Facebook in Record IPO Listing

The social networking giant Facebook made its long awaited initial public offering (IPO) on 17 May 2012. Facebook is now listed on the Nasdaq stock Exchange and raised a record $16 billion from the IPO. The shares were listed at $38 and the company is now valued at $104 billion making it the largest IPO in history. 

Founder Mark Zuckerberg is rumoured to face a hefty tax bill estimated in the region of $2 billion. It is no surprise to hear that he has announced that he will marry his long term girlfriend Priscilla Chan during the week of the IPO. Could he have been influenced by tax planning perhaps? 

Many critics believe the company to be overvalued as the share price is 54 times above currently projected earnings. The share price dropped 13% on the first day of trading, suggesting that the market may share this view. However, Facebook has over 900 million active users and has significant marketing potential.

JP Morgan Reports $2 Billion Trading Loss

Last week’s announcement that JP Morgan made a $2 Billion Loss from a single trade position has brought further controversy over the banking crisis. The investment bank is reported to have a trading position in excess of $100 billion, reportedly for to hedge it’s exposure in other areas. The true extent of the loss could indeed be found to be much larger, particularly if the markets continue to go against JP Morgan. 

JP Morgan has entered into a number of complex and risky derivatives much like those at the center of the financial scandal in 2008. Senior management sanctioned the risky trades in order to make use of significant cash deposits available at the time and “hedge” against exposure on the company balance sheet. The Bank has dismissed the $2 billion trading loss as an error which will be covered as JP Morgan are still expecting to make an overall profit this year. 

The scandal will no doubt give rise to further banker bashing as both the public and investors continue to lose their trust in the major Banks. The government will now have added pressure to proceed with plans to split the retail and investment activities of the Banks. It is clear that the banks have become too big to fail and are continuing to engage in risky transactions which are effectively bankrolled by the taxpayer.

Spain and Greece in Dire Straights

The Eurozone saga continues with both Greece and Spain reported to be facing serious financial distress. CityAm claims that Greece could default by the end of the month. Whilst we feel that Greece’s default is inevitable it is unlikely to occur as early as next month. Early indications suggest that France and Germany began to lose faith in Greece back in January. It will take several months to develop an exit plan and to print money should Greece adopt an orderly withdrawal from the Euro. Default in the latter part of the year is more likely unless other factors such as Spain trigger a collapse. 

Spain is the latest Eurozone member to be under scrutiny. This is not surprising given the exceptional levels of unemployment which exceeded 25% last month. Spain have been forced to bail out Bankia, the country’s third biggest bank which has fallen into distress. Investors and Eurosceptics are now monitoring Spain with uncertainty over its solvency. The Eurozone may be able to cope with a bail out of Greece but Spain is simply too big. The repercussions will be significant. 

The election of Socialist French President Francois Hollande has further fuelled concerns over the stability of the Eurozone as it is unclear what his stance will be over austerity and whether he can maintain a relationship with Angela Merkel.