Banker Admits Investment Banking Fees Terrible For Companies

Ed Clark, former CEO of Canadian banking behemoth TD, stated this morning that he would not allow banks to ‘skin us’ on fees related the upcoming IPO of his company Hydro One.

The comment should give pause to any company working with investment bankers given Mr Clark’s former employer consistently ranked as one of the top investment banks in Canada and was a respected issuer of debt here in America.

“This thing will sell itself. I am not going to let them skin us,” Clark, chair of the Premier’s Advisory Council on Government Assets, said on Thursday about the government’s decision to initially sell a 15 per cent minority stake in the provincially owned distribution and electricity transmission company.

Mr Clark’s comment means the fees for the planned $2 billion-$2.25 billion IPO will not be the standard 4%-5% that underwriters extract from an initial public offering.

“If not, I will do it myself,” said Clark when presenting the advisory council’s final report on improving performance and unlocking value in Ontario’s electricity sector.

This is a valuable lesson to both company owners and investors alike. Etsy’s nearly doubling yesterday underscore that if a company is good and in demand, bankers do nothing but reap extraordinary fees for creating little value. In Etsy’s case you could even argue they destroyed it by pricing it far too low.

This is why Google did its own IPO when going public. It’s interesting that in a world where everyone tries to copy Google nobody has gone this route again. All the technology is in place and the process can be managed by ex-bankers to ensure success while avoiding the ridiculous fees they reap.

A lesson for investors is that the more bankers you see involved in a deal the less attractive the issue is. Clearly Mr Clark is of the same opinion and he’d be one to know.

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