4 ms·

> Boo to the underwriters(Morgan Stanley), who seemed to misjudge the market's appetite Who suffers if the price is quickly adjusted downward by the market?

by tux1968 7y ago

> Boo to the underwriters(Morgan Stanley), who seemed to misjudge the market's appetite Who suffers if the price is quickly adjusted downward by the market? How is that different than it being released at that final market price from the get go? Naively I would think that setting it too high ensures maximum value is captured rather than going to early traders.

resters 7y ago
The investment bank sells a lot of shares to its own preferred clients. If the price then drops (because the initial offering price was too high) those preferred clients lose money. So the bank has every incentive to price it low, and usually does. So when the market goes even lower, we know that the IPO was done out of desperation and that early investors who had influence over the IPO price were eager to dump some or all of their positions. One day is too soon to know for certain that this happened. But if the price is still down a week or two later then it probably did.
- BoiledCabbage 7y ago
  > So when the market goes even lower, we know that the IPO was done out of desperation How is that the correct conclusion. It sounds like the correct conclusion is they still over estimated the market price. Nothing about desperation for or against.
  - resters 7y ago
    > It sounds like the correct conclusion is they still over estimated the market price The bank has every incentive not to do that. The bank must juggle the needs of its various constituencies, preferred investors (who provide capital expecting not to have it lose value right away), the firm (which wants to raise capital) and existing investors (who may want to liquidate). If a bank routinely over-prices IPOs, then preferred investors will stop providing capital. If the bank routinely under-prices IPOs, then firms will choose other banks to underwrite their IPOs. In addition to the above, the investment bank owns a lot of inventory and strategically buys and sells in order to help keep the price close to the expected price. When this doesn't happen, it might be because the bank couldn't afford to constrain the price movement and had to settle for the bad optics. This is how the system is supposed to work, but the main reason an IPO would be over-priced (all things considered) is if the existing investors had too much say in the price, since this tarnishes the bank's credibility for future IPOs events.
    - tapland 7y ago
      You say this because you want it to seem like desperation. The claim that any stock that is overvalued at IPO shows desperation is just not true, and it's the statement you are making.
      - resters 7y ago
        No, I said it is too soon to tell, and that it has more to do with the balance of power going into the IPO.
        tapland 7y ago
        > No, I said it is too soon to tell Your comment had no relevance for what I wrote. You said it was too soon because stock can be volatile the first week, but that it ending the week down still proves desperation. This is just not right at all.
        eganist 7y ago
        They explained it pretty succinctly. Grossly oversimplified: the bank is motivated to accurately price in order to preserve future business from e.g. institutional investors. Overprice and your investors bleed. Substantially underprice and you leave money on the table, less likely to be picked for future offerings. Come close and everyone's generally pretty happy. I'd be keen to hear why you believe it's "just not right at all."
  - deleted 7y ago
    [deleted]
- stefan_ 7y ago
  If the underwriter has every incentive to lowball the price, why on earth was Morgan Stanly selling its clients ways to short the Lyft IPO? https://techcrunch.com/2019/04/05/morgan-stanley-which-is-underwriting-ubers-ipo-is-denying-reports-that-it-marketed-a-short-selling-product-to-lyft-investors/ https://techcrunch.com/2019/04/05/morgan-stanley-which-is-un...
  - twakefield 7y ago
    Here's another theory that they were not [0]. [0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s-ipo-was-a-little-awkward https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
- pizzazzaro 7y ago
  >If the price then drops (because the initial offering price was too high) those preferred clients lose money. Unless these preferred clients are active traders, this isnt a problem. Remember when government nixed fiduciary resposibility? Just slide a soon-to-drop, over-valued-at-IPO stock into say,... someones' retirement account? Wouldnt it be weird if a bunch or Morgan-Stanley-managed 401Ks were shifted to include that? Especially if the bank managing the IPO gets a cut of the cash, there's no downside to such. At least for them.
  - josh5555 7y ago
    I don't think you understand how 401ks work. First, Morgan Stanley probably doesn't manager people's 401k allocations, the employees must choose their investments. Second, most 401ks only allow mutual funds, not single stocks. The fiduciary rule is not in effect but the suitability rule is. You can't give someone unsuitable investments or you face lawsuits and fines. IPOs are very restricted to who can participate. There is a lot of naughty business in the financial industry, but the industry does serve a real and necessary purpose. Businesses need ways to raise capital, etc. Investors need a place to save money for retirement. It isn't all evil.
soup10 7y ago
trading isn't an exact science, an early drop looks bad and makes potential buyers more cautious than if it looks like its rallying

