US Banks collude on IPOs

Three Oxford researchers show quite convincingly that US Banks collude to overcharge IPO clients in the US. (Article in Reuters; Full Citation).  Another embarrassment for US banks, and another reason for people to think of investment banks as vampire squids, sucking the blood out of the "real" economy.

Between 1998 and 2007, 95.4% of U.S. IPOs between $25m and $100m had gross spreads of exactly 7%. The comparable figure between 1989 and 199… While Chen and Ritter showed virtually no IPOs over $150m with a 7% gross spread, we find that 77% of all offerings between $100 and $250m charge exactly 7%.

European IPO fees do not cluster, and only 1% of offerings raising $25m or more experience gross spreads as high as 7%. Within the $25m-$100m range, fees for European IPOs average just over 4%. Indeed, European IPOs are always cheaper: we find that there is a “3% wedge” between European and U.S. IPOs after controlling for size, issue characteristics, syndicate structure and time or country effects.