The banks involved in raising more than £50 billion for some of the UK's biggest companies as they recovered from the recession were criticised today for their anti-competitive fees.
The Office of Fair Trading (OFT) found investment banks charged £1.4 billion to FTSE 350 companies in 2009 for share placings as they lifted fees to more than 3%, compared to 2% before the 2007 crisis.
But the consumer watchdog fell short of referring the equity underwriting market, which includes US giants such as Goldman Sachs, to the Competition Commission for investigation. Instead, the authority recommended companies and shareholders should increase the pressure on banks to offer more competitive prices.
The watchdog conducted a six-month investigation into the equity underwriting market after concerns were raised over competition and the level of charges reaped from recession-hit companies.
City groups with investment banking divisions that handle share placings in the UK include part-nationalised Royal Bank of Scotland and Barclays.
The OFT study followed mounting worries over the amount of money charged by banks in the recession at a time when a slew of listed companies were forced to turn to investors to shore up their balance sheets through placings.
Banks themselves admitted they had benefited from the lack of competition, and a number of figures, including former City minister Lord Myners, were vocal in condemning the fees being charged.
But the OFT said the concerns could be tackled most efficiently by companies and shareholders themselves, rather than further intervention by competition authorities.
Sonya Branch, OFT senior director of services and public markets, said: "Our in-depth study has found that the market is not working well, with little effective competition on underwriting fees.
"We have identified a number of options which would enable companies and institutional shareholders to drive greater competition for themselves, which we believe is the most effective and efficient way forward."
Equity underwriting has been investigated by competition regulators before, with four reports into the market since the mid-1990s.
Investment banks charge to advise on equity placings, as well as to arrange and even underwrite themselves, which means they commit to taking shares.
The huge sums involved came to the fore during the mammoth fundraisings launched by banks themselves in the wake of the Lehman Brothers collapse.Reuse content