Morgan Stanley ups Facebook IPO share cap to 5,000

Last Updated: Thu, May 17, 2012 22:00 hrs

By Jessica Toonkel and Jennifer Hoyt Cummings

NEW YORK (Reuters) - Morgan Stanley Smith Barney, one of the three lead underwriters on the Facebook Inc IPO, has increased the number of Facebook shares it will allow advisers to allocate to each client account.

The firm previously set a cap of 500 shares per retail client, but e-mailed advisers late on Thursday afternoon that it had increased the limit to 5,000 shares, according to two sources familiar with the situation, who declined to be named because they are not permitted to speak to the press.

A spokeswoman for Morgan Stanley Smith Barney, a venture of Morgan Stanley and Citigroup Inc , declined to comment.

Morgan Stanley and underwriter Bank of America Merrill Lynch started telling advisers how many Facebook shares they would receive to allocate to clients on Thursday, hours before Facebook announced the pricing of its IPO at $38 per share.

Merrill capped the number of Facebook shares for each client account at 2,000. Two Merrill advisers told Reuters their offices received many more shares than expected.

Meanwhile, one Morgan Stanley adviser and one client told Reuters they received far fewer shares than they expected.

A Morgan Stanley Smith Barney adviser based in the Northeast who received the e-mail said he was not surprised the 500 share cap was lifted.

But at least one adviser and one person familiar with Morgan Stanley said it was doubtful Morgan Stanley upped the cap due to client or adviser complaints.

"They just have a lot of stock and they need to get rid of it," the person familiar with the situation said.

Some industry observers believe Morgan Stanley may have also raised its cap to placate advisers and clients.

"I am sure they were getting calls," said Alois Pirker, research director at Aite Group LLC. "One of the advantages of being a lead underwriter is that you get preferential treatment. I am sure there were some wealthy individuals who were wondering if it would be better to be with Merrill Lynch."

Facebook has 33 underwriters for the IPO, led by Morgan Stanley, JPMorgan Chase & Co and Goldman Sachs Group Inc .

(Editing by Gary Hill and Andre Grenon)

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