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OFT considering investigating investment banking fees

In the latest in a series of attacks on the City of London financial markets, the Office of Fair Trading (OFT) has confirmed that it is considering launching a formal enquiry into investment banking fees. Further pressure has been placed on his potential enquiry by the City Minister Lord Myners who has publicly spoken about his concerns regarding fees in the investment markets and potentially restrictive practices which could be impacting upon competition.

This is not the first time that investment banking fees have come under the scrutiny of the OFT and the UK government but in many ways the institutions and investors who underwrite share issues and share flotations hold all the aces. These are the investors who charge fees in exchange for agreeing to underwrite share offers which can leave them with significant shareholdings if an offer is not well received in the market place.

It is difficult to associate the UK government's aversion to risk, and the recent preaching to the investment markets, against a move to reduce fees in exchange for taking what have been and will continue to be potentially enormous risks in the future. The days when any share flotation would be well received by investors and rights issues and fundraisings would go ahead with no problems have long gone with investors demanding more openness, more value for money and proving to be more risk averse over the last two years.

It is worth remembering that if underwriters were to flee the UK market, if fees were reduced, then this would severely impacted upon the ability of many companies to raise funds. When you also consider that the UK government recently charged Lloyds bank £2.5 billion when it decided not to join the asset protection scheme, is this not a somewhat hypocritical stance by the government?

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