Who Drove the Facebook Disaster?

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Before it all went so very wrong.Photo: Peter Foley/Bloomberg via Getty Images

Before Facebook's IPO, the social network's investment banks were as excited about their underwriting roles as tween girls outside a Today show taping, pushing and shoving each other for a good look at the Bieb. JPMorgan Chase flew a Facebook flag at its Park Avenue headquarters, and it wasn't even the lead underwriter. (Oh God, can you imagine if it had been? Cashmere hoodies in the office! Pigs and goats for everyone!)

Now that the IPO is a flop, though, everyone wants out of the pool. The Wall Street Journal has a good blow-by-blow of the blame game that has pitted Facebook against its bankers, its bankers against each other, and everybody against Nasdaq.

In the Journal's story, we learn that Michael Grimes, Morgan Stanley's CityVille-playing tech banker, told Facebook executives that he wanted to be the "single driver" of the IPO, that he convinced them to give him solo control through the use of a whiz-bang pitchbook called "Driver/Navigator Model" that featured a photo of a "black sports car," and that he offered Facebook his "throat to choke" if the deal went FUBAR.

We also learn that the process of agreeing on a share price for Facebook's IPO was a passive-aggressive slap-fight between Morgan Stanley, JPMorgan, Goldman Sachs, and Facebook CFO David Ebersman.

J.P. Morgan Vice Chairman James B. Lee Jr. told Mr. Ebersman he remained "bullish" on the company, based on a successful $8 billion bank-financing J.P. Morgan had led for Facebook, as well as reports his firm was receiving of demand at a price as high as $41 a share, according to people familiar with the call.

On another call, senior Goldman technology banker Andy Fisher told Mr. Ebersman it wasn't clear how big investors would react to such a price increase, according to bankers knowledgeable about the call. He suggested that Facebook get clarity from those investors before moving ahead.

Mr. Ebersman told Mr. Fisher that increasing the range was the way to go based on investor interest in the roadshow, say people familiar with the call. Later that day, news broke of the IPO price-range boost.

That evening, after the last investor meeting, Messrs. Grimes and Ebersman shared a barbecue dinner in Kansas City, Mo., to celebrate, says one bank official.

Here, in all likelihood, is how the Journal's story came together: Morgan Stanley, defensive about having blown its big IPO, started slinging mud (anonymously, natch) at JPMorgan and Goldman Sachs, accusing them of goosing the share price above levels it was comfortable with. Goldman and JPMorgan presumably fought back, telling the Journal that they warned Morgan Stanley about the risks of such aggressive pricing. Everyone blamed Nasdaq for everything else.

It's important to note that nobody comes out of a story like this looking good. Goldman and JPMorgan look like chumps for falling all over themselves to get equal billing with Morgan Stanley during the lead-up to the IPO, then distancing themselves as fast as possible when things went sour. Ebersman looks bad for allowing Grimes to put stars in his eyes (to the point that the Facebook CFO was publicly telling analysts that he wanted "the most successful public offering in history") and Grimes looks bad for this:

The 45-year-old Mr. Grimes, who made about $6 million last year, is likely to make more than that this year because of his role in the Facebook deal, says one person familiar with the firm's compensation.

And why shouldn't he? It takes skills to compare an IPO to a car, then crash that car and blame the guys behind you for tailgating.