OFT says shareholders should tackle banks

INVESTMENT banks cashed in during the financial crisis by raising the fees they charged companies seeking to bolster their finances with share sales, Britain's Office of Fair Trade (OFT) said on Thursday.

The OFT also said major shareholders were not applying enough pressure on companies to drive down the fees they are willing to pay for raising equity capital, contributing to a lack of effective competition in underwriting charges.

"The OFT is urging companies and institutional shareholders to apply greater pressure on equity underwriting fees after finding that the market lacks effective competition on price," the watchdog said in a statement.

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The 350 leading companies listed in London raised an estimated 50bn of equity capital between them in 2009, paying around 1.4bn to banks in the way of fees, the consumer and competition body said.

Average fees rose to more than three per cent of the amount raised from around 2 to 2.5 per cent during the period between 2003 and 2007.

The OFT said this rise in part reflected increased stock market volatility and therefore risk for banks underwriting the share issues but that fees had been slow to fall as markets stabilised.

The watchdog said it believed companies and their shareholders were better placed to remedy the problem than regulators, urging firms to require their bankers to provide breakdowns of their fees, to use competitive tenders more often and to seek advice if they lack experience in equity issues.

"While institutional shareholders have expressed concerns about prices, they have yet to put sufficient pressure on companies to reduce the fees paid," the OFT added.

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