times, the price earnings ratio is above that of many Malaysian blue chips. The dividend yield at 4.4% look respectable but is based on 100% of earnings being paid out as dividends, which makes it equivalent to the earnings yield and also implies very little or no future growth because nothing is being retained in the business for expansion.

In that context it looks less than attractive. But the Malaysian public, perceiving IPOs as a means to make money and attracted by Gas Malaysia’s affiliations, including that with national oil corporation Petronas, might think otherwise.

One hopes not, but if the valuations turn out to be expensive, then there could be nasty surprises. To reduce the possibility of that, regulatory authorities should probably revert to older, more stringent standards for IPOs which require profit and dividend forecasts to be clearly stated and verified, subject to the usual conditions, by the merchant bankers and accountants.

That will go some way to reassure investors, and especially retail investors who are the last to know things, that there is substance in the company that supports the issue price.

We certainly don’t want a Facebook-style fiasco in Malaysia.

A Question of Business  By P. GUNASEGARAM starbiz@thestar.com.my


·Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) is not a fan of Facebook, the service or Facebook, the company.

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Facebook market makers' losses total at least $100m; Share price should trade for $13.80! 

Friday, May 25, 2012

Facebook market makers' losses total at least $100m; Share price should trade for $13.80!

NEW YORK (Reuters): Claims by four of Wall Street's main market makers against Nasdaq over Facebook's botched IPO are likely to exceed $100 million, as they and other traders continue to deal with thousands of problems with customer orders.

A technical glitch delayed the social networking company's market debut by 30 minutes on Friday and many client orders were delayed, giving some investors and traders significant losses as the stock price dropped. The exchange operator is facing lawsuits from investors and threats of legal action from brokers.

Four of the top market makers in the Facebook IPO -- Knight Capital, Citadel Securities, UBS AG and Citi's Automated Trading Desk -- collectively have probably lost more than $100 million from problems arising from the deal, said a senior executive at one of the firms.

Knight and Citadel are each claiming losses of $30 million to $35 million, potentially overwhelming a $13 million fund the exchange set up to deal with potential claims.

Nasdaq also has to contend with the outside prospect that it could lose the Facebook listing entirely after having just obtained it.

Facebook shares ended regular trading on Thursday up 3.2 percent at $33.03, about $5 short of their offering price. Action on the stock, however, has essentially become secondary to the fallout from the IPO -- its price, its size, its execution and questions about selective disclosure of its financial prospects.

Regulators including the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and Massachusetts Secretary of the Commonwealth William Galvin are now looking into how the IPO was handled. The U.S. Senate Banking Committee is also reviewing the matter.

BROKERS UP IN ARMS

Advisers familiar with the situation said many investors are now finding out, nearly a week after the fact, that their orders were not executed at the prices they thought.

Fidelity, in a statement, said it was working with regulators and market makers on its clients' issues "and we will continue to do so until we are confident that Nasdaq has done everything it can to mitigate the impact to our customers."

Morgan Stanley is also still tending to trade orders placed by brokerage customers on Friday, two people familiar with the situation said. Nasdaq has said all orders were returned by 1:50 p.m. EDT last Friday, but a Morgan Stanley Smith Barney source said it did not get trade information in a "systemic, orderly way.

Late Thursday, the company held a call with its brokers and told them adjustments would be made to thousands of trades so that no limit orders would be filled at more than $43 a share for stock from the IPO day, a person familiar with the call said.

While brokerages may have received confirmation of trades made on Friday, many were still handling customer disputes over what price they received on the trades, officials said.

The question is "who is going to eat the cost" of compensating those investors, said Alan Haft, a financial adviser with California-based Kings Point Capital LLC, which has $200 million in assets.

One prominent plaintiffs lawyer said what happened with Facebook was reminiscent of the dot-com bubble.

"This is just another spin on the same game of unfair treatment of individual investors," said Stanley Bernstein of Bernstein Liebhard. He chaired the plaintiffs' committee in an IPO class-action suit challenging the role of investment banks in more than 300 IPOs between 1998 and 2000. The litigation ended in a $586 million settlement in favor of the plaintiffs.

MARKET MAKERS LOOM

The claims by market makers Knight and Citadel could end up dwarfing some of the brokerage issues, though.

"They are certainly facing the specter of some significant lawsuits if this pool is not enough," a source familiar with Knight's situation said of the Nasdaq claims pool.

Citadel has sent its losses to Nasdaq for potential compensation, a source familiar with the matter said. Citadel's hedge fund was not affected.

