Trader Talk

Facebook and Morgan Stanley's 99 Problems

Facebook IPO papers
Bloomberg via Getty Images

Facebook suddenly spikes at the close on a surge in volume, ending above $33. Yesterday (Wednesday) it's up almost exactly $1, today it's up almost exactly $1.

Looks like suddenly FB has acquired a friend of the court, doesn't it? Who could that be?

I'll make this simple: the best way for Morgan Stanley to get out of this mess is for them to get the stock back above $38. If it gets above that, they can say to this army of unhappy clients: "See? It's three weeks later, and the stock is $38.50 — what is your problem, Mr. Smith?"

Problems? This is causing 99 different problems for them.

A conference call going on after the close with Morgan Stanley brokers to discuss FB trading issues will likely discuss what to do with those unhappy clients.

You cannot bring a heralded deal and bring it down 25 percent and not expect a backlash. How many MS clients asked for 25,000 FB shares, expecting 1,000, and got 20,000? Now you just took on an obligation to buy $700,000 in stock, and you have $150,000 in your account — where do you get the money to cover? They will be in the penalty box because they reneged.

Some will also likely be telling their MS brokers to go to hell, they are not paying.

How many disgruntled clients are there? That's likely what this conference call is about. They are also trying to determine how many clients might be having margin calls, and the most important question of all: how many are threatening legal action?



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