The largest broker to corporate Britain has helped to spark a probe by the City watchdog after accusing lending banks of “gouging” fees from companies forced into emergency cash calls by the coronavirus pandemic.
Sky News has learnt that Numis Securities has alerted the Financial Conduct Authority (FCA) to concerns that lenders have told its clients that they would not secure extensions to borrowing facilities unless they agreed to fork out for non-existent work on equity-raises.
In some cases, City sources said, firms including Numis had notified the FCA on behalf of companies issuing new shares and leading institutional investors, both of which have queried whether multimillion pound fees have been inflated by the number of banks involved in the deal.
In the past month, dozens of companies – including the estate agent Foxtons, online fashion retailer Asos, high street retailer WH Smith and exhibitions group Informa – have collectively raised billions of pounds to protect their balance sheets from the ravages of the COVID-19 outbreak.
In many cases, the lists of banks credited with the transactions have included lenders to companies which have a scant track record in UK equity fundraising activity.
The FCA’s ‘Dear CEO’ letter to bank bosses, published on Tuesday morning, contains a series of explosive allegations that will revive memories of banking misconduct during and after the 2008 financial crisis.
In it, two of the watchdog’s most senior executives pointed to “credible reports of a small number of banks failing to treat their corporate clients fairly when negotiating new or existing debt facilities, as clients navigate the current exceptional circumstances”.
Megan Butler and Jonathan Davidson, the FCA’s executive directors of supervision, added: “In particular, we have heard reports that banks may have used their lending relationship to exert pressure on corporate clients to secure roles on equity mandates that the issuer would not otherwise appoint them to.
“In some cases, these roles may be ‘in name only’, with few or no additional services being provided in exchange for a share of the fee pool.”
They warned that they would be “looking into this further, but want any practice of this nature to cease immediately”.
Numis, the independent investment bank, is broker to 210 London-listed companies, some of which – such as Asos – are among those which have tapped shareholders for new funds.
It declined to comment on Tuesday, but other City insiders said it, and other mid-sized investment banks, had been enraged by the behaviour of major lenders.
Sky News can reveal that as much as 40% of the fee pool paid to a quartet of banks on a £64m share placing by DFS, the furniture retailer, was allocated to Barclays and BNP Paribas.
The remainder was paid to Jefferies and Peel Hunt, DFS’s corporate brokers.
One of the sofa chain’s biggest institutional investors said that Barclays and BNP, both of which lend to the company, had been “invisible” on the equity-raise.
Santander, the Spanish bank, was named as a joint bookrunner on the Informa and WH Smith cash calls, prompting incredulity from a number of the other parties involved in the deals.
Barclays did not respond to a request for comment, while BNP, DFS and Santander declined to comment.
A source close to BNP said the French bank had been “fully involved advising on structuring and executing the equity offering for DFS”.
“The demand we generated from our sales force was more than sufficient to cover the book,” the source added.
The so-called ‘bundling’ of services – where banks make the provision of one product, such as a credit facility, dependent upon the acceptance of others through the signing of restrictive clauses – was banned by the FCA in 2017.
One market source said it was “staggering” that lending banks appeared to be using the coronavirus outbreak as cover for “gouging” fees from listed companies.
In its letter to bank chiefs, the FCA warned that they would face further scrutiny over the issue.
“We will be separately contacting your firm directly to speak to the relevant senior manager if you have had both a lending relationship and equity role with any of the issuers who have recently raised significant equity capital,” the regulator said.
“We want to understand how you ensured your clients were treated fairly, and inside information was handled appropriately.”
The FCA declined to comment beyond the content of its letter.
One broker said he hoped the FCA’s intervention would “nip the behaviour of the banks in the bud”.