5 ms·

Even as Zynga slides, bankers reap big fees

22 points by sajid 15y ago

jmvoodoo 15y ago
The bankers work for Zynga in this case, and it seems like they did a good job for their client by selling a large # of shares at above market. The fund managers, on the other hand, did a horrible job for their clients here.
- a3camero 15y ago
  If that's all Zynga paid in underwriting fees they got a good deal. There's usually a 7% commission for underwriting in the US: http://www.theatlantic.com/business/archive/2011/06/is-underwriting-a-cartel/240199/ http://www.theatlantic.com/business/archive/2011/06/is-under.... Odd to be criticizing the underwriters for making too much money when they seem to have cut Zynga a rather good deal.
  - _delirium 15y ago
    There's some pushback on whether that standard figure is inflated beyond what it should be in a competitive market, though, partly because it's been held up (like real-estate commissions) as this un-negotiable standard fee that just gets applied. More companies are starting to demand it be negotiated, so it's not clear anybody really pays 7% anymore. Related op-ed from a while back about how the US government negotiated rates more like 0.5-0.75% when it floated AIG and GM, and comparing the US underwriting rates to those in Asia: http://webcache.googleusercontent.com/search?q=cache:jxDEKODXc88J:finance.yahoo.com/news/Why-Businesses-Should-Demand-dg-3691424926.html+&cd=1&hl=en&ct=clnk http://webcache.googleusercontent.com/search?q=cache:jxDEKOD...
    - cma 15y ago
      Real estate commissions are negotiable as hell.
- rgarcia 15y ago
  In all likelihood most of the fund managers involved have investment horizons longer than the two days that ZNGA has been trading, so declaring them in error seems incredibly premature.
  - joezydeco 15y ago
    So that implies the fund managers have looked at Zynga's long-term prospects and found them to be good, right? So why is the market acting in a different manner? Do the fund managers know something the street doesn't, or vice-versa?
    - rgarcia 15y ago
      The majority of short-term market participants have deemed Zynga's two-day prospects to be poor, and correctly so. The factors that influence them, for the most part, are very different than the factors that long-term investors look at/care about. In fact, it's entirely possible that the IPO participants are making money in the meantime lending their stock to short-sellers. Yes, the funds that participated in the IPO have a loss on paper, but so does the person who buys a house and sees that interest rates dropped 0.00001% the next day.
simonw 15y ago
I'd be surprised if Morgan Stanley think of $10.4 million as anything more than a rounding error.
- rayiner 15y ago
  $10m here, $10m there, eventually you're talking about real money. ;)
  - lanstein 15y ago
    Not really.
    - cellis 15y ago
      Do you have any information as to the breakdown of their advisory revenues vis-a-vis S&T?
      - lanstein 15y ago
        Just because they may close a number of $10M deals doesn't mean that collection isn't still a drop in the bucket in the grand scheme. Since you're making me look it up (and I thought the point of my comment went without saying), their full-year revenue last year was $23.4B. (http://www.morganstanley.com/about/ir/shareholder/4q2009.html http://www.morganstanley.com/about/ir/shareholder/4q2009.htm...)
mathattack 15y ago
The banks have two sets of clients to appeal to. The Investment Bankers have corporate clients to keep happy. In 2000 companies were happy for the big 2x IPO day pops. Now they realize this is very expensive PR. On the other hand, their Institutional Sales has to keep all the Mutual Funds happy. Fidelity will forgive one misplaced IPO, but not a stream of them. If a bank can't sell to mutual funds, they won't get new mandates from corporations. Banks have to walk a thin line to keep both sides happy. (Of course they get paid well when they do it right)
jemfinch 15y ago
How can a journalist write an entire article about the stock price of company without stating its stock ticker symbol, ZNGA? It's a little ridiculous that I had to go to wikipedia to find that out.
hamidpalo 15y ago
Underwriting fees are irrelevant. Every single firm charges the same, indicating that they compete on other things. Most of their IPO profit comes from quid-pro-quos with preferred investors to whom they allocate shares. Check out some of the links on this page: http://bear.warrington.ufl.edu/ritter/ipolink.htm http://bear.warrington.ufl.edu/ritter/ipolink.htm

