Too high rights issue fees face investor investigation

Britain's investment industry will today launch an investigation into the cost of rights issues amid a mounting perception that investment banks are charging far more than they should for their work.

The announcement will come just a day after Prudential confirmed that its cash call will generate £680m in fees for 33 banks together with a bevy of other advisors.

The Institutional Shareholders Committee (ISC) has agreed to establish a new body, the Institutional Investor Council, to conduct the probe and "build a single voice for the institutional investor community and strengthen its profile".

The ISC is made up of all the main UK shareholder groups including the Association of British Insurers, the Investment Management Association, the Association of Investment Companies and the National Association of Pension Funds.

Keith Skeoch, the chief executive of Standard Life Investments, said of the inquiry: "Rights issues are a vitally important element of the UK market. However, there is concern that the underwriters have been minimising their risks by pushing for deeper discounts and charging higher fees.

"The inquiry will therefore look at the evidence of this, before we look for a way forward. Ultimately, the capital markets must serve the interests of the providers and users of capital, not the intermediaries."

The new body will also seek to facilitate collective "engagement" by institutional investors with companies particularly in times of stress; and to provide industry-wide input to the authorities on matters concerning investment.