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Investment bankers are supposed to be like Wall Street's talent scouts, helping investors discover companies that might later be big-money stars.

But during the bubble, bankers discovered a lot more Milli Vanillis than Madonnas.

Investment banks introduce investors to companies that are ready to raise money by "going public," or selling their stock to the public for the first time. The banks pride themselves on their ability to sponsor companies that return the most profits for investors over time. But that doesn't always happen.

Consider the performance of Silicon Valley's investment banks based on the median performance of their 1998-2001 deals. (The median is the midpoint at which half the companies' stock-price changes were better, and half were worse.)

Just about every bank saw the stock price of its median deal fall by more than 60 percent from the price set by bankers on the day of the stock's initial public offering. Some of the valley's biggest players - including Goldman Sachs and Credit Suisse First Boston - had median declines of more than 80 percent. Morgan Stanley's median decline was 71 percent.

But when banks are measured on average IPO performance - overall stock gains and losses divided by the total number of IPOs - some Wall Street firms fared much better than their counterparts.

Blue-chip firm Goldman Sachs enjoyed a 96 percent average IPO gain, primarily because it had two huge winners - eBay and E-Tek Dynamics - that compensated for the swooning prices of 22 of its 30 IPO deals. E-Tek, however, was acquired at a time when its stock price was trading at more than $250 a share; the stock of its buyer, JDS Uniphase, has since plunged.

Copyright © 2003 Knight Ridder/Tribune Information Services. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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