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Banking

Did underwriters do a good job?

Should the bankers who for the last two years led Nasdaq's internet IPO bonanza, until the bubble burst in April, be held in any way to blame? The new issue houses don't think so. Although they put their name to many deals which have since flopped, they were midwives to many more that made punters rich. It was impossible to slow "borderline goofy" demand when the feeding frenzy was at its height. Internet IPOs became their own crazy asset class. However those frothy IPOs, which deprived many internet companies of committed core shareholders, may hasten their doom. Antony Currie reports

    Goldman Sachs, Morgan Stanley and CSFB, the top technology investment banks, were the most prominent arrangers of technology and internet IPOs during the extraordinary bull run that has just come to its inevitable messy end. But the April crash has exposed these three banks to criticism for how they managed their deals. Too many turned sour, others quickly reached stellar valuations way above their IPO price, all rushed out in a frenzy to keep clamouring investors sated. No underwriter escaped this, but the top three fell into the trap more frequently, and more prominently. Each developed its own renown. Morgan Stanley went for biggest first-day gains, which for a time many considered a key measure of deal success. CSFB went for a super-fast deal turnround, and then became equally fast to pull deals, after the tech stock crash. Goldman just went flat out for market share.

In part because of this, Goldman's reputation has taken a bigger hit, as it underwrote more of the e-tailing companies than any other bank, although Morgan Stanley and CSFB both competed fiercely for many of the mandates. As the sector lost favour with investors, who began finally to question the sanity of inflated valuations on questionable business models such as Pets.com

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