Making History With the Worst IPO Debut -- Ever

Some of you may have deja vu with Facebook, or more recently, Uber.

Robinhood's trading debut featured the steepest decline for an IPO that big, with a drop of more than 8% from its offering price by the end of Thursday. It was also tough on the little guys: At least a fifth of the IPO was bought by retail investors who were many of Robinhood’s own clients.

It’s a historic capital markets moment. An unusually large percentage of small investors bought IPO shares as Robinhood made this new model available, through a feature called IPO Access. And with any novel listing method, there are bound to be hiccups.

That’s never stopped the finger pointing at underwriters -- in this case, 17 of them, led by Goldman Sachs and JPMorgan. Should the IPO have been priced lower in the first place? It already fell about $10 to $20 a share below where it was seen trading in private markets more recently.

“The key question is: The longer these companies stay private, how much is left for the upside to public investors?” said Barry Ritholtz, a Bloomberg Opinion columnist and chairman and chief investment officer of Ritholtz Wealth Management. “In order to justify what the underwriters’ pricing was, this company has to grow tremendously beyond the pandemic.”

Still, let’s put a $30 billion market value into perspective.

Robinhood is now a bigger company than Credit Suisse -- which manages money for investors far more wealthy than the day-trading crowd. It’s also worth more than online brokerage Interactive Brokers, one of the industry’s pioneers. Trading at 30 times last year’s revenue makes it roughly three times more expensive than its larger and much older rivals.

Robinhood’s founders have still become billionaires, and its early investors have gained tremendously . They’ve trained a new generation of traders to engage with the stock market -- or at least care to learn about it.

Kayla Kilbride, who started trading about 18 months ago and posts finance videos on TikTok, bought a single share of Robinhood during the IPO. “I will be holding it,” she said, while buying some more as it began trading.

Asked what young people want to know about trading or investing, Kilbride told my Bloomberg Television colleagues : “They want to know what an IPO is.” It was one of my favorite conversations of the week. “For the most part, they’re just looking to get started,” she said.

“Most people that I talk to don’t even know that trading costs money at one point.”

Meanwhile, Nasdaq Stock Market President Nelson Griggs told us to expect a slowdown in listings in the coming weeks. “We are in a historic year,” he said. “There’s a case to be made for a little timeout right now.”

Courting Wealthy Clients

Call it a lesson in risk management, one that should probably make the rounds across banks and business schools.

Credit Suisse released a whopping 165-page report by law firm Paul Weiss -- an independent review commissioned by the board. It found that “at all levels within (prime services and credit-risk management), and increasingly over time, there was inadequate staffing to sufficiently manage and address the risks posed by Archegos (and other hedge fund clients).”

Credit Suisse generated about $32 million in revenue from Archegos since early 2019. Meanwhile, the bank’s exposure to the hedge fund expanded beyond $20 billion, with “aggressive margins of 8%-9%,” according to the report, which was based on 10 million bank documents and other data.

Credit Suisse ended up with about $5.5 billion in losses.

Archegos was an investment-banking client, but was not a client of the private-wealth business. Meanwhile, a key reason a bank like Credit Suisse has dealmaking and trading units is to drum up business for its behemoth wealth-management side.

And it’s not nearly the first wealthy investor to spur major losses for the bank.

As Bloomberg’s Marion Halftermeyer and Ambereen Choudhury show: The bank is rethinking what constitutes a dream client as it cuts exposure to hedge funds and ends ties with SoftBank over that company’s ties to Greensill, another one of Credit Suisse’s hiccups.

While the bank’s losses were disappointing to investors, and dealmaking fees tumbled, the Swiss company is still one of the top IPO underwriters in the world and in the top 10 among M&A advisers globally, according to data compiled by Bloomberg. Company executives face strategic questions on the investment bank ahead.

More on Wall Street

• Matt Levine’s take on Archegos and Credit Suisse’s report , for Bloomberg Opinion. “It is thrilling reading, as good as anything you will ever read about the management and sociology and processes of big investment banks.”
• Apollo books a $1.6 billion gain by selling a majority stake in a hospital chain to another Apollo fund, Bloomberg’s Sabrina Willmer reports . Apollo’s earnings come next week.
• Carlyle shares reached a record high this week after beating earnings expectations and pulling in an additional $10.4 billion during the second quarter. The firm is seeking to raise a record buyout fund, Bloomberg has previously reported.

More to come. Hoping you have a great weekend ahead. If you’re around today and Monday, I will be filling in as a co-anchor on Bloomberg Television from 2 p.m. to 4:30 p.m. Eastern time. Tune in -- and send your questions. Tips and opinions are always welcome in the meantime at [email protected].