The head of trading at Instinet said it still had no idea when Nasdaq would respond to requests for accommodation -- essentially, compensation for the order problems -- or if those requests would be honored.

"Were gonna be looking at a loss on our books" if Nasdaq does not honor the requests, Mark Turner said. "We basically made most of our clients whole because Nasdaq told us to go through the process and file for accommodation. If Nasdaq does not accommodate us we're going to end up taking a loss."

"I don't know that I want to put a dollar amount on that but it's not nearly as significant as Knight's ($30-$35 million)," he said.

Citadel and Knight, as market makers to the Nasdaq, honor their clients' buy, sell and cancellation orders. The orders are supposed to be processed by the exchange within milliseconds, but there was a nearly two-hour delay in processing Facebook orders at the Nasdaq.

During that time, market makers had no idea where their orders stood. And in reality, the price clients bought or sold at was sometimes different than the price they actually got.

For example, Facebook shares began trading with an opening cross price - the first price at which those not in on the IPO could buy or sell - of $42 per share. If an order to sell 10,000 shares at $42 went in at that time, but wasn't filled until later in the day when shares were trading at around $39, a market maker like Citadel or Knight would make up the difference - in this case, at a cost of $30,000.

FEWER PROBLEMS ELSEWHERE

Several analysts who cover exchanges said Nasdaq's legal liability should be limited, though. According to the analysts, securities rules give Nasdaq wide discretion in determining what, if any, compensation it should pay to customers who claim that they suffered losses due to trading execution.

Under exchange rules, Nasdaq's liability regarding client losses from certain trading issues is limited to $3 million a month. Market makers will be arguing that Nasdaq was so grossly negligent that its actions during the IPO opening override the limits, said a source with knowledge of Knight's situation.

Other firms said they did not have similar problems to those of Knight, raising questions about the scope of the losses.

"The problems were where people were trying to cancel orders; we didn't have that," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "Because we didn't have a problem doesn't mean there weren't problems."

E*Trade Financial Corp said its market making operations realized losses of "well under a million dollars."

Charles Schwab Corp had a "small number" of the "tens of thousands of clients" who traded Facebook whose issues still have not been resolved, a spokesman said. "Each one requires some analysis to resolve, which can be time consuming."

Shares of Nasdaq fell 1 cent to $21.80 on Thursday. As of Thursday's close the stock was down 5.2 percent from its last close before the Facebook debacle. Over the same period NYSE Euronext is down just 0.1 percent.

The slide in the shares is adding to the pressure on Nasdaq Chief Executive Robert Greifeld, who defended the exchange's performance at its annual meeting last Tuesday.

Facebook Inc (NASDAQ) 

 
 

Mark Hulbert
By Mark Hulbert, MarketWatch
May 25, 2012, 12:02 a.m.
Facebook’s stock should trade for $13.80 
Commentary: Here’s a fair-price calculation for Facebook

CHAPEL HILL, N.C. (MarketWatch) — Well, then, what should be the price of Facebook’s stock? 

Rather than endlessly rehashing the events that have taken place over the last week, it is this question that investors should be asking. Surprisingly, however, few are doing so. 

And yet, courtesy of a just-released study, calculating a fair price for Facebook’s stock isn’t as difficult as it might otherwise seem. 

The study is entitled “Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010.” Its authors are Jay Ritter, a finance professor at the University of Florida, and two researchers at the University of California, Davis: Martin Kenney, a professor in the Department of Human and Community Development, and Donald Patton, a research associate in that same department. ( Click here to read a copy of their study. )

The researchers found that the revenue of the average company going public between 1996 and 2010 grew by 212% over the five years after its IPO. Assuming Facebook’s revenue grows just as fast, and given that the company’s latest-year revenue was $3.71 billion, its annual revenue in five years’ time will be $11.58 billion. 

NYSE, Nasdaq face off for Facebook


After the fumbled IPO for Facebook, the NYSE is renewing efforts to lure more stock listings away from its rival, Nasdaq, Photo: AFP/Getty Images.

Since Facebook FB +3.22%   is most often compared to Google GOOG -0.95%  , let’s assume that its price-to-sales ratio in five years will be just as high as Google’s is currently: 5.51-to-1. You could argue that this is an overly generous assumption, of course. But it nevertheless means Facebook’s market cap in five years will be just $63.8 billion — 30% less than where it stands today. 

Assuming that the total number of its shares stays constant, that works out to a price per share of just $23.26 — in contrast to its recent closing price of $33.03. 

Ouch. 

