Top bankers from Goldman Sachs and UBS have had their judgment, working practices and even intelligence questioned in a savage grilling from a powerful MPs committee over the privatisation of Royal Mail.
Members of the Business Select Committee took Richard Cormack, Goldman's co-head of equity markets, and James Robertson, a managing director at UBS, to task over their handling of the share sale.
Royal Mail was valued at £3.3 billion when it debuted on the London Stock Exchange last month, but leapt 38 per cent on the first day's trading.
This led to accusations that Royal Mail had been acutely underpriced, costing the taxpayer billions of pounds. This argument was bolstered when it emerged that JPMorgan had valued the business at up to £8.5 billion in a failed pitch to run the flotation.
It was also revealed that the Business Secretary, Vince Cable, rejected the opportunity to raise the initial share price from 330p to 350p in the days leading up to trading.
Brian Binley, the Conservative MP for Northampton South, blasted the bankers, telling them: "Someone, somewhere has misled the taxpayer. I wonder if the taxpayer has the right to ask that for all the money you were paid you weren't very clever... I was in the business of selling beer years and years ago. Anyone can sell cheap beer."
Mr Binley also mocked the bankers' "sales speak" and suggested they had been "conned" by potential big shareholders ahead of the flotation.
These institutional investors had told the bankers they would only pay around 330p a share, when they were in fact willing to pay far more, he suggested. "I'm starting to doubt your intelligence-gathering abilities … "
The seven banks that worked on Royal Mail's privatisation have received £13 million in fees, but the bankers refused to be drawn on whether it was right for Goldman and UBS to also receive a bonus of more than £4 million. "That's for the Secretary of State [Mr Cable] to decide," said Mr Robertson. "It's in his gift."
The bankers agreed that Royal Mail's industrial relations dispute with staff over pay was the "most significant" weight on the valuation and had "coloured" the opening share price. They had hoped that an agreement would be brokered by September, but were warned by Royal Mail management over the summer that this would not be possible.
However, the committee's chairman Adrian Bailey said it was "absolutely astonishing" the bankers had not previously argued the dispute had made such a major impact on the valuation. He added: "if you have got it [the price] wrong, the Government takes the flak for it."
Mr Robertson admitted the banks had advised Mr Cable against raising the opening share price, as that would have meant delaying the process and the "momentum could have evaporated", risking an unsuccessful launch. Also, there was little precedent for such a move.