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UPDATE 5-UK probes bank competition over equity sales fees
* Study will look at rights issues, equity fundraising
* Probe in response to company concerns about market
* Fund managers separately also probing fees
* UK equity raising fees estimated at 2 bln pounds in 2009
(Adds lawyer quote)
By Douwe Miedema and Paul Sandle
LONDON, June 10 (Reuters) - Britain launched a probe into a possible lack of competition among banks over equity underwriting fees, after companies expressed concern about one of the biggest money-spinners for investment banks.
The Office of Fair Trading (OFT) said it would assess the level of competition for rights issues and other forms of equity sales, which became a sweet spot for banks when companies clamoured for new cash in the wake of the crisis.
"Initial discussions have confirmed that there is some dissatisfaction with these services among corporate users of the market," the OFT said in a statement on Thursday.
"We plan to study the efficiency of the equity underwriting market and identify any areas for improvement."
JPMorgan Chase & Co (JPM.N) topped equity league tables in the Europe, Middle East and Africa (EMEA) region in 2009, Thomson Reuters data show, raising an estimated $759 million in fees on an 18 percent share of deal volume.
Big European and Wall Street banks ramped up underwriting fees in early 2009, when a spate of crisis-hit companies sought to rebuild capital, and fund managers have been complaining they haven't since come down. [ID:nLDE6490Q5]
Average fees rose to 2.45 percent of the deal size in the period from 2009, from 1.62 percent in the 2006-2008 period, estimates by U.S. consulting firm Freeman & Co show. The total 2009 fee pool was estimated at $5.6 billion.
The angered fund managers found a willing ear among politicians and regulators in the run-up to the election, nourished by public outrage over the role that well-paid bankers played in causing the credit crisis.
CUT OUT THE MIDDLEMAN
The OFT's probe is a so-called market study, one of the possible outcomes of which is that the issue gets passed to the Competition Commission, which can in turn launch a formal probe and can impose remedies.
"The last thing (banks) want is a two-year investigation in underwriting commissions," said Mark Friend, who heads law firm Allen and Overy's anti-trust practice in London.
"The fact that the process is very uncertain and could result in unpleasant consequences (is) probably causing at least a degree of interest, if not concern."
The study follows the launch of a similar investigation in May by the IIC, a body consisting of Britain's largest institutional investors, which is expected to report its findings at the end of the year. [ID:nLDE64H0JO]
A group of investors and their advisors in London have been working on handling new share sales themselves to cut out the investment bank middlemen for well over a year now, but they have yet to conduct a single deal.
In 2009, companies raised about 70 billion pounds ($101 billion) in equity in Britain, and paid an estimated 2 billion pounds in fees, the OFT said.
The regulator said it would seek the views of investment banks, large businesses, the government and trade bodies on the scope of the study, which will start this summer.
Over the past 10 years, the top three underwriting fee earners have concentrated 40 percent of the overall fee pool, the Thomson Reuters data also show.
In 2009, $267 billion in equity was raised in Europe, the Middle East and Africa. Goldman Sachs (GS.N), Morgan Stanley (MS.N), Credit Suisse (CSGN.VX), UBS (UBSN.VX) and Deutsche Bank (DBKGn.DE) followed JPMorgan in the league table, the data show. (Editing by Tom Pfeiffer and Dan Lalor) ($1 = 0.6926 pound)
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