Hambrecht: Big Banks Low-Balled Google IPO

Bill Hambrecht (founder of the firm credited with popularizing the Dutch Auction system) calls the big bankers out in this Bloomberg piece:

Hambrecht says Google underpriced its shares in the Aug. 18 offering, which at $85 raised $1.92 billion, a record for any Internet company. Google allowed big investors, with Morgan Stanley and Credit Suisse First Boston Inc., the banks leading the IPO, to dominate the bidding, he says.

“All the institutional business had to channel through CSFB and Morgan Stanley,” says Hambrecht, 69, whose San Francisco- based WR Hambrecht & Co. was one of the eight co-managers. “The institutions came in and said, `I want a 15 percent discount so I’ll bid $85.’ And they got it.”…

… Hambrecht says the bid totals, or “stacks,” from his firm’s clients ranged up to $120 per share.

“Before they announced the price reduction, our bid stack predicted the stock would sell between $110 and $120,” Hambrecht says. “After the price reduction, the mean of our bid stack was $97. Our bid stack clearly showed that the price could have been higher.”

Hambrecht does allow that Google achieved its aims with its IPO, however.

Hambrecht says the offering achieved Google’s objectives even though it was underpriced, because the auction allowed customers and other small investors to buy shares.

“It was never their objective to get the highest price,” says Hambrecht. “The company is awash with cash. They wanted marketability. They wanted access to their customer base.”