UK to investigate rights offerings

Britain’s antitrust regulator is planning to investigate equity underwriting in the investment banking industry to determine its effects on competition.

The probe, which will start later this year, will include fees, rights issues and other types of equity-raising following complaints of “dissatisfaction” from corporations, the UK Office of Fair Trading said on Thursday in a statement.

“Economic growth and productivity rely on companies being able to raise capital efficiently for investment,” Clive Maxwell, an OFT director, said in the statement. “We plan to study the efficiency of the equity underwriting market and identify any areas for improvement.

Companies in 2009 raised about 70 billion pounds ($102 billion) of equity capital in the UK and paid about 2 billion pounds in fees for underwriting and related services, the OFT said. JPMorgan Chase & Co, Morgan Stanley and Royal Bank of Scotland Group Plc have been the top three banks for equity underwriting in the UK this year, according to data compiled by Bloomberg.

The regulator is seeking input from banks, the government and large corporations on the proposed scope of the study, according to the statement. It involves equity-raising by the largest 350 companies in the UK, it said.

Record share sales by companies including HSBC Holdings Plc and Prudential Plc, which this month abandoned a $21 billion rights offer, have raised concern among companies that the fees banks charge for arranging the sales are too high for the risks they take on. Goldman Sachs Group Inc, JPMorgan and other banks that arranged HSBC’s stock sale last year earned about $500 million on the $18.3 billion offering.

Calls to RBS, JPMorgan and Morgan Stanley weren’t immediately returned.

OFT Chairman Philip Collins said in March that the regulator may look at the fees charged by investment banks, the Financial Times reported at the time.

This is the second OFT probe of the banking industry started in less than a month. On May 26, the regulator said it is studying whether there are barriers preventing new or small retail banks from entering the market or expanding. The UK Takeover Panel is also considering changing rules on shareholder votes, fees and disclosures following political criticism over Kraft Foods Inc’s takeover of Cadbury Plc.

That study followed “substantial” changes to the industry after the global financial crisis led to bank bailouts and mergers that sidestepped competition rules, the OFT said at the time.

Prime Minister David Cameron’s Conservative party has called for smaller banks following the previous government’s 2008 bailouts of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, which were deemed too big to fail.

In March, the OFT reached an agreement with HSBC Holdings Plc, RBS and six other banks on changes to overdraft fees, while earlier this month another UK watchdog said it would limit how banks sell some forms of payment insurance.

The agency is seeking to restore its reputation following the collapse in May of a criminal price-fixing case against four current and former British Airways Plc executives. The OFT was forced to drop its first criminal antitrust prosecution after new evidence emerged at trial.

Bloomberg News

Tags: global banking industry, investment banking industry, world finance