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Shot in the foot? Did bank analyst spook buyers before Facebook IPO?


By Noel Young, Correspondent

May 22, 2012 | 3 min read

Shares in Facebook continued to slide yesterday - closing at $3 down on the day and a total of $7.00 - 18 per cent - down on the IPO price two business days earlier.

Analyst 's remarks "a big shock to some"

The slide went on as controversy swirled over remarks by an analyst from Morgan Stanley- the lead underwriter on the deal.

The bank's consumer Internet analyst, Scott Devitt "unexpectedly delivered some negative news to major clients" ahead of the IPO said Reuters.

The San Jose Mercury News said incredulous investors were "particularly angered" by reports that the Morgan Stanley analyst had cut his revenue forecast for Facebook just days before the offering - "but may have shared that information with only a select group of clients, leaving retail investors in the dark."

Devitt's "negative news" came after Facebook released an updated prospectus ahead of the share sale that cautioned about revenue-growth challenges presented by a shift to mobile devices. Devitt said he was reducing his revenue forecasts for the company.

Reuters said, "The sudden caution very close to the huge initial public offering, and while an investor roadshow was underway, was a big shock to some, said two investors who were advised of the revised forecast.

They say it may have contributed to the weak performance of Facebook shares."

Underwriters J.P. Morgan Chase and Goldman Sachs also revised their estimates, according to Reuter.

Spokespeople for Morgan Stanley and Goldman Sachs declined to comment.

The Wall Street Journal said investment-bank analysts were supposed to be independent from the side of the bank that underwrites IPOs," a rule that would bar Morgan Stanley from swaying its analyst's commentary".

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