Investment banks could face a competition inquiry unless they start lowering the fees charged to their clients, Lord Myners has warned.
The City minister said yesterday that there is such mounting concern about the level of fees for financial services such as corporate advice on mergers and acquisitions, over-the-counter hedging transactions and, pertinently, underwriting fees on rights issues, that the Government could launch a competition inquiry. "We would prefer a market solution. However, if the market can't fix itself, then we might have to take action."
Lord Myners added that the City's big institutional investors are restless: "There has been the most enormous sea change in opinions held by big investors. The crash has concentrated their minds. The fact that bonuses have soared back shows the high level of profits being earned by the banks."
The high fees for capital raising such as rights issues and discounted cash calls is the most controversial area and investors are threatening to deal directly with companies. Investment banks typically charge around 3 per cent to underwrite a rights issue, and about half that for sub-underwriting but many of the issues expected before the end of the year– such as those from Lloyds Banking Group and even RBS – will be deeply discounted. One big investor said: "Why should a company pay an underwriter such high fees when it's already discounted? This is plainly not fair." But investors are also angry about fees being charged in less transparent trades such as currency hedging.
Peter Montagnon of the Association of British Insurers, said: "There is mounting unease among our members about fees. They would prefer to see the money going back into the company, either as dividends or investment."Reuse content