Transparency is Wall Street’s version of Kryptonite. If you take away the informational advantage that investment banks have over their clients and shareholders, then you take away their already diminished ability to print money. My latest column for Financial News.
It is temptingly easy to draw parallels between the recent problems at the two Houses of Morgan – JP and Stanley. The billions of dollars of (growing) losses in the chief investment office at JP Morgan, and the controversy over the role played by Morgan Stanley as the lead underwriter on the abortive Facebook IPO, can be linked in many ways.
Not least, both banks are facing inevitable lawsuits from angry shareholders and have attracted the unwanted attention of regulators. Their problems are a(nother) reminder of the hubris of investment banks, and of how they tend to do pretty much anything they think they can get away with to make more money. Or maybe the link is that if you leave investment banks unsupervised for a just a few minutes they will eventually screw up.
But perhaps the most pertinent connection between the two is a question of transparency: in Morgan Stanley’s case the opaque nature of the IPO process itself, and at JP Morgan the murky disclosure of exactly what it was doing with a $375bn portfolio and how much money it was making from it.
Let’s start with Morgan Stanley, which stands accused of downgrading its earnings forecasts for Facebook during the roadshow for the IPO and then selectively disclosing this information to institutional investors. This change of heart on the most-hyped IPO of recent times helped turn what should have been a cakewalk for Facebook into a fiasco.
The problem here seems less an issue with Morgan Stanley itself – the banks says any changes in its forecasts merely reflected the revised prospectus published by Facebook – as with the IPO process itself. It is paradoxical that a company like Facebook, which exists to enable people to share huge amounts of information about themselves with others (and which collects terrifying amounts of information on them in doing so) should go public via such an untransparent process.
…Over at JP Morgan, investors had no better visibility on what was going on in the CIO. While the bank publishes acres of information every quarter – the supplement to its first quarter results ran to 52 pages – it is surprisingly shy about publishing details of how much money the CIO was making and how…