Thursday, May 24, 2012

Facebook and banks sued over alleged selective briefings before listing

“We think that people’s lives are going to be better and really that the whole world will function better when there’s more information and understanding out there”.

That's a direct quote from Facebook founder and chief executive Mark Zuckerberg in a marketing spiel leading up to the social networking company's sharemarket listing. 

But the meaning of "more information and better understanding" could be crucial as burned shareholders accuse Facebook and its lead underwriter Morgan Stanley of hiding weakened growth forecasts before the US$16 billion public offering.

In the lawsuit, Morgan Stanley, Goldman Sachs and JP Morgan Chase are accused of disclosing the new forecasts to "preferred" investors rather than the entire sharemarket.

There are also claims, yet to be proven, the Facebook's underwriters provided verbal advice of downgraded forecasts in pre-IPO roadshows.

Facebook has only be trading on the tech heavy Nasdaq exchange for four days, but its reputation is sinking as fast as its share price which ended higher today at US$32 but 18 percent lower than the $38 listing price.

The lawsuit, which could easily turn into a class action, has been referred to the Securities & Exchange Commission and is certain to be scrutinised by the US Senate Banking Committee which is primed to jump on any perceived misbehaviour on Wall Street.

The question now is whether selective verbal briefings from underwriters or advisers amounts to illegal behaviour that borders on insider trading.

John Coffey, Professor of Law at Columbia University in New York says despite the difficulty of proving illegal or unethical behaviour, US regulators have a lot to work with.

"There is something strange and probably inappropriate about allowing selective disclosure in public offerings," Professor Coffey told the BBC this morning.

"What is curious here and what has the SEC offended is that there may have been this special discrimination even within the class of institutional investors under which some got better information than others and they have sued on that recently in the case of Goldman Sachs.

"I think that probably Morgan Stanley is going to seek a quick settlement because this is relatively embarrassing for it."

Some analysts have pointed to "guilt by association" issues for competitors but today the social media success story Linkin was 2.2 percent higher and others like Pandora and Groupon also closed in positive territory.

Thomson Reuters has summed up the value proposition for social media investments, tracking an investment of US$1,000 from listing day to their closing price on 21 May.

Litigation to one side, the Facebook listing reminds investors to avoid hype from commentators and to pay attention to risk factors outlines in prospectuses.

Wednesday, May 23, 2012

Australia a growth leader, but Eurozone worries a potential shock: OECD

Australia's economy is predicted to outperform most of the developed world over the next two years, despite growing tremors from Europe.

The Organisation for Economic Cooperation and Development has also welcomed the government's committment to a budget surplus.

But the OECD's latest report paints a gloomy picture for Eurozone with warnings that the debt crisis still has the potential for an economic shock.

I took a close look at the latest report card on this morning's edition of AM.

Read the report here.

The OECD says Australia's fundamentals are strong that that the economy will outpace much of the developed world at 3.1 percent in 2012 and 3.7 percent in 2013.

However, the top growth performers in 2013 are forecast to be Chile (5.1 percent), Turkey (4.6 percent),  Korea (4 percent), Mexico (3.8 percent) and Israel (3.6 percent).

Not surprisingly, there is a negative growth outlook for the original PIG economies of Portugal, Italy, Greece and Spain. Ireland (which became a second I in PIIGS) is tipped to grow by 2.1 percent in 2013.

Tuesday, May 22, 2012

Facebook fizzer? Shares close underwater as investors unfriend The Social Network

Facebook has only been trading on Wall Street for two days, but already investors appear to have hit the "unfriend" button.

Shares in the social networking company have closed well below the issue price of US$38 amid concerns that Facebook might initially struggle to make much money.

Facebook shares sank as much as 14 percent at one point to US$33 before closing a little better at US$34.03.

Here's my analysis from this morning's edition of AM.

Unfriended: Facebook shares over first two trading days

So it is too early to say the Facebook float is more sizzle than sausage? Probably.

However, some commentators had been talking up a "stag" listing for Facebook, fuelling expectations that technology company surges last seen in the dotcom boom might return.

The reality was that Facebook's underwriters had to step in a buy on when trading opened on day one to keep shares above the US$38 listing price.

Today's selling wiped an estimated US$19 billion off Facebook's market value, leaving red faces on Wall Street and retail investors with burnt fingers.

The challenge now is to promote Facebook's long term value and attraction to advertisers as the dreaded "monetise" word takes on a new meaning for social networking.

Monday, May 21, 2012

High noon: Qantas competes with Craig Thomson as it announces 500 job cuts

The announcement hit the Australian Stock Exchange at 11.58am as political, business and aviation writers waited for the embattled and exiled Labor MP Craig Thomson to address the House of Representatives in Canberra.

As Mr Thomson began his defence of the various allegations before him, news flashed in red over the financial wires that Qantas had decided to consolidate its heavy maintenance operations - and that Tullaramarine and Avalon in Melbourne were the biggest losers.

Listen to my analysis on The World Today broadcast shortly after the announcement to the ASX.

It may well have been a coincidence, but the timing had the potential to create the perception that it was a classic diversion spin strategy to minimise fallout from the latest chapter in the survival of Qantas.

Responding to questions about the timing of the announcement, Qantas chief executive Alan Joyce said because of the market sensitive nature staff and unions were briefed simultaneously. 

Not surprisingly, the Transport Workers Union has accused Qantas of attempting to deflect attention by announcing the job cuts as Mr Thomson spoke.

"Their spin doctors are again working overtime to avoid responsibility of downsizing and outsourcing a very successful airline," according to TWU national secretary Tony Sheldon.

Qantas shares closed flat at $1,43 after briefly rising to $1.45 on the news of the sackings.

The share price is a fare cry from the $5.34 reached in November 2007 after Airline Partners Australia made its failed bid.