The 100 million dollar tweet

Reports have indicated that a major investment-banking firm was removed from the GM IPO due to a note sent by a senior analyst the night before GM filed terms for its $13 billion initial public offering. A note like this is a direct violation of SEC rules about not disclosing information on IPOs outside of regulatory filings or investor roadshows. In this instance it was an email, but you can easily imagine it being a tweet or a status update with the exact same result.

We might never know exactly what happened, why it happened or why it wasn’t caught. But we can learn from this example. In this case, one simple email has cost the firm in excess of 100 million dollars (my rough estimate). Here is how I got there:

■ Loss of the investment banking fees – $30mm. This is one of the largest deals in Wall Street history and the firm stood to make tens of millions on the deal on fees alone.

■ Lost proceeds from orders – $30mm. As the firm to bring the IPO to market they also had the ability to take orders from their investors. By being removed they lost this right, every order and every commission.

■ Relationship, brand damage & lost future revenue – $40mm. There is no doubt that this will leave a lasting impression on investors. You hope that individuals will stand by their broker but it is possible they will lose a number of accounts and many of them will be quite large and quite profitable.

■ Loss of time – $1-10mm. This one is tougher. No doubt all the time put into the analysis, the roadshows, the sales calls, etc. is all for naught. Aside from the actual cost of the man-hours, think about the benefits of applying that time elsewhere. While this is the smallest bucket it is still worth pointing out.

What if this had gone out through a tweet or status update? Could it have been stopped? How will firms deal with these scenarios in the future?

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Source: Socialware
By Chad Bockius