Actually, however, the news is even worse: No one is going to invest in Facebook shares today if its price will be 30% lower in five years. So, in order to entice someone to invest in it today, Facebook needs to offer a handsome return. Assuming that its five-year return is equal to the stock market’s long-term average return of 11% annualized, Facebook shares currently would need to be trading at just $13.80. 

Double ouch. 

Don’t like that answer? Try focusing on earnings rather than sales, and you get only a marginally different result. Assuming its profit margin stays constant (instead of falling as it could very well do as it grows), assuming its P/E ratio in five years will be just as high as Google’s is today, and assuming that its stock will produce a five-year return of 11% annualized, Facebook’s stock today should be just $16.66. 

How can Facebook investors wriggle out from underneath the awful picture these calculations paint? By assuming that its revenue and profitability will grow faster than the average IPO between 1996 and 2010 — and not just by a little bit, either, but a whole lot faster. 

Of course, it’s always possible that Facebook will be able to pull that off. 

But, as Professor Ritter pointed out to me earlier this week, “the bigger a company gets, the harder it is to maintain percentage growth.” And Facebook is already huge — larger, in fact, than all but 47 other publicly traded companies in the U.S. 

So my back-of-the-envelope calculations for this column could very well be too optimistic rather than too pessimistic. 

Given all this, Ritter said that a market cap “of $63 billion ... five years from now seems like a very reasonable scenario.” 

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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Thursday, May 24, 2012

Facebook, Zuckerberg & banks sued over IPO

The lawsuit charges the defendants with failing to disclose "a severe and pronounced reduction" in forecasts for Facebook's revenue growth in the run-up to Friday's IPO.
The lawsuit names Mark Zuckerberg, Facebook's founder, as a defendant, as well as top Silicon Valley investors Peter Thiel and Marc Andreessen. Photograph: AFP/Getty Images

Facebook, Morgan Stanley and some of the biggest names in Silicon Valley are being pursued over the social network's disastrous share sale by the law firm that won a $7bn settlement for Enron's shareholders.

Robbins Geller is co-ordinating a class action lawsuit alleging that Facebook and its bankers misled investors about the true state of their business while informing a handful of privileged clients about the company's true prospects.

The lawsuit, filed in New York, names Mark Zuckerberg, Facebook's founder, as a defendant, as well as top Silicon Valley investors Peter Thiel and Marc Andreessen, and Goldman Sachs, JP Morgan and Barclays Capital.

Facebook shareholders have sued the social network, CEO Mark Zuckerberg, and a number of banks, alleging that crucial information was concealed ahead of Facebook's IPO.

The lawsuit, filed in the U.S. District Court in Manhattan this morning, charges the defendants with failing to disclose in the critical days leading up to Friday's initial public offering "a severe and pronounced reduction" in forecasts for Facebook's revenue growth, as users more and more access Facebook through mobile devices, according to Reuters, which cited a law firm for the plaintiffs. (The case is Brian Roffe Profit Sharing Plan v. Facebook, 12-04081.)

Earlier this month, Facebook updated its filings with the Securities and Exchange Commission to say that the shift to smartphones and other mobile gadgets is cutting into the prices it can set for advertisers, which would in turn hurt the company's revenue. In March, the social network had 488 million monthly average unique users of its mobile products, out of a total of just over 900 million registered users.

The plaintiffs charge that the changes to the forecast by several underwriters of the IPO were only "selectively disclosed" to a small group of preferred investors and not to the investment community at large. "The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result," the complaint says, per the Reuters report.

Facebook's stock opened Friday priced at $38 and, aside from a slight uptick right at the start, has been trading lower since then. It closed at $31 last night. In early trading today, shares are up better than three percent to around $32.
A report from well-known Wall Street watcher Henry Blodget, citing an unnamed source, posits that a Facebook executive was responsible for telling institutional investors, but not smaller investors, about the reduction in revenue estimates.

Speaking on CBS This Morning today, Blodget described the sequence of events regarding the estimates and the failure to fully share material information. "The fact that it was only distributed verbally to a handful of institutions as opposed to all investors is a problem," he said.

This isn't the only lawsuit related to Facebook's IPO. A Maryland investor, for instance, is suing the Nasdaq stock exchange over glitches in how it handled the offering.

We're reaching out to Facebook for comment and will update this story when we hear back.

