Morgan Stanley: Everyone’s WRONG About Facebook

In his first public comments since the Facebook (NASDAQ:FB) IPO two weeks ago, Morgan Stanley (NYSE:MS) chief executive James Gorman has said that the social network’s now criticized opening price of $38 was justified because there appeared to be enough demand “in the room.” Gorman told CNBC that the demand for the social network’s stock from retail investors was unprecedented and that retail share allocation was set at 26 percent.

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Facebook shares have fallen considerably since their debut on May 18 and the underwriting banks’ handling of the offering, with the stock’s price being set at the highest possible mark of the available range, has been widely criticized.

Gorman asked investors to give the stock a little time before deciding that the offering was a failure. “This is one of the most volatile openings to an IPO ever,” he said, adding that he hoped investors had not panicked. “Let’s get away from the fury and the frenzy of recent days,” he said, asking investors to give the stock longer to stabilize.

Gorman had earlier told employees in an internal statement that there had been no “nefarious activity” connected with the firm’s communications regarding stock information to investors. The firm had cut Facebook’s earnings estimates just days before the offering, and reportedly informed only a select group of large investors about the change. The chief executive added to that comment by insisting that all changes had been public information and that several news organizations reported on Facebook disclosing the change in its own securities filing. “There wasn’t any desire to obfuscate or hide,” he said.

While Gorman accepted that there had been confusion because of technical problems associated with the stock’s debut on Nasdaq, he added that investors hoping for a big first-day pop were “both naive and bought it [Facebook stock] under the wrong pretenses.”

Gorman added that he was all for regulators scrutinizing the IPO because of all the attention it has attracted, but that he was confident that his firm followed the right procedure.

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