(Corrects misspelling of 'managers' in paragraph 14)
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* Fund managers seek role as primary underwriters
* Fees on share sales have gone up since start crisis
* Lazard is involved in plan, no deal happened yet
* Companies seen wary of doing things differently
By Douwe Miedema and Raji Menon
LONDON, May 21 What if fund managers handled new
share sales and cut out the middleman -- the investment banks --
to avoid the hefty fees charged on the offer price?
Better for the owners of the company, no? Well, maybe.
But after a year of trying, UK investors and their advisors
in London -- Europe's capital markets hub -- have yet to secure
a single deal.
"It's difficult to organise, that's the key. You've got the
price sensitivity of the information, you have got the size of
the issue, the number of potential sub-underwriters that you
could talk to," one fund manager said.
"We would have been quite keen to participate if there had
been a suitable candidate to participate at half the fee. But
nothing's cropped up yet," he said.
Big European and Wall Street banks increased underwriting
fees at the beginning of 2009, when a spate of crisis-hit
companies sought to rebuild capital cushions. And they haven't
come down since, the fund managers say.
Average fees rose to 2.45 percent of the deal size in the
period after 2009 from 1.62 percent in the 2006-2008 period,
estimates by U.S. consulting firm Freeman & Co show.
Fees are higher on smaller deals, and can go up to 4
percent. Fees are typically shared with sub-underwriters, fund
managers who commit to buy the stock.
"The level of underwriting fees has increased very
significantly over the past few years ... (and) has remained
remarkably sticky," said Michael McKersie of Britain's
Association of British Insurers (ABI), whose members account for
almost 15 percent of investments in the London stock market.
During the worst days of 2009 some deals had been fully
sub-underwritten even before they were announced, some of the
fund managers said. That means the sub-underwriters carried all
the risk in return for only half of the fees and other big
investors never got a look-in on the underwriting.
Angered fund managers found a willing ear among politicians
and regulators in the run-up to the UK elections, nourished by
public outrage over the role that well-paid bankers played in
causing the credit crisis.
Investment bank Lazard (LAZ.N) has tapped into the
discontent, working on a plan in which fund managers would be
the primary underwriters, guaranteeing to buy all the stock and
taking on the full risk if the sale went awry.
"We're confident that the structure works," said Charlie
Foreman, a capital markets banker at Lazard.
"We believe that both long-only institutions of different
stripes, be they pension fund managers or fund managers
generally are there to do it and we're waiting for an opportune
time to put it in place," he said.
Lazard would get advisory fees for its role, while the fund
managers would receive all underwriting fees.
The funds perceive Lazard and similar groups such as
Rothschild [ROT.UL] and Greenhill (GHL.N) as more independent
than large Wall Street or European investment banks because they
are not also acting as underwriters.
But while Lazard and the fund managers it has grouped around
it may well do a deal they have yet to threaten the big
investment banking houses -- despite all the rumblings in the
media and the political upheaval.
The ABI is now backing a probe into fees that could end up
supporting the Lazard initiative, by looking for ways to make
advice more independent from the large equity underwriting
But even McKersie has his doubts about whether finance
directors at companies -- who may only do an equity sale once or
twice in their life time -- will sign up for an innovative new
way of selling shares that hasn't been tried before.
"(They) are in a position of substantial personal risk. They
and their boards are particularly concerned and it's always
safer to a pay a bit more," he said.
Or, as one banker who did a number of emergency rights
issues during the height of the crisis, puts it: "So what if it
is 4 percent? If you were looking to guarantee your survival,
that isn't too much is it?"
(Additional reporting by Alex Chambers; Editing by Greg