You may be aware that once there was a problem and this was the problem:
- Investment bankers wanted to win underwriting business.
- They realized that having their research analysts shout “BUY BUY BUY!” about every company they underwrote would help to win this business.
- So they went to their analysts and were all “do that.”
- The analysts, for cost-center and spinelessness reasons, did.
- But in classic passive-aggressive fashion they sent each other emails to the effect of “oh, man, my fingers were totally crossed when I issued that Buy recommendation, that company is dogshit.”1
- It was dogshit, and investors lost money buying those Buys.
This problem was solved via a Global Research Settlement among a bunch of banks, a bunch of state attorneys general, and the SEC. The settlement had various technical provisions around who could talk to whom about what when, but the gist of it was “yo, bankers, stop telling your analysts to talk up shitty stocks.”
You can understand why Morgan Stanley banker Michael Grimes2 would not think that he violated this settlement when he (1) learned that the Facebook underwriting syndicate’s research analysts (including Morgan Stanley’s) had estimates for Facebook’s 2Q2012 revenue were higher than what Facebook expected, (2) told Facebook something to the effect of “hey, it would look really bad if you did an IPO based on misleadingly high revenue estimates, you should guide the analysts lower,” and (3) sat with Facebook’s Treasurer in a hotel room while she did that.
I mean! You can get mad at Grimes, and Facebook, and the research analysts, because that happened.3 Read more »
Here is a detail from the Wall Street Journal’s article today about how Morgan Stanley tech banker Michael Grimes excluded the other underwriters from having much of an active role in managing and pricing the Facebook IPO and I cannot stand how good it is:
A page of his pitch book to other companies,* which he calls the “Driver/Navigator Model,” shows a black sports car. A company about to go public, the pitch reads, must choose between a “single driver [who] operates the steering wheel, gas, brake and clutch,” or the “two driver model, where the car literally has an extra steering wheel, gas, brake pedals and clutch for a second driver.” Morgan Stanley, the pitch says, “favors the sole bookrunner approach.”
Imagine being persuaded by that! You could construct a hierarchy of pitchbook pages based on how persuasive they’d be to a rational person; I’m the sort of person who tends to find tables of numbers most compelling, followed by charts (I know, I know), followed by functional diagrams of functional things (“we put the mortgages in this green box, and then sell them to this red box”), followed I guess by pages of texty bullet points, followed last of all by METAPHORICAL CLIP ART.** Read more »
In snaring the most coveted investment-banking assignment of the year, Morgan Stanley’s Michael Grimes insisted to a senior Facebook executive that he be the “single driver” of the company’s initial public offering, adding that if the deal soured, it would be his “throat to choke. [WSJ]