The technology bankers at Morgan Stanley are probably regretting all of the work they put in to steal the coveted ‘lead left’ spot in the Uber IPO from Goldman.
Though the bank will still take home a sizable chunk of the underwriting fees, minus whatever they’ve been obligated to spend to try and ‘stabilize’ the stock, according to Bloomberg, Morgan’s hopes to strengthen ties between its wealth management business and its investment-banking side have been dealt a serious setback.
As Uber shares head lower for the second day, Bloomberg reports that Morgan’s wealth-management clients are already grousing about the company’s poor performance. Not only was the Uber IPO a money-loser right out of the gate for anybody who bought in once the shares started trading, but the loss brooked by Morgan insiders was amazingly even larger: According to BBG, Morgan’s private wealth management clients were offered a chance to invest in the Uber IPO via a fund called New Riders LP, which provided exposure to Uber at $48.77 a share, with holdings set to Class A stock in the IPO.
If you bought Uber at $48.77, your total loss at $40 a share would be 18% (compared with 11% for anybody who bought at $45).
For most of the bank’s private wealth clients who bought in to the fund, those losses likely tally in the thousands, if not millions, of dollars. The minimum investment amount was $250,000, and Morgan said clients could be charged up to 2% of the money they committed to the fund, just for the opportunity.
Morgan Stanley wins underwriter of the year award for screwing its clients out of the gate
— zerohedge (@zerohedge) May 10, 2019
Though some have blamed Uber’s post-IPO stumble on a confluence of factors including rising trade tensions with China and a weak Q1 earnings report from Uber rival Lyft, if the stock doesn’t turn around soon, Morgan might find one of its biggest advantages in its underwriting business – its network of wealthy clients eager to kick in capital – could instead become a liability, as the memory of Uber-related losses might make those same clients hesitant to commit capital before the next big tech IPO.
Years ago, Goldman offered its wealth-management clients convertible notes that could be redeemed at a discount to the IPO price, which might raise more questions from MS clients about why Goldman’s clients got the better deal, even though their bank lost out on the leader underwriter position.
Since their shares are restricted, Morgan’s clients now have 180 days to hope for a turnaround in Uber shares.
At the end of the day, the Uber IPO fiasco – and Morgan’s role in it – is just another testament to the fact that, even when Goldman loses, it still wins.
So how much longer until Morgan’s clients band together and sue the bank to try and recoup their losses?
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