Sarbanes-Oxley brings US firms record IPO earnings
For all the hand-wringing over the Sarbanes-Oxley Act, the accounting and governance law driving companies away from US stock exchanges.
By Agencies |
NEW YORK: For all the hand-wringing over the Sarbanes-Oxley Act, the accounting and governance law driving companies away from US stock exchanges, America’s biggest securities firms are doing a record overseas business arranging initial public offerings.
The surge in IPOs from London to Hong Kong has enabled New York-based Goldman Sachs Group, Morgan Stanley, Merrill Lynch, JPMorgan Chase and Citigroup to collect $1.33bn fees from new share sales outside the US so far in ’06, a third more than in any prior year, data compiled by Bloomberg show.
“It’s irrelevant to us where companies list,” said Nicholas Andrews, the Hong Kong-based head of Asia equities at JPMorgan. “We’re able to help them in whichever market makes sense the most for their business.”
That’s because the same CEOs who are determined to avoid compliance with Sarbanes-Oxley are turning to American financiers to raise money in Europe and Asia. The US investment banks have earned $3.4bn in IPO fees worldwide, a 17% increase from the same period in ’05, the best since they netted a record $4.2bn in ’00.
While everyone from the Business Roundtable to Treasury Secretary Henry Paulson is lobbying to emasculate Sarbanes-Oxley, the law conceived to protect shareholders is helping America’s own securities firms dominate international markets.
No country’s domestic financial institutions come close to the 31% share of international IPOs that US investment banks have managed this year. Switzerland, the home of Zurich-based UBS AG and Credit Suisse Group, would be a distant No. 2 with 15%, followed by China with about 10%.
“Some might expect Wall Street firms to cry foul for Sarbanes-Oxley pushing business away,” said Tamar Frankel, a professor at Boston University who has taught corporate law for 38 years. “But they’re all over the world, so if revenue goes down here, it goes up elsewhere.
They can even use it as sales pitch: We’ll give you the IPO without the Sarbanes-Oxley requirements, wherever you want it.” Timothy Trankina, president and founder, Peach Holdings, a Boynton Beach, Florida-based company, said the decision came down largely to costs, much of them a direct result of Sarbanes-Oxley. He hired New York-based Bear Stearns and Collins Stewart Tullett in London to raise $210m in March in a stock offering on the Alternative Investment Market, a unit of London Stock Exchange.
“The cost of being a public company is lower by more than a third in the UK,” Trankina, said. “It would cost us as much as $3.5m a year to comply with the vigorous reporting requirements in the US. For a $100m company, that’s 3 to 4% of gross revenue.”
US president George W Bush signed Sarbanes-Oxley into law in July ’02 after Enron and WorldCom collapsed in the two biggest bankruptcies in the US history. Enron’s decline wiped out $68bn of market value, 5,000 jobs and at least $1bn in retirement funds. WorldCom’s $11bn accounting fraud prompted investors in 110 countries to file 450,000 claims.
The surge in IPOs from London to Hong Kong has enabled New York-based Goldman Sachs Group, Morgan Stanley, Merrill Lynch, JPMorgan Chase and Citigroup to collect $1.33bn fees from new share sales outside the US so far