REPORT: Banks Had Spent $66 Million To Balance Facebook IPO On First Day Of Trading

Posted Nov 1, 2012

On May 18, 2012, Facebook had listed their company on the Nasdaq market after an initial public offering.  The company listed their stock price at $38 and it kept tumbling down after going public.  Facebook’s bank partners had to keep investing in the stock to keep the stock price from dropping below the opening price.  It is believed that Facebook’s underwriters spent $66 million to support the stock price in the first day of trading according to economists at the Federal Reserve Bank of New York.

The Facebook underwriters that worked on the IPO likely put in bids at around $38 and $40 per share according to a blog post that was written by economists Thomas Eisenbach and David Lucca.  The cost of supporting the stock most likely eroded by around 40% of underwriting commissions that Facebook paid the banks to take them public according to the blog post written by the economists.  Morgan Stanley was the lead underwriter of the $16 billion Facebook IPO.

?If this estimate is correct, underwriters? reputational concerns and obligations to the firm may have outweighed their short-run profit motive,? wrote the economists.