Between Facebook and JPMorgan, Wall Streets woes mount
NEW YORK — Almost four years after the financial crisis, Wall Street still can’t get it right.
A big final-hour comeback pulled the Dow Jones industrial average nearly back to where it started Wednesday.
The Dow was down as much as 191 points earlier as the threat of a financial crisis spreading from Europe shook markets. A late buying surge erased nearly all the Dow’s deficit after the leaders of France and Italy said they favored using regionwide bonds to support Europe’s economy.
For the day:
The Dow fell 6.66 points, or 0.1%, to close at 12,496.15.
The S&P 500 index rose 2.23, or 0.2%, to 1,318.86.
The Nasdaq rose 11.04, or 0.4%, to 2,850.12.
For the year:
The Dow is up 278.59, or 2.3%.
The S&P 500 is up 61.26, or 4.9%.
The Nasdaq is up 244.97, or 9.4%.
Investor anger mounted Wednesday over the initial public offering of Facebook stock last week, which was fumbled by the banks that managed the deal and complicated by technical problems at the Nasdaq stock exchange.
Shareholders filed at least two lawsuits against Facebook and Morgan Stanley, the bank that shepherded the IPO, over reports that it withheld negative analyst reports about Facebook from some clients before the company went public.
It was the second stumble this month by a major Wall Street firm. JPMorgan Chase, usually revered for taming risk, has yet to contain a growing $2 billion loss in one of its trading units.
The missteps are further eroding the confidence of Main Street, or what was left of it after the financial meltdown of 2008, and reinforcing the sense that the game is rigged.
Judson Gee, a financial adviser in Charlotte,, placed a call Wednesday to a client who had plowed $50,000 into Facebook stock on Friday, the day of the IPO.
Gee said he called to tell the client, a restaurateur, about reports that Morgan Stanley had told only select customers about an analyst’s reduction of revenue estimates for Facebook just before the IPO.
“A lot of expletives came out,” Gee said, adding that his client asked: “How can they give that information to the big boys and not give it to the public?”
In the final planning of the IPO, Facebook, working with Morgan Stanley, raised the total number of shares being offered for sale by 25 percent, to 421 million. They expected extraordinary demand for the stock by investors.
That appears to have been a miscalculation. Facebook stock jumped from $38 to as high as $45 in the opening minutes, but quickly sank toward $38 again. It dropped to about $34 on Monday and $31 Tuesday. The stock recovered to $32 Wednesday.
The Senate Banking Committee, the Securities and Exchange Commission and other regulators also plan to look into the IPO.
Regulators probably will want to comb over Facebook’s prospectus, the information it provided to potential investors, to make sure the company’s disclosures were accurate and complete.
State securities laws and industry rules, mostly broader in scope than SEC rules, give state and industry regulators a wider berth to sanction investment firms that they accuse of failing to act in investors’ best interest.
The first trading in Facebook stock was delayed half an hour by technical glitches at the Nasdaq Stock Market, and brokerages still are sorting through problems with orders.
The bungled IPO came little more than a week after JPMorgan CEO Jamie Dimon disclosed the $2 billion loss.
He has said the bank was hedging against financial risk, but regulators have questioned whether it was a gamble for profit instead, and have seized on the loss to make the case that Wall Street has not cleaned up its act.
As if small investors needed a reason to feel queasier, the stock market is having its worst month of the year, mostly because of concerns about the debt crisis in Europe.