The "Olympic Gold Medal" of investment banking: SpaceX IPO underwriting fees reach $500 million, with Goldman Sachs and Morgan Stanley each getting $100 million, and Goldman Sachs stands to earn even more.

The cake of fees for the largest IPO in history has been divided, but the real big money may not have begun to flow yet.

On Friday, SpaceX set an IPO record with a $75 billion offering, and completed the deal with one of the lowest underwriting fee rates in history. The total underwriting fee was about $500 million, or around 0.67%.

Even with such a thin rate, this is still the largest single underwriting income event in Wall Street’s history. As joint lead underwriters, Goldman Sachs and Morgan Stanley each received about $100 million in fee allocations.

SpaceX not only reduced the fee rate, but also negotiated a rare clause: If underwriters exercise the green shoe option and sell an extra 15% of shares (worth about $11.25 billion), SpaceX will pay no fees for that portion. This means banks such as Goldman Sachs and Morgan Stanley will lose about $75 million in potential income.

The green shoe option (Green Shoe Option) is an over-allotment option, a special right granted by the issuer to the lead underwriter during the IPO.

Its core function is to stabilize the stock price within the first 30 days after listing, preventing large fluctuations in price, and is known as the "protector" of new stock. The mechanism is named after Green Shoe Manufacturing Company, which used it first in its 1963 IPO in the U.S.

However, the visible underwriting fee may be the smallest piece of revenue in this transaction. According to Jay Ritter, a professor at the University of Florida and an academic expert in IPOs, the real wealth will flow to Wall Street in the form of "soft dollars", and Goldman Sachs, as lead underwriter, is expected to be the biggest winner in this transaction.

Record-low fee rate, but unprecedented absolute amount

Investment banks typically charge 4% to 7% in underwriting fees for IPOs, even for mega-IPOs worth tens of billions of dollars, the rate usually remains between 1% and 3%.

When Facebook and Uber went public, the underwriting fee rates were between 1.1% and 1.3%. SpaceX’s rate of about 0.67% ties with General Motors’ 2010 IPO for the lowest in history.

According to Ritter, General Motors was able to secure such a rate because Goldman Sachs proactively lowered its price to defeat competitor W.R. Hambrecht & Co.

Now Goldman Sachs again leads the SpaceX deal at the same rate, and the logic is similar—the issuing scale is large enough that a thin fee rate still means considerable absolute income.

In absolute terms, if the deal includes the full size after green shoe option (about $63.9 billion), the underwriting banks can divvy up about $646 million in fees, more than double Alibaba’s roughly $300 million underwriting fee for its 2014 IPO, and far exceeding Uber’s less than $100 million and Meta’s around $200 million in historical data.

The real gold mine: soft dollars

Beyond the visible underwriting fees, greater earnings come from "soft dollars"—that is, institutional investors, after receiving IPO share allocations, channel hidden returns to underwriters via subsequent trading commissions.

Professor Ritter explains that Wall Street habitually prices IPOs slightly below their reasonable market value; about three-quarters of IPOs close on their first day above the issue price, with an average rise of about 19%.

About 30% of these first-day gains typically flow back to underwriters as soft dollars, and most of it goes to the lead underwriter. Using SpaceX’s 20% first-day surge as an example:

Institutions receiving allocations would realize about $17.3 billion in paper profits that day, breaking Alibaba’s record of about $8 billion at its 2014 listing.

If a third of the gains flows back as soft dollars, Wall Street would gain more than $5 billion in extra income—about 8 times the visible underwriting fee. Ritter says:

The biggest beneficiary is undoubtedly Goldman Sachs, as it decides who gets these stocks.

Additionally, SpaceX revealed in its revised prospectus that it will reserve 5% of the offering, at the issue price of $135, for employees, executives' relatives, and business partners, without post-IPO lock-up restrictions, so they can cash out anytime after the market opens.

Ritter believes this arrangement implies Musk expects the stock price to rise on the first day.

Fee distribution: lead underwriters take the lion's share, small banks get only about $2 million each

Wallstreetcn reports that the underwriter syndicate for the SpaceX IPO is massive.

The syndicate covers leading investment banks, boutique investment banks and large foreign banks, including Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, JPMorgan, as well as Allen & Co., William Blair, Societe Generale, Santander, Mizuho, and over twenty institutions in total.

Fees are distributed proportionally according to each bank's underwriting share:

Goldman Sachs and Morgan Stanley as lead underwriters each get about $100 million;Bank of America, Citigroup, and JPMorgan play smaller roles and each get about $75 million;The dozen or so institutions acting only as co-managers see their fees drop dramatically to about $2 million each.

Ritter notes that joint bookrunners, because they lead the institutional allocation process, take a higher-than-average share of fees, thus occupying a larger share of the fee pool, and among participating institutions, many smaller banks mainly serve retail clients.

First day pricing and market open: breaking convention to the last moment

Even in the final stage, SpaceX continued its unconventional style.

During the roadshow, the company did not set a price range, but directly locked in the price after intensive communication with bankers and investors.

Reportedly, by Wednesday afternoon, SpaceX had received hundreds of billions in subscription orders. On Thursday around 2 p.m., SpaceX executives held their final pricing meeting with bankers. That evening, bankers from Goldman Sachs and Morgan Stanley celebrated with SpaceX executives.

Morgan Stanley coordinated opening day trading, and shares opened before noon on Friday at $150, eventually rising nearly 20% on the first day.

Musk also asked bankers and traders from the two lead underwriters to wear green sneakers at the Nasdaq trading floor to pay tribute to the "green shoe option"—he later posted group photos of Morgan Stanley CEO Ted Pick and other executives in neon green sneakers on social media.

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