Blackstone Deserted By Its Own Bankers

What do equity underwriters do? Well, in the most basic definition of the term, they underwrite a stock offering – that is, they pledge to buy shares at a certain price if the public turns out not to have any appetite. Essentially, they're putting their corporate reputations on the line, and saying that a certain stock is worth what they say it's worth, and that if push comes to shove they'll put their money where their mouth is and buy it at that price.

Which means that if you have seventeen different underwriters on a deal, and they all say that a certain stock is worth (say) $31 per share, there's bound to be a pretty strong bid at that level. Right?

Er, not so much. If you look at how BX has been performing today, the $31 level seems to be more of an intraday cap than an intraday floor. The banks are more than happy to sell stock at that price – indeed, they exercised their greenshoe yesterday and raised another $620 million for Blackstone (of which, naturally, they're keeping $22 million for themselves).

If the banks won't support a deal on the day after they exercise a greenshoe, how on earth do they justify their fees, no matter how "discounted" the 3.6% rate is? And what point could there possibly be in hiring everybody and their mother to help sell the deal? Yes, the stock markets in general have been falling, but nothing like as much as Blackstone has been: it's now almost 30% lower than the first price it traded at on Friday.

This IPO is bad news for any other private-equity shop looking to go public, yes. But it's also bad news for Wall Street, which has now revealed just how quickly it's willing to desert a client whose offering isn't quite going according to plan.