Companies urged to shop around to cut fees

The Office of Fair Trading said yesterday that while the equity underwriting market – selling new shares – lacked effective price competition, it was up to companies and institutional shareholders to drive greater competition.

The OFT, which launched an investigation last June, said fees had been slow to come down from higher levels seen during stock market volatility in 2008 and early 2009.

It saw no need for competition authorities to intervene.

In a statement, Sonya Branch, director of services and public markets at the watchdog, said: "An efficient equity capital market is vital for the long-term growth of the UK economy.

"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."

The OFT recommended companies look at awarding and agreeing fees for different aspects of the work at different times, perhaps using a range of banks to complete the various tasks in a share sale.

It also said fund managers should take more responsibility by urging companies not to overspend on fees to the detriment of shareholder value.

They could also take some of the risk on their books themselves to lower fees, the OFT said.

JP Morgan, the US investment banking giant, has been the top deal-maker in equity capital markets for two years running in Europe, the Middle East and Africa, data showed, earning $779m in 2009 and $230.5m last year.

It declined to comment yesterday.

The 350 leading companies listed in London raised an estimated 50bn equity capital in 2009, paying around 1.4bn to investment banks in the way of fees, the OFT said.

Average fees rose to more than 3 per cent of the amount raised from around 2 to 2.5 per cent from 2003-07, the OFT said.

It is consulting on its provisional decision not to refer the market to the Competition Commission, and responses should be sent by March 11.