San Francisco
Do you wonder why Morgan Stanley walked away from a very
profitable chance to do an IPO (initial public offering of stock) for
Morningstar Inc (the publisher of the popular mutual fund evaluation
service)?
The technical answer is that Morningstar decided to sell its stock by the auction method as opposed to the longstanding Wall Street practice of handing out stock to brokers’ to sell to their favorite clients. Morgan Stanley doesn’t like the auction method, so it rejected a profitable deal.
That isn’t the real answer. The reason is that
Morgan Stanley is opposed to meritocracy in the
market and wants to play favorites with its friends. Being rich has
almost no economies of scales attached to it. Being rich only has the
advantage of a
good-old-boy network. A network such as
the one Morgan Stanley wants to continue supporting, where rich
accounts get
first pick of bargain stocks just coming on the market, so they have a
better
chance of making a profit.
The auction method of selling new stock, that Morningstar wanted to use, and did use, avoids the good-old-boy network. Three cheers for Morningstar and many more cheers for Google that was the first multi-billion dollar public stock offering by auction. Still more cheers for W.R. Hambrecht & Co. the San Francisco company that is the pioneer in stock auctions.
When W.R. Hambrecht started I was a little persnickety about the excess money and excess staff they began with. Now I’m just happy-as-can-be that they survived, expanded throughout the U.S. and are the champions of defeating the anti-meritocratic old-boy-network.
Screw Morgan Stanley, the company that will turn away profitable business to protect the good-old-boys network.