Investors in rights issue fees 'rip-off'
Shareholders are being stung by exorbitant rights issues fees which far exceed the multimillion payouts controversially handed to top directors, a report has concluded.
Under scrutiny: HSBC paid fees of 2.6% on a £12.5bn capital raising
Douglas Ferrans, chairman of the Rights Issue Fees Inquiry, said the 'issue of fees has been swept under the carpet' and deserves as much scrutiny as boardroom pay.
He called upon investors to demand greater transparency from firms, which are wasting their money on excessive payouts to investment banks.
'People get very excited about other executive rewards - such as Sir Fred Goodwin's pay at Royal Bank of Scotland - yet the amount being paid for rights issues can be 10 or 11 times more than the total of executives' pay,' said Ferrans.
'On behalf of ordinary savers, shareholders need to draw attention to where this money is being spent,' he added.
Record-breaking rights issues by the big banks and other companies since the onset of the financial crisis have often seen the costs run into several hundred millions.
HSBC paid fees of 2.6% on its £12.5bn capital raising, resulting in a £344m windfall to be shared between underwriters and subunderwriters who backed the issue. Other firms, such as Wolseley and Land Securities, have paid north of 3% in fees. Yet, at the same time, shares are being sold at deeper discounts than in the past.
Ferrans, who was asked by the Institutional Investor Council to conduct the inquiry, accepted the need for a greater 'risk premium' during times of trouble. But he said fees have been creeping up from 2% to 3.5% since the 1990s with no justification.
He attacked the 'mystique' surrounding which firms are underwriting a share issue and where the money is going.
'Transparency as to what each adviser received might shine a light on whether some were rendering a service commensurate with the reward,' the report concluded.
Financial firms may be more savvy than other companies when conducting their own rights issues, as they have greater experience, but Ferrans said some other finance directors need to seek outside advice on what is value for money.
The report called for a fee breakdown to be published on completion of a rights issue and also included in the annual report.
Ferrans is in talks with the Financial Services Authority to see if this could be incorporated into company listing rules.
Most watched Money videos
- The new Volkswagen Passat - a long range PHEV that's only available as an estate
- Mini Cooper SE: The British icon gets an all-electric makeover
- How to invest for income and growth: SAINTS' James Dow
- BMW meets Swarovski and releases BMW i7 Crystal Headlights Iconic Glow
- 2025 Aston Martin DBX707: More luxury but comes with a higher price
- Land Rover unveil newest all-electric Range Rover SUV
- BMW's Vision Neue Klasse X unveils its sports activity vehicle future
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Tesla unveils new Model 3 Performance - it's the fastest ever!
- Mercedes has finally unveiled its new electric G-Class
- Mini celebrates the release of brand new all-electric car Mini Aceman
- MailOnline asks Lexie Limitless 5 quick fire EV road trip questions
- Hundreds of jobs at risk as Anglo slashes funding for...
- Why 16 to 24-year-olds are putting their parents to shame...
- Axe stamp duty on British shares, says Flutter boss as...
- I don't want smart meters, so Eon is charging me £316 to...
- Experian shares rise sharply as credit data giant lifts...
- Golden Virginia owner Imperial Brands bolstered by higher...
- Tesco boss pockets £10m in biggest ever pay deal at a UK...
- Compass Group ups guidance thanks to major sporting events
- BUSINESS LIVE: Burberry hit by luxury slowdown; Imperial...
- Royal Mail's future hanging in the balance as bid...
- My neighbour has started keeping bees - can I stop him?...
- Burberry profits plummet amid luxury slowdown and China...
- I believe prenups are so vital every couple should be...
- MARKET REPORT: Vodafone shares rally as investors cheer...
- ANOTHER UK tech star is bought by US private equity: KKR...
- De Beers eyes £4bn London float as Anglo bids to fend off...
- Savers rush to open new savings accounts paying up to...
- How refreshing that Anglo has chosen not to grab the...