The Five Dumbest Things on Wall Street This Week: Aug. 17
5. Manchester United's Kick Off
Nearly 32 million shares of Manchester United(:MANU) got kicked around on its first day as a public company. That's a lot of action considering the team only put 16.7 million shares on the market.
And Americans complain that soccer is boring.
Manchester United priced its IPO at $14 per share last Friday, below the expected range of $16 to $20. The stock finished the day exactly where it started, but more on that in a moment. The IPO raised $233 million, valuing the team at $2.3 billion. Most of the proceeds will be headed directly to the coffers of the Florida-based Glazer family who bought the soccer powerhouse in a highly leveraged deal in 2005. Man U had debt of $661 million at the end of March, causing much consternation among the club's fans who believe it will hamper the team's ability to attract talent in coming years.
That said, we're not here to talk debt and we're certainly not so dumb as to get into a shouting match with irate English soccer fans about the long-term effect of leverage on their favorite club's future.
Not by a Wayne Rooney long shot.
No, what intrigues us about the Man U IPO has been its dramatic drop-off in volume. After racking up huge volume at its Friday debut, the shares traded a mere 2 million times the following Monday and less than 200,000 on Tuesday.
Heck, if this pace keeps up then it's eventually going to trade less than the stock certificates Green Bay Packers fans hang on their walls.
Sure, we know that high-profile IPOs get an inordinate amount of attention from traders right out of the shoot, especially during dull summer sessions when they are the only game in town. However, there was something devilish going on during the Red Devils' IPO and as CNBC's eagle-eyed Bob Pisani points out, it probably had to with those cherry-picking high frequency traders looking for a quick score at the expense of the underwriters forced to defend the stock.
"So they put in bids at the initial price. Every time it goes to $14, there are bids. How many? Well, enough to support it at $14 minimum. Knowing this, high frequency traders come in, buy at $14 or $14.01 confident it is unlikely to drop below $14, and then sell at $14.01 or $14.02. Instant money!" blogs Pisani, who adds that the high frequency bandits were also pocketing rebates along the way from trade-starved stock exchanges overly willing to buy their business.
Instant money indeed Bob, and yet another instance of the playing field being leveled against the market's smaller players. No wonder they are giving themselves red cards and leaving in droves.
4. Morgan's Groupon Mistake
Poor Morgan Stanley (:MS). They simply have no clue when to jump off the Groupon (:GRPN) bandwagon.
Shares of Groupon got smacked Tuesday, sinking more than 27% after its quarterly revenue missed Wall Street estimates because of a weakening European economy and, let's face it, the novelty wearing off of its high-margin daily deal business. The company's stock fell to $5.50 on the report and is now down more than 80% since it touched a high of $31.14 on the day it went public last November.
Of course, a lot has happened since then. None of which, however, was predicted by the future-tellers at Morgan Stanley, much to their chagrin and their clients consternation.
Let's quickly review the mess Morgan's research team has made of this stock, shall we?
Back on Nov. 4, 2011, Groupon sold 35 million shares at $20 each, above the initial range of $16 to $18 mind you, raising $700 million and valuing the company at nearly $13 billion. Groupon CEO Andrew Mason spent the day gloating at his good fortune. And lead underwriter Morgan Stanley was beaming, confident that its Groupon success would show the folks at the still private Facebook (:FB) that it had the chops to do their highly anticipated deal.
Oh, hindsight. How it makes one want to kick oneself in the behind sometimes!
Anyway, forty days later with the stock trading near $23, Morgan initiated the stock with an equal-weight rating and a $27 "fair value" target. Fair enough. At the time Morgan was trying to prove the integrity of its research, as opposed to second lead Goldman Sachs (:GS) which gave Groupon a buy rating and a Street-high $29 target. (Good grief Goldman! Is there anything you won't do for a banking client? Did you learn nothing from last bubble's eToys episode?)
In retrospect, both banks should have slapped a sell rating on Groupon because the stock sank to single digits over the next six months. In mid-June, however, Morgan took a stand and upgraded its view to a buy with an $18 target. Wrote Morgan's analyst at the time, "We believe the recent sell-off of Groupon shares represents a strong buying opportunity."
Yep, cue the behind-kicking if you took Morgan's advice and bought the stock back then.
Or you know what. Don't self-flagellate just yet. Despite Tuesday's massive selloff, Morgan posted an overweight rating and a $9 price target on the stock on the belief that "Groupon is still the best positioned company to crack the local eCommerce enigma."
Seriously, feel free to put your boot down. Thanks to Morgan, there's still money left to lose and plenty of time to kick yourself later.
3. Standard Skates By
Wow Standard Chartered. What a difference a week and $340 million makes.
