CITY investment houses opened fire on Prudential last night for paying banks the “obscene” sum of £850m to orchestrate its controversial rights issue and takeover of AIA.
Shareholders told City A.M. they were dismayed at the fees being handed over by the insurer to push through its $21bn (£14bn) cash call and $35.5bn buyout of AIG’s Asian arm. Credit Suisse, JPMorgan and HSBC are among those on the payroll as Prudential races to seal the deal.
One leading investor said: “It’s horrific. We’re critics of the fees advisers charge at the best of times, but this is the equivalent of the market capitalisation of a medium-sized company.”
Another investor said: “The way the deal’s structured and the fees on the deal are verging on the obscene. Whichever way you look at it they’re astronomical.”
Prudential argues that at 3.5 per cent of the value of the merger, the charges are in line with market rates. But the cost, confirmed in Prudential’s deal prospectus yesterday, comes to light at a time when fund managers are increasingly worried about the behaviour of the big investment banks.
The Institutional Shareholders’ Committee, whose members include Standard Life and Legal & General, this week launched an inquiry into the charges paid to advisers on rights issues. Doug Ferrans, the investment veteran leading the inquiry, told City A.M. he would investigate the Prudential fundraising along with other cash calls to gauge whether shareholders’ interests were being served. The Office for Fair Trading is working with the ISC on the probe.
“[Prudential’s fees] will clearly be in the scope,” Ferrans said. “It’s a big figure and it will be looked at.”
Prudential boss Tidjane Thiam needs to win the backing of 75 per cent of investors for the deal at a vote on 7 June. In the first serious sign of a shareholder revolt, several have refused to sub-underwrite the rights issue despite a two per cent incentive being dangled in front of them.