Morgan Stanley makes USD 100 mln profit on Facebook IPO

As the lead underwriter responsible for Facebook's IPO, Morgan Stanley, would receive the largest chunk of those profits arising from stabilising Facebook's stock price, the report said citing a person familiar with the matter.

The bank would receive the money on top of millions of dollars in IPO fees, the report said.

Facebook has lost over 16 per cent since it got listed on the Nasdaq exchange on Friday. After closing only a shade above the offer price of USD 38 on Friday, the stock closed with a loss of 11 per cent plunge on Monday. On Tuesday, shares of Facebook dropped another 9 per cent.

At the offer price of USD 38 apiece, the social network's share sale was over-subscribed and the firm was valued at USD 104 billion. However, Facebook's current market value stood at around USD 68.42 billion.

The underwriters made the bulk of the profit in Monday's trading when they bought shares below the USD 38 offering price, the report said citing sources.

The report said underwriters bought from Facebook the offering's 421,233,615 shares, but sold into the market 484,418,657 shares. Doing so made the underwriters "short" 63,185,042 shares.

The underwriters are given the option to buy the over-allotment of shares from the company at a discount.

In IPOs that trade higher, the underwriters will often choose to exercise their options for the overalloted shares at a discount to the IPO price, booking a profit on the difference, usually about one per cent.