It wasn't supposed to happen this way.
Facebook launched perhaps the most anticipated IPO ever and instead of the moonshot many expected, it fizzled like a rocket from North Korea--and has since completely imploded. First, Facebook executives made a decision shortly before the IPO launched to increase the number of shares floated, greatly increasing the odds that demand wouldn't keep up and the share price would fall. Then, the big day came. The stock price initially went up by about 10 percent, as individual investors finally got their chance to buy a piece of the dream, but within hours the share price was plummeting. As Facebook stock continued to sink on its second and third day, allegations arose that Facebook insiders (and execs at Morgan Stanley, the underwriter of the IPO) had revised revenues projections downward but didn't inform the market at large. Now the SEC is investigating and the inevitable investor lawsuits have been filed. The prospect of a protracted legal battle has become a thick cloud hanging over Facebook the Stock, a discouraging prospects that will continue to dampen enthusiasm in the investment for some time to come.
Meanwhile, J.P. Morgan has become the poster child for a new chant from the Occupy Wall Street crowd: "We told you so." Just when you thought the Big Banks had been chastened by the near collapse of the world financial markets followed by massive bailouts of those deemed "too big to fail," JPM announces a multi-billion-dollar loss from speculative trades in risky derivatives, the same stupidity that led to the financial meltdown in the first place. The so called "London Whale" trades undermined JPM CEO Jamie Dimon's case that banks should be freed from Dodd-Frank regulations enacted following the bank bailouts. Dimon went from the financial industry's most persuasive advocate to being perceived as the very embodiment of the "Bankster" the Occupy crowds would like to burn at the stake.
So what can Facebook and Morgan do to win back your trust? That's the subject for my next few posts. Your ideas welcome!