The Myth of an I-Bank IPO Horserace

 | Feb 01, 2012 | 6:23 AM EST
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How quaint is all of this chatter about a resurgent Morgan Stanley (MS) because it looks like it won the Facebook bake-off? How relatively charming is it that the choice of one firm over another is actually capturing the fancy of the media and generating positive headlines about James Gorman and his lieutenants at Morgan and how it took this huge piece of business from Goldman Sachs (GS), in part because of its "better" investment banking and retail network.

As an old journalist knock-about, I get this. No one ever wants the facts to get in the way of a good story. But the simple truth is that after what we have been through with these investment banks, making any judgment at all about their earnings and their prospects off the Facebook deal is about as stupid as betting the farm on Newt Gingrich at this very moment.

First of all, Facebook, as they taught us at law school, is sui generis, meaning that it is unlike no other and will be unlike no other. It isn't like as Facebook goes, so goes the nation. There really isn't much substance behind Facebook, at least that's memorable and noteworthy. It's about as one-off as they come.

Second, the profits, while rumored to be as high as $500 million on the deal, will be split among many and will simply go to mildly pump up what looks to be some pretty horrendous numbers for all investment banks. Last I looked there haven't been a lot of quality IPOs out there. This is not 1998 and from here on in Morgan Stanley will be getting more than 50% of the 350 deals in the pipe because of its Facebook win.

Third, just a few months ago moronic hedge funds with an agenda filled Websites with lies about tens of billions of dollars in perspective losses for Morgan Stanley because of exposure to a couple of European sovereign debt markets. The stories were false, but if you wanted to know what does move the needle at Morgan Stanley it would be an improvement in the trading environment, not the IPO environment, particularly fixed income trading.

Sure, it is possible that Morgan Stanley's retail business might get a shot in the arm from Facebook, especially as the firm is absorbing more of its joint venture with Citigroup (C) this year. Nonetheless, that presumes that retail will be getting a lot of Facebook allocations and last I looked the key to this deal might be keeping allocations as tight as possible, hardly a retail selling point,.

Nonetheless, just like with the Republican primary, the press loves a horserace. Facebook gave you one. It's just that the winner doesn't get more than small bragging rights when what's needed are consistent revenue streams in a business that's been pretty devoid of exactly those kinds of opportunities.


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