Since going public just over seven months ago at a price of $10 per share, shares of Zynga (ZNGA) have lost nearly 70% of their value, including today's decline of 40% following a disastrous earnings report. As if Wall Street didn't have enough of an image problem, stories like this only add fuel to the fire. Looking at the firms who underwrote the ZNGA offering shows a who's who of the most high profile firms on the street, including Morgan Stanley, Bank of America/Merrill Lynch (BAML), Barclays, Goldman Sachs, and JP Morgan. When the so-called most respected companies on Wall Street underwrite garbage like ZNGA, can you fault individual investors for becoming disillusioned with the stock market? In the eyes of investors, these firms are no different from a sleazy used car salesperson, or a guy on the street selling fake handbags or Rolex watches.
Now, we realize that the IPO process is a two-way street. The firms underwriting the stocks wouldn't be selling the deals if there weren't eager buyers. In this respect, investors who bought the stocks are just as much if not more at fault than the underwriters selling to them. Additionally, the underwriters are also trying to get the best possible price for their clients. What makes the whole deal with ZNGA so bad in the eyes of individual investors, though, is that of the five lead underwriters of the stock, BAML was the only firm who didn't initiate coverage of the company with a Buy or Overweight rating. Furthermore, even after declines of 50% from the stock's IPO price, three of those firms still had the stock at an overweight rating today.