Director of Equity Financing, FINAM Investment Company, Moscow
Has the Sarbanes Oxley law damaged U.S. competiveness?
Last week, Bloomberg released data on initial public offering (IPO) underwriters and their fees. For the first time since World War II, U.S. investment bankers are on the verge of earning less from IPOs than their counterparts in Europe. As American underwriters continue to charge double the going rate for European IPOs, the total amount of money raised in Europe this year is 78% greater than the value of U.S. offerings. IPOs in Europe have raised $37.8 billion in 2007, exceeding the $21.2 billion of new issues sold on U.S. exchanges.
The 2002 wave of corporate scandals in America resulted in heightened reporting and accounting controls in the form of Sarbanes-Oxley Act (SOX). A survey of public companies conducted by Foley & Lardner LLP last year concluded that the overall cost of being a publicly traded company increased 33% in the year after SOX was adopted, with an astounding 174% increase in compliance costs. As a result, many American companies are now looking to list in London or on the NYSE-owned Euronext exchange.
German investment banks are heavily involved in advising and underwriting Russian IPOs
Bloomberg cites fees in Europe that range from 1% to 5.4%. In a previous post ("Russian IPOs: Week 20 of 2007 Reviewed") , I mentioned the fact that the fees for Vneshtorbank’s recent IPO, the fees were 1.6% of the offering - compared to the current average of 7% in fees to issue an IPO in the U.S.
It is interesting to compare Bloomberg’s data on IPO coordinator ratings with the Russian ones. Bloomberg lists the top three leaders in advising and underwriting IPOs in Europe and worldwide:
Leaders in European IPOs:
1. Goldman Sachs
2. Deutsche Bank
3. Citigroup and JPMorgan.
Leaders in Global IPOs:
1. UBS AG
2. Goldman Sachs
3. Merrill Lynch & Co
Russia's ReDeal (www.offerings.ru) recently teamed up with PriceWaterhouseCoopers to publish their 2006 rating of underwriters and coordinators of Russian IPOs:
Underwriters:
1. Dresdner Kleinwort Wasserstein
2. Deutsche UFG
3. Morgan Stanley
Coordinators:
1. Morgan Stanley
2. Deutsche UFG
3. Dresdner Kleinwort Wasserstein
As you can see from these tables, German investment banks are highly visible and very active in Russia.
I noted in my previous post ("Russia Profits from Worldwide IPO Boom"), that the interest among global investors in the Russian stock market continues to grow with every new round of announced IPOs. Last week the Moscow Interbank Exchange confirmed that the trading volume of Russian automatic deposit receipts (ADRs) on the MICEX has surpassed the volume of Russian ADRs traded in London. Non-resident investors are rushing to get into Russia.
So, we do feel that Russia is making a major impact on the growth of the European stock market. The provocative question for America is: has Russia and the rest of Europe profited from American overregulation?
You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.
