London : Britain's antitrust regulator plans to investigate fees charged by investment banks for arranging initial public offerings and rights offers, work that generated £2 billion (Dh10.75 billion) for securities firms last year.
The probe, which will start later this year, will include fees, rights issues and other types of equity-raising following complaints of "dissatisfaction" from corporations, the UK Office of Fair Trading in London said yesterday in a statement.
"Economic growth and productivity rely on companies being able to raise capital efficiently for investment," Clive Maxwell, an OFT director, said in the statement. "We plan to study the efficiency of the equity underwriting market and identify any areas for improvement.
"Companies last year raised about £70 billion of equity capital in the UK and paid about £2 billion in fees for underwriting and related services," the OFT said. JPMorgan Chase, Morgan Stanley and Royal Bank of Scotland Group have been the top three banks for equity underwriting in the UK this year, according to data compiled by Bloomberg.
Large fees
"Looking at the bald figures which the OFT highlight, it does look like they've got a fair point," said Bruce Packard, a London-based analyst at Seymour Pierce. "There are some very large fees for stuff that seems like old rope."
Fees for initial public offerings in Europe are about half what banks charge in the US Banks have earned average fees of 3.4 per cent on European IPOs this year, compared to 6.3 per cent in the US, data compiled by Bloomberg show.
"This sends a message to banks that they remain under scrutiny and that there will be no let up, notwithstanding the current economic climate," antitrust lawyer Frances Murphy, of the firm Jones Day in London, said in an interview. "It's certainly something the banks should be treating very carefully."
The regulator is seeking input from banks, the government and large companies on the proposed scope of the study, the OFT said. It involves equity-raising by the largest 350 companies in the UK, it said.
Share sales
Record share sales by companies including HSBC Holdings and Prudential, which this month abandoned a $21 billion rights offer, have raised concern among companies that the fees banks charge for arranging the sales are too high for the risks they take on.
Goldman Sachs Group, JPMorgan and other banks that arranged HSBC's stock sale last year earned about $500 million on the $18.3 billion offering.
Spokesmen for Goldman Sachs Group, HSBC Holdings, JPMorgan Chase and Barclays declined to comment. Spokesmen at Royal Bank of Scotland Group and Morgan Stanley did not return calls.
"The investment banking sector will assist the Office of Fair Trading in its research to ensure it continues to play its key role in financing business both in Britain and overseas," Brian Mairs, a spokesman for the British Bankers' Association, said in an email.
Rights-offer fees soared 50 per cent during the credit crisis to compensate for risk that banks might be forced to buy unwanted stock. Morgan Stanley and Dresdner Kleinwort were among firms left with as much as 92 per cent of HBOS's £4.2 billion offering in July 2008.