Barely a week after the behemoth British bank got busted by New York Financial Services Superintendent Benjamin Lawsky for allegedly doing $250 billion worth of illegal business with Iran, Standard Chartered settled the affair Tuesday by paying a fine and agreeing to install a monitor to prevent future money-laundering. The announcement came just in time for the London-based bank, as it was scheduled to defend itself against the allegations at a hearing the following day.
Um, excuse us for asking, but if Standard Chartered was indeed a "rogue institution" and broke U.S. sanctions laws, then why not hold the hearings first and then decide the penalty? Those are some pretty nasty charges, so let's hear Chief Executive Peter Sands give some specifics under oath instead of flat-out denials to the press.
From the smell of it, the Brits got their knickers in a twist and New York's Lawsky, probably feeling the heat from the U.S. Department of Justice, twisted Sands' arm for a settlement before the facts could come to light and seriously embarrass somebody -- including himself.
In other words, he pulled a Spitzer, except in this case Lawsky did it to save America's "special relationship" with Great Britain instead of Wall Street campaign contributions for a future political run. (By the way Ben, disgraced former New York Governor Eliot Spitzer is not the act you want to follow if you want to get ahead in the politics business. Don't just take it from us. Ask around.)
Anyway, the $340 million penalty may seem hefty, but Standard Chartered earned $17.6 billion in 2011, so it's the equivalent of a speeding ticket to these guys. And as we all know, the best way to stop somebody from speeding is to take away their license.
And on that note, all that talk about revoking Standard Charter's license to do business in New York was merely that. Once the Limeys started whining that U.S. regulators were treating their banks differently than American ones, Lawsky claimed victory and left the game he started.
To which we say, congratulations to our friends across the pond. With that wrist slap of a punishment, Standard Chartered is being treated exactly like its counterparts in America. So quit your complaining, mates.
2. Priceline's Poor Decision
When Priceline (:PCLN) killed off William Shatner's "Negotiator" from its commercials earlier this year, we couldn't call it a dumb move because we didn't know what the travel site was doing.
As it turns out, neither did Priceline. That's why they brought Shatner back this week.
Priceline stupidly killed off the popular character seven months ago by plunging him off a bridge after saving a group of tourists. The company resurrected him on Thursday in a 30-second commercial showing Shatner standing on a beach, acting like a former spy that was leaving the espionage business for good.
"Surfing is my life now," says Shatner before running with board in hand to catch a wave -- in a business suit mind you.
Sorry guys, but we all know that pitching has been Shatner's life since T.J. Hooker was cancelled over a quarter century ago. And while Bill washed up on a beach in his latest spot, he is clearly not washed up as a spokesman. In fact, he's so good at it that nobody can tell where the salesman stops and Shatner begins. That's what made Priceline's decision to drop Shatner after 14 years of service so shockingly dumb. Call us Klingon, but why on earth would they literally throw all that goodwill under the bus?
Now we're not saying Shatner's extended hiatus was entirely the cause of the company's recent troubles. Last week's 17% meltdown in Priceline's stock was clearly a result of European malaise affecting the company's third quarter earnings rather than Shatner's departure. That said, killing off Captain Kirk couldn't have helped.
"I knew it was a mistake, absolutely," said Shatner.
Of course you did Bill. Is there anything you don't know?
1. Suntech's CEO Shuffle
Suntech (:STP) may be nearing the end of its Titanic-like journey into oblivion, but that's not stopping the former solar giant from rearranging the deck chairs in its corner office.
Suntech , which has seen its shares sink from more than $80 each four years ago to barely $1 today, said Wednesday it was elevating former CFO David King to the CEO position, and making former CEO Dr. Zhengrong Shi its executive chairman and chief strategy officer of the company.
"The new management structure will free up Dr. Shi to focus on strategy and key relationships with the government, customers, banks and vendors," wrote Rory Macpherson, the company's director of investor relations.
Sorry Zhengrong, but all the strategy in the world won't turn this ship around. You need help from above to keep from going under.
For those that may have already forgotten, Suntech said last month that it was scammed out of $680 million in collateral for a loan it had guaranteed. Suntech intended to use the money to finance solar systems in Italy, but if its business doesn't turn around soon -- and most analysts think it won't -- then it could be forced out of business.
To be somewhat fair, the glut of solar panels in the world accompanied by falling oil prices certainly didn't make it easy on Suntech. And cash-strapped European governments cutting subsidies for solar use plus constant political bickering between the U.S. and China over product dumping didn't help its cause either.
But we still can't understand how vaulting the CFO who missed a massive loan scandal into Suntech's top spot will infuse investor confidence into the company. Lucky for us, we won't be left wondering much longer.
--Written by Gregg Greenberg in New York.