Banks Earn Nice Facebook Fees Despite Shares Trading Lower Post IPO

GS: Goldman Sachs logo
Goldman Sachs

Facebook (NASDAQ:FB) finally went public last Thursday, with the much-awaited IPO of just over $16 billion for the social networking company. The largest IPO ever for a technology firm, and the third largest U.S. IPO – after Visa (NYSE:V) and General Motors (NYSE:GM) – has drawn lots of attention for making a long list of Facebook employees paper millionaires. [1] But there are others too who ended up making millions from the IPO, most prominently are the investment banks Facebook hired to price and distribute its shares. These banks are facing complaints given the weak performance for the shares in the first days of the IPO after the deal size was raised and priced at the high end of the raised price range. Initial estimates put the amount of revenue generated by these underwriters at around $175 million – with Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) roping in well over half this amount.

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Facebook entrusted Morgan Stanley with the lead left role for its mega-IPO early this year, with JPMorgan and Goldman Sachs being named as the other lead underwriters. There were at least eight co-managers including RBC, Citi, Barclays and others. The IPO entailed a sale of just over 421 million shares in the company with Morgan Stanley being allotted about 38% of these shares for distribution followed by a roughly 20% and 15% share for JPMorgan and Goldman Sachs respectively. [2] No doubt, this will be the biggest equity market offering this year – and will form a major piece of the annual global equity underwriting deal size that goes into league table results for the year. League tables tally which banks are the most active underwriters, which adds bragging rights and helps bring in future banking business.

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Interestingly, the fee revenue estimate above is but a fraction of Goldman’s revenues from the IPO.

The largest investment bank, which held a stake in Facebook before it went public, earned handsomely from selling a part of this stake. Goldman sold 28.7 million of the 65.9 million shares it owned at the offer price of $38 to pocket $1.09 billion – a figure that could go up to $1.25 billion if it ends up exercising the greenshoe option in coming days. [3] This should boost Goldman’s equity trading yield for this quarter and consequently for the year.

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  1. Deals Intelligence, Thomson Reuters Website []
  2. Facebook IPO Allotments: Morgan Stanley 38%, JP Morgan 20%, Goldman 15% -Sources, NASDAQ News, May 18 2012 []
  3. Goldman To Cash Out $1 Billion Of Facebook Holding In IPO, Bloomberg, May 17 2012 []