Cowen Prices IPO Below Expectations

Cowen, the investment banking arm of France's Societe Generale, priced a $179.5 million initial public offering Wednesday night at $16 a share, according to published reports.

The firm, which first filed to go public in March, priced shares well below an expected range of $19 to $21, according to Dow Jones Newswires. The stock will begin trading Thursday under the symbol COWN.

Cowen's IPO, and first day of trading, will be closely watched by Wall Street as an indication of how the market is receiving investment banking shares. So far, analysts aren't encouraged.

"I am uncomfortable with how the Street is going to take to this offering," said David Menlow, president of IPOfinancial.com. "It is kind of the temperament litmus test."

After more than three years in a bull market, many boutique investment banks have been anxious to cash out at what could be the top of the equity market. Earlier this year, San Francisco-based Thomas Weisel ( TWPG) raised $90 million in an IPO. Shares in that offering were price at $15. The stock, which had traded as high as $23, is currently trading around $17.13.

In April, Ryan Beck, which is owned by BankAtlantic Bancorp ( BBX) filed for an IPO. Investment firm Evercore Partners also has filed for an upcoming IPO, and Keefe Bruyette & Woods said earlier this year it would try to come public this year.

Until recently, investment banks have thrived, driven by solid economic growth and strong merger and IPO action. Boutiques saw strong gains across the financial sector and believed their own public offerings could fetch good prices.

However, recently, some researchers have warned that boutique investment banks may not be as lucky in the coming months. Rising interest rates and slowing economic growth don't make a great environment for banks of any sort.

"It is not a very conducive environment to bring financial services companies to the market," Menlow says. "We are not in a sector rotation where broker stocks are in. The market is dealing with stocks that are lowered-tiered and that, sometimes, are just barely able to get past the expenses of Sarbanes-Oxley."

Meanwhile, the competition in the boutique banking sector is stiffening. Joseph Perella, a former Morgan Stanley ( MS) investment banker, recently launched his boutique bank. His former Morgan Stanley colleague Stephen Crawford also is reported to be opening a boutique investment bank. Other small banks, such as Rohatyn, also are competing for business.

Still, boutiques are hopeful their businesses will continue to thrive -- even through a downturn -- as companies opt for smaller advisers over large investment banks, due to conflicts of interest within some of the bigger firms.

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