22 points by sajid 15y ago

The bankers work for Zynga in this case, and it seems like they did a good job for their client by selling a large # of shares at above market. The fund managers, on the other hand, did a horrible job for their clients here.

a3camero 15y ago
If that's all Zynga paid in underwriting fees they got a good deal. There's usually a 7% commission for underwriting in the US: http://www.theatlantic.com/business/archive/2011/06/is-underwriting-a-cartel/240199/ http://www.theatlantic.com/business/archive/2011/06/is-under.... Odd to be criticizing the underwriters for making too much money when they seem to have cut Zynga a rather good deal.
- _delirium 15y ago
  There's some pushback on whether that standard figure is inflated beyond what it should be in a competitive market, though, partly because it's been held up (like real-estate commissions) as this un-negotiable standard fee that just gets applied. More companies are starting to demand it be negotiated, so it's not clear anybody really pays 7% anymore. Related op-ed from a while back about how the US government negotiated rates more like 0.5-0.75% when it floated AIG and GM, and comparing the US underwriting rates to those in Asia: http://webcache.googleusercontent.com/search?q=cache:jxDEKODXc88J:finance.yahoo.com/news/Why-Businesses-Should-Demand-dg-3691424926.html+&cd=1&hl=en&ct=clnk http://webcache.googleusercontent.com/search?q=cache:jxDEKOD...
  - cma 15y ago
    Real estate commissions are negotiable as hell.
rgarcia 15y ago
In all likelihood most of the fund managers involved have investment horizons longer than the two days that ZNGA has been trading, so declaring them in error seems incredibly premature.
- joezydeco 15y ago
  So that implies the fund managers have looked at Zynga's long-term prospects and found them to be good, right? So why is the market acting in a different manner? Do the fund managers know something the street doesn't, or vice-versa?
  - rgarcia 15y ago
    The majority of short-term market participants have deemed Zynga's two-day prospects to be poor, and correctly so. The factors that influence them, for the most part, are very different than the factors that long-term investors look at/care about. In fact, it's entirely possible that the IPO participants are making money in the meantime lending their stock to short-sellers. Yes, the funds that participated in the IPO have a loss on paper, but so does the person who buys a house and sees that interest rates dropped 0.00001% the next day.

simonw 15y ago

I'd be surprised if Morgan Stanley think of $10.4 million as anything more than a rounding error.

rayiner 15y ago
$10m here, $10m there, eventually you're talking about real money. ;)
- lanstein 15y ago
  Not really.
  - cellis 15y ago
    Do you have any information as to the breakdown of their advisory revenues vis-a-vis S&T?
    - lanstein 15y ago
      Just because they may close a number of $10M deals doesn't mean that collection isn't still a drop in the bucket in the grand scheme. Since you're making me look it up (and I thought the point of my comment went without saying), their full-year revenue last year was $23.4B. (http://www.morganstanley.com/about/ir/shareholder/4q2009.html http://www.morganstanley.com/about/ir/shareholder/4q2009.htm...)

mathattack 15y ago

The banks have two sets of clients to appeal to. The Investment Bankers have corporate clients to keep happy. In 2000 companies were happy for the big 2x IPO day pops. Now they realize this is very expensive PR. On the other hand, their Institutional Sales has to keep all the Mutual Funds happy. Fidelity will forgive one misplaced IPO, but not a stream of them. If a bank can't sell to mutual funds, they won't get new mandates from corporations. Banks have to walk a thin line to keep both sides happy. (Of course they get paid well when they do it right)

jemfinch 15y ago

How can a journalist write an entire article about the stock price of company without stating its stock ticker symbol, ZNGA? It's a little ridiculous that I had to go to wikipedia to find that out.

hamidpalo 15y ago

Underwriting fees are irrelevant. Every single firm charges the same, indicating that they compete on other things. Most of their IPO profit comes from quid-pro-quos with preferred investors to whom they allocate shares. Check out some of the links on this page: http://bear.warrington.ufl.edu/ritter/ipolink.htm http://bear.warrington.ufl.edu/ritter/ipolink.htm