City watchdog orders banks to stop unfair flotation practices
FAR-reaching changes to how banks handle stock market floats for their clients have been proposed by the City watchdog today.
The Financial Conduct Authority said it found evidence that some banks oblige firms to which they lend money to come to them first for new bond and share issues and that some had “favoured clients” who received preference in new share issues.
It also accused banks of doing loss-making deals simply to rise up the deal-maker league tables.
The watchdog wants to remove contractual clauses between banks and companies which restrict companies’ choice, investigate conflicts when it comes to allocating new shares and sharpen up how league tables are compiled.
“Many investment and corporate banking clients are getting a service they want, but we have also identified some areas where improvements could be made,” said Christopher Woolard director of strategy and competition at the FCA. “This is a package of proportionate measures intended to remove potentially anticompetitive practices.”
The FCA said cross-selling of services made it harder for banks which did not offer lending to compete for primary market bond and share issues.
Oliver Hemsley, chief executive of independent investment bank and broker Numis, said: “Anything the FCA does to stop big banks winning investment banking business on the back of lending should be good for independent competitors like us.”