Jonathan E. Skillingsby Jonathan E. Skillings 

Facebook, banks sued over pre-IPO analyst calls

In this photo illustration, a Facebook logo on a computer screen is seen through glasses held by a woman in Bern May 19, 2012. Picture taken May 19, 2012. REUTERS/Thomas Hodel

Wed May 23, 2012 11:02am EDT
 
(Reuters) - Facebook Inc and banks including Morgan Stanley were sued by the social networking leader's shareholders, who claimed the defendants hid Facebook's weakened growth forecasts ahead of its $16 billion initial public offering.

The defendants, who also include Facebook Chief Executive Officer Mark Zuckerberg, were accused of concealing from investors during the IPO marketing process "a severe and pronounced reduction" in revenue growth forecasts, resulting from increased use of its app or website through mobile devices. Facebook went public last week.

The lawsuit was filed in U.S. District Court in Manhattan on Wednesday, according to a law firm for the plaintiffs. A day earlier, a similar lawsuit by a different investor was filed in a California state court, according to a law firm involved in that case.

In the New York case, shareholders said research analysts at several underwriters had lowered their business forecasts for Facebook during the IPO process, but that these changes were "selectively disclosed by defendants to certain preferred investors" rather than to the public generally.

"The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result," the complaint said.

Representatives of Facebook and Morgan Stanley did not immediately respond to requests for comment.


Facebook shares fell 18.4 percent from their $38 IPO price in the first three days of trading, reducing the value of stock sold in the IPO by more than $2.9 billion.

(Reporting by Dan Levine in San Francisco and Jonathan Stempel in New York; Editing by Gerald E. McCormick and Lisa Von Ahn)


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Wednesday, May 23, 2012

Facebook Tumble, blame game begin !

Investors fault everything


Let the Facebook Inc. (FB) finger-pointing begin.



After one of the most anticipated initial public offerings in history, Facebook’s 19 percent drop this week prompted investors to fault everything from Morgan Stanley’s role as lead underwriter, to the company’s greed and the Nasdaq Stock Market.

People walk by the Nasdaq stock market in New York, on May 18, 2012. Photographer: Spencer Platt/Getty Images
KSCA's Corbin on Decline in Facebook Shares  
May 22 (Bloomberg) -- Jeff Corbin, chief  executive officer of KCSA Strategic Communications, talks about the 19 percent decline in Facebook Inc.'s shares following the company's initial public offering. Corbin speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg) 

May 21 (Bloomberg) -- Paul Kedrosky, author of the Infectious Greed blog and a Bloomberg contributing editor, and Max Wolff, an analyst at Greencrest Capital Management, talk about trading in shares of Facebook Inc. Facebook fell below its $38 offer price in the second day of trading. Kedrosky and Wolff speak with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg) 

May 21 (Bloomberg) -- Darren Chervitz, research director for Jacob Funds, talks about Facebook Inc.'s stock price performance and the outlook for the social network firm. Facebook, the social networking site that raised $16 billion in an initial public offering, fell below its $38 offer price in its second trading day. Chervitz speaks with Trish Regan on Bloomberg Television's "InBusiness." (Source: Bloomberg) 

May 22 (Bloomberg) -- Bloomberg's Dominic Chu reports that after one of the most anticipated initial public offerings in history, Facebook’s 11 percent drop on Monday prompted investors to fault everything from Morgan Stanley’s role as lead underwriter, to the company’s greed and the Nasdaq Stock Market. He speaks on Bloomberg Television's "Inisde Track." (Source: Bloomberg) 

May 22 (Bloomberg) -- Cliff Lerner, chief executive officer of Snap Interactive Inc., talks about the impact of the drop in Facebook Inc.’s shares on Snap's stock. Lerner talks with Trish Regan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg) 

The Facebook Inc. logo is displayed at the Nasdaq MarketSite in New York, on May 18, 2012. Photographer: Scott Eells/Bloomberg 

Facebook 11% Drop Means Morgan Stanley Gets Blame for Flop Enlarge image
A pedestrian walks past the share price for Facebook Inc. displayed at the Nasdaq MarketSite in New York, U.S., on Monday, May 21, 2012. Photographer: Scott Eells/Bloomberg
Facebook Inc. Chief Financial Officer David Ebersman, seen here, was the point person on the deal, while Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg weighed in on major decisions throughout the process, people said. Photographer: Tony Avelar/Bloomberg 

“It was like the gang that couldn’t shoot straight,” said Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston. He said he placed Facebook orders for clients. “The underwriters mis- estimated what actual demand was, and there was pure execution failure coming out of the Nasdaq.”

