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False hopes of compensation from disastrous Facebook float

  • 6 June 2012

Any such compensation, as reported in yesterday's Wall Street Journal, will only benefit the big banks and trading firms hit by problems with Nasdaq's exchange systems, which delayed the initial public offering (IPO) by about 30 minutes. The systems snafu left brokers with millions of shares' worth of unconfirmed trades, causing a reported £100 million in losses.

Meanwhile individual investors hit in the wallet by the plummeting share price are unlikely to see a penny of Nasdaq compensation. Shares in the highly-anticipated Facebook float launched at $38 on May 18. By close of business yesterday, the shares had lost almost a third of their value, down to $25.87, as highlighted by the Huffington Post.

Nasdaq OMX is expected to file the first piece of its compensation plan with the Securities and Exchange Commission today. Under current rules, Nasdaq is capped at paying out $3 million a month to traders that lose money due to system outages. However, Nasdaq executives have also indicated they might top up the compensation with $10.7 million gained when the exchange was forced to take a position in Facebook shares on the launch day, in an attempt to fix the problems caused by the trading delay.

Meanwhile rival stock exchange operators such as NYSE Euronext and BATS Global Markets will be watching compensation payouts closely, concerned by any precedents set by Nasdaq. Back in March, BATS Global Markets was forced to withdraw its own IPO after technical issues. The New York Stock Exchange fought hard to land the Facebook float, but may now be glad to have avoided the problems bedevilling Nasdaq.

"The Nasdaq's handling of this issue is the best advertisement the NYSE could dream of," said one NYSE floor trader to Fox News.

Facebook raised more than $16 billion in funding by going public, a record for tech companies. However, it may yet also hold the accolade of the poorest performing company IPO of the last decade, according to research by MSN Money.

Jason Buckland reported that of the previous three worst-performing IPOs of the past decade, two have been long-term disasters. Asset manager Blackstone Group is trading at about a third of its launch price in 2007, while MF Global collapsed due to bad debts. Third however, American bank holding company CIT Group, may offer a glimmer of hope. CIT lost value in its first five trading days in 2009, but is now trading higher than its initial price.

Facebook's much-hyped stockmarket debut is now engulfed in a mass of lawsuits from angry investors, investigations by regulators, abject apologies by Nasdaq, attacks by short sellers and allegations that Morgan Stanley and other banks briefed select investors that the outlook for Facebook's profits had dimmed.

As Mindful Money's pyschology blogger Ken Eisold has highlighted in his blog, investors may find in the future that it pays to be sceptical about hot new company offerings.

 

More on Mindful Money:

Facebook IPO: Social not-working

Decoding share prices

Mindshare is still Facebook's biggest asset

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  • DaveS

    Yes, sadly the great rebalancing isn’t going to happen – devaluation isn’t going to work in a globalised world.

    You can’t compete on labour costs for low end manufacturing. Increasingly we will struggle to compete on high end manufacturing as the Chinese move up the value chain, just as the Japanese did. Our top engineering courses are full of Chinese students who will make this happen – unless we believe the myth that the Chinese are only good at copying.

    With North Sea production dropping it would be a miracle if we could get growth from industrial production.

    We have collapsing retailers, no surprise with falling real incomes and debt. We have the City under assault from US and Europe, the main UK banks are BoE zombies and there are increasing job losses as foreign investment banking slowly pulls out of London and heads east. With a stagnant housing market and stagnant public spending the service sector is not looking likely to grow.

    In short, the BoE economists have no idea how to create growth. But they do know how to create inflation.

    .

  • jan

    I agree we have institutionalised inflation in the UK. I was very sceptical when Mervyn King was talking about deflation being a worry some time back.
    I wonder why we no longer get figures for the balance of payments (ie exports v imports) which we used to get monthly years ago? Maybe it’s just too frightening…..

  • JW

    Hi Shaun
    Sometimes these monthly/annual figures confuse the picture. As you put right by quoting the underlying indices. If you plot RPI or CPI over say 20/30 years you see the real trend. 2008 is a mere blip in a continuing trend upwards, because of compounding is increasing in ‘acceleration’. Deflation is a figment of the imagination, we are in a world of inflation.

