Facebook Falls Below Its IPO Price

(Updated with Monday’s closing price.)

Less than an hour into only its second day of trading, 88 million shares of Facebook (FB) had changed hands and the price was down 12 percent from Friday’s close of $38.23. (The shares closed Monday at $34.03.) In other words, you could buy this most anticipated of initial public offerings at a substantial discount from the price that Wall Street reserved for its preferred clients.

With a valuation of $104.8 billion at the May 18 close, Facebook was already worth more than three times the other 10 U.S. consumer Internet companies to have gone public in the past year; LinkedIn (LNKD), valued at $10.3 billion, is second.

“IPOs are scary things,” says blogger and newsletter writer Eddy Elfenbein. “It’s hard to justify Facebook going for sixty times” next year’s estimated earnings, he adds, “in a market where Apple (AAPL) is going for less than 10 times next year’s estimate.”

So what price can be justified? Elfenbein calculates that Facebook’s estimated 2013 earnings of $1 a share, combined with its projected 50 percent earnings growth rate for the next five years—and there’s no guarantee the company will meet those estimates—give it a fair value of $33 a share. Even so, he says buying the stock would be prudent only at closer to $23.

You may get that chance. Another analyst, PrivCo’s Sam Hamadeh, points to concerns about Facebook’s fundamentals: declining first-quarter advertising revenue; the number of unique visitors to Facebook dropping in the U.S.; the company warning in its most recent S-1 filing that the shift to mobile access vs. desktop access could complicate its ad business. He also anticipates a wave of new stock hitting the market once insiders are free to unload their holdings, and predicts that others will sell to raise money to pay taxes on their gains.

“When you factor in that the lockup expires in November and tax-related selling, we think the shares, once the hype dies down, will be in the $20s by yearend—$24 to $25 per share,” Hamadeh told peHUB.

If Zuckerberg & Co. should want consolation, they need look no further than Google’s (GOOG) 2004 initial public offering. Few remember that the king of Internet search actually had to slash the price of its shares well below its earlier targets. It ultimately IPO’d at $85, which was far lower than management’s earlier indicated range of $108 to $135. And though GOOG did enjoy a nice Day One pop, it went to nowhere and back for the better part of a month—before more than quintupling in less than four years.

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Banks Can Go Below Basel Minimum Liquidity Levels in Crisis

January 08, 2012, 6:40 PM EST By Jim Brunsden

(Updates with accounting firm comment in fifth paragraph.)

Jan. 8 (Bloomberg) -- Banks will be allowed go below minimum liquidity levels set by global regulators during a financial crisis so that they can avoid cash-flow difficulties.

“During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement,” the Basel Committee on Banking Supervision’s governing board said in a statement on its website today, following a meeting in the Swiss city.

The aim of the measure, known as a liquidity coverage ratio, is to ensure that lenders hold enough easy-to-sell assets to survive a 30-day credit squeeze. The requirement, one of several measures from the Basel group designed to prevent a repeat of the 2008 financial crisis, is scheduled to enter into force in 2015.

Banks have argued that the rule may curtail loans by forcing them to hoard cash and buy government bonds. Bank supervisors say the standard is needed to prevent a repeat of the collapses of Lehman Brothers Holdings Inc. and Dexia SA, which were blamed in part on the lenders running out of short- term funding. Global regulators said last year that they would amend the rule to address unintended consequences.

“There will be a concern nevertheless that banks won’t want to draw down their liquidity buffers because of how such a move may be received by the markets,” said Patrick Fell, a director at PricewaterhouseCoopers LLP in London. “A bank that is seen to draw on the buffer could feel itself to be weakened and compromised.”

Liquidity Buffers

Regulators must still clarify which assets banks should be allowed to count towards liquidity buffers and how much funding lenders should expect to lose in a crisis, the group said. Work on the main elements of the liquidity rule should be completed by the end of 2012, it said.

The Basel committee will provide further guidance on when lenders will be allowed to breach the minimum rule, and make sure the standard doesn’t interfere with central-bank policies.

“The aim of the liquidity coverage ratio is to ensure that banks, in normal times, have a sound funding structure and hold sufficient liquid assets,” Mervyn King, the governing board’s chairman, said. This should mean that “central banks are asked to perform only as lenders of last resort and not as lenders of first resort,” said King, who is also governor of the Bank of England.

Capital Rules

The liquidity rules were part of a package of measures adopted by global banking regulators in 2010 to strengthen the resilience of banks. The new rules also included tougher capital requirements that more than tripled the core reserves that lenders are required to hold.

Separately, the governing board said that the Basel committee will carry out “detailed” peer reviews of whether nations have correctly implemented capital rules for lenders. The assessments will include whether lenders are correctly valuing their assets, it said. The results of the reviews will be published, with the U.S, Japan and European Union the first to undergo the exams.

Some U.S. bankers, including Jamie Dimon, chief executive officer of JPMorgan, the largest U.S. lender, have called for an overhaul of the current risk-weighting plan, which allows banks to use their own models to assess the safety of assets and how much capital they need to hold. Dimon has said that the way the rules are applied could disadvantage U.S. banks.

The proportion of risk-weighted assets to total assets at European banks is half that of U.S. lenders, according to a report last year by Simon Samuels and Mike Harrison, analysts at Barclays Capital in London.

--Editors: Anthony Aarons, C. Thompson

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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