Taking the most heat is Morgan Stanley, said Mullaney. The bank was lead underwriter among the 33 firms Facebook hired to manage the $16 billion sale of stock. The bank decided with Facebook executives to boost the size and price days before the May 17 IPO, ignoring advice from some co-managers, said people with knowledge of the matter, who declined to be identified because the process was private. Morgan Stanley (MS) talked with few of its fellow underwriters aside from JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) throughout the IPO, one person said.

“They overplayed the enthusiasm and probably just misread the atmosphere of the marketplace,” said Keith Wirtz, who oversees $15 billion as chief investment officer at Fifth Third Asset Management in Cincinnati and bought some stock in the IPO.

Blame Game


Facebook increased the number of shares being sold in the IPO by 25 percent last week to 421.2 million and raised its asking price to a range of $34 to $38 from $28 to $35. Had Facebook kept the original terms, investors may have had a better shot at a first-day pop. Instead, the stock was little changed in its debut because Morgan Stanley intervened to prevent it from falling below the IPO price.

The shares fell 8.9 percent to $31 at the close today, after an 11 percent drop yesterday.

Just days before Facebook raised the size and price of its IPO, the company began telling analysts to lower their sales forecasts, people familiar with the matter said. Morgan Stanley analysts were among those who cut their projections during the roadshow, said one person. The move also followed a May 9 filing in which Facebook said advertising growth hasn’t kept pace with the increase in users.

Investors Misled?

Some investors say they felt misled by the underwriters. According to one London-based fund manager who asked not to be named, bankers indicated demand was so strong that he placed a bigger order than he thought he would get, leaving him with 40 percent more Facebook shares than anticipated. He sold most of that stock on the first day of trading.

The decision to boost the price range reflected the demand in the market, said a person involved in the process. Michael DuVally, a spokesman for Goldman Sachs, and Pen Pendleton, a spokesman for Morgan Stanley, declined to comment. Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment. Underwriters didn’t say how great demand was.

Morgan Stanley and Facebook consider problems with Nasdaq OMX Group Inc.’s computer systems among the reasons for the IPO’s performance so far, according to people familiar with the matter. Nasdaq’s trading platform was overwhelmed by order cancellations and updates that made the stock-market operator unable to finish the auction required to open trading. The U.S. Securities and Exchange Commission said it will review the trading.

Nasdaq Software 


Nasdaq Chief Executive Officer Robert Greifeld said on a call with reporters on May 20 about the glitch that the opening delay “had no apparent impact on the stock price,” noting the share decline began after all brokers had received confirmation about their trades in the opening auction. Robert Madden, a spokesman for Nasdaq OMX, declined to comment beyond Greifeld’s statement.

Nasdaq said in a notice yesterday it delivered all outstanding execution and cancellation messages to brokers for their IPO cross orders at 1:50 p.m. Facebook declined 5.9 percent after 1:50 p.m.

Facebook CEO Mark Zuckerberg and the early backers should be held accountable for the stock drop, said Francis Gaskins, president of researcher IPOdesktop.com in Marina Del Rey, California. Goldman Sachs, Accel Partners, Digital Sky Technologies and other existing holders boosted the number of IPO shares they offered in Facebook on May 16, a day after the company increased its price range.

‘Mispriced’ Market Value 

 

 “It’s a combination of Zuckerberg’s ego for that $100 billion market cap, and the shareholders selling who wanted an exit,” said Gaskins. “Somehow it just missed them that this was mispriced.”

Larry Yu, a spokesman for Menlo Park, California-based Facebook, declined to comment. Rich Wong, a partner at Palo Alto-based Accel Partners, and Yuri Milner, founder of Digital Sky Technologies in Moscow, didn’t respond to requests for comment.

Facebook Chief Financial Officer David Ebersman was the point person on the deal, while Zuckerberg and Chief Operating Officer Sheryl Sandberg weighed in on major decisions throughout the process, people said. At Morgan Stanley, Dan Simkowitz, chairman of global capital markets, was one of the main bankers on the offering. Michael Grimes, global co-head of technology investment banking at Morgan Stanley, also played a key role.

Underwriters did accomplish part of what they set out to do: turn paper into cash for pre-IPO holders.
“It was successful for the liquidating owners, absolutely, because they got all that and then some,” said Peter Sorrentino, a fund manager who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati.

For the investors it was a different story.

“I shame the people who were lining up to buy the thing,” said Sorrentino, whose firm didn’t buy stock in the IPO and tried to talk clients out of purchases. “The financials were there, do the math. Everyone wanted to be caught up in the glamour offering of the year. People just had stars in their eyes.”  - Bloomberg



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