  • max

    but at least we sell off all our land to foreign non-residents to balance the books!!!! Shame there is nowhere left for us in London any more and
    nobody in power gives a damn!

  • Rods

    Hi Shaun,

    An excellent summary of where the UK is and where it is going. 2013 Stagflation at best with further falling living standards.

    The most onerous carbon trading scheme in the world starts in the UK in April. This will drive offshore at an accelerating rate during 2013 much energy intensive heavy industry. I think the US will probably be the biggest beneficiaries of this with their low gas prices. This will probably include all oil refining capacity, where it is a very low margin, high energy industry. For every one step forward the UK seems to take three back. Higher unemployment from this is not going to help the deficit reduction or imports our balance of payments.

    I’m not sure what to make of the DT article yesterday on the latest OCED report it all seemed much too bullish to me, particularly where they say the worst is over in the Eurozone, but with Germany now in recession with a 0.5% drop in the last quarter and the outlook with even more austerity due in in a fair proportion of Eurozone countries in 2013 I can’t see where their optimism is coming from?

    http://www.telegraph.co.uk/finance/economics/9801175/UK-recovery-on-track-OECD-data-show.html

  • forbin

    hello DaveS,

    depressing isn’t it? and as we need lower house prices as well – well if we do then the banks need more bailout money ….. actually have we stopped bailing them out or not already?

    And as for British Industry isn’t it like the car one ? all owned by foreign investors ….. profits go abroad to be taxed in the least expensive place….

    As Shaun will agree , a few billionaires purchasing 5 million pound Battersea homes do not and economy make….

    Forbin

  • Anonymous

    Hi JW

    I found the period post the RPI consultation result intriguing as so many media outlets simply parroted the press release. So views like mine which won appatently did so in a vacuum! What it tells me is that there is enormous pressure to downgrade measures of inflation right now which all other things being equal means that they can claim that there is more growth. So I expect the story to run and run.

    For those wondering about inflation over time well the RPI was rebased at 100 in 1987 and is now 246.8. And if you do the maths and go back to the 1974 rebasing it would now be 973.6 if it still existed!

  • Anonymous

    Hi Rods
    Thanks for the link but what an odd article! So the OECD leading indicators suggest the UK is doing well but the OECD has also cut it growth forecast for the UK whilst they were turning upwards! So an each way bet.
    Also if the OECD leading indicators are as good as claimed then the OECD with its poor track record could do itself a lot of good by following them…..

  • Anonymous

    Hi Jan
    We do still get monthly trade figures. On such a basis they are very unreliable but I think that the lack of publicity for more is as much to do that they vary between poor and very poor.

  • Robert S

    Shaun,

    I was quite surprised to read in the DT & the BBC that inflation was 2.7%. As I read these during the day, I thought to myself that the figures seemed low, but thought nothing more of it, until i read your article tonight where you’ve clarified that I was being quoted the CPI, not the RPI! The great conspiracy continues! Thank you for quoting both.

    Robert

  • Anonymous

    Dear Shaun:

    You write: “it [the RPI] continues to be nearer to what individuals feel inflation actually is when surveyed compared to the official measure.”

    The ONS briefing note says that the RPI inflation rate rose from November to December even though the CPI inflation rate was unchanged mainly because of the housing component: the mortgage interest component added 0.04 percentage points to the RPI and housing depreciation, estate agent fees and ground rent together add another 0.04 percentage points. These are all legitimate components of household living costs, so British people quite reasonably think that the RPI better represents their living costs.

    Of course, the CPI was not designed to be a cost-of-living index, but an inflation indicator for the Bank of England. Including a mortgage interest index in such an indicator is just goofy, so this wedge between the two indexes is never going to go away. A CPI with an owner-occupied housing component based on a net acquisitions approach, however, would have components for estate agent fees and ground rent. It would also have a house purchase component similar to the RPI housing depreciation component. Such an indicator would probably be much better received by the general public than the current CPI, and rightly so.

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