resters 7y ago

The investment bank sells a lot of shares to its own preferred clients. If the price then drops (because the initial offering price was too high) those preferred clients lose money. So the bank has every incentive to price it low, and usually does. So when the market goes even lower, we know that the IPO was done out of desperation and that early investors who had influence over the IPO price were eager to dump some or all of their positions. One day is too soon to know for certain that this happened. But if the price is still down a week or two later then it probably did.

BoiledCabbage 7y ago
> So when the market goes even lower, we know that the IPO was done out of desperation How is that the correct conclusion. It sounds like the correct conclusion is they still over estimated the market price. Nothing about desperation for or against.
- resters 7y ago
  > It sounds like the correct conclusion is they still over estimated the market price The bank has every incentive not to do that. The bank must juggle the needs of its various constituencies, preferred investors (who provide capital expecting not to have it lose value right away), the firm (which wants to raise capital) and existing investors (who may want to liquidate). If a bank routinely over-prices IPOs, then preferred investors will stop providing capital. If the bank routinely under-prices IPOs, then firms will choose other banks to underwrite their IPOs. In addition to the above, the investment bank owns a lot of inventory and strategically buys and sells in order to help keep the price close to the expected price. When this doesn't happen, it might be because the bank couldn't afford to constrain the price movement and had to settle for the bad optics. This is how the system is supposed to work, but the main reason an IPO would be over-priced (all things considered) is if the existing investors had too much say in the price, since this tarnishes the bank's credibility for future IPOs events.
  - tapland 7y ago
    You say this because you want it to seem like desperation. The claim that any stock that is overvalued at IPO shows desperation is just not true, and it's the statement you are making.
    - resters 7y ago
      No, I said it is too soon to tell, and that it has more to do with the balance of power going into the IPO.
      - tapland 7y ago
        > No, I said it is too soon to tell Your comment had no relevance for what I wrote. You said it was too soon because stock can be volatile the first week, but that it ending the week down still proves desperation. This is just not right at all.
        eganist 7y ago
        They explained it pretty succinctly. Grossly oversimplified: the bank is motivated to accurately price in order to preserve future business from e.g. institutional investors. Overprice and your investors bleed. Substantially underprice and you leave money on the table, less likely to be picked for future offerings. Come close and everyone's generally pretty happy. I'd be keen to hear why you believe it's "just not right at all."
- deleted 7y ago
  [deleted]
stefan_ 7y ago
If the underwriter has every incentive to lowball the price, why on earth was Morgan Stanly selling its clients ways to short the Lyft IPO? https://techcrunch.com/2019/04/05/morgan-stanley-which-is-underwriting-ubers-ipo-is-denying-reports-that-it-marketed-a-short-selling-product-to-lyft-investors/ https://techcrunch.com/2019/04/05/morgan-stanley-which-is-un...
- twakefield 7y ago
  Here's another theory that they were not [0]. [0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s-ipo-was-a-little-awkward https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
pizzazzaro 7y ago
>If the price then drops (because the initial offering price was too high) those preferred clients lose money. Unless these preferred clients are active traders, this isnt a problem. Remember when government nixed fiduciary resposibility? Just slide a soon-to-drop, over-valued-at-IPO stock into say,... someones' retirement account? Wouldnt it be weird if a bunch or Morgan-Stanley-managed 401Ks were shifted to include that? Especially if the bank managing the IPO gets a cut of the cash, there's no downside to such. At least for them.
- josh5555 7y ago
  I don't think you understand how 401ks work. First, Morgan Stanley probably doesn't manager people's 401k allocations, the employees must choose their investments. Second, most 401ks only allow mutual funds, not single stocks. The fiduciary rule is not in effect but the suitability rule is. You can't give someone unsuitable investments or you face lawsuits and fines. IPOs are very restricted to who can participate. There is a lot of naughty business in the financial industry, but the industry does serve a real and necessary purpose. Businesses need ways to raise capital, etc. Investors need a place to save money for retirement. It isn't all evil.

soup10 7y ago

trading isn't an exact science, an early drop looks bad and makes potential buyers more cautious than if it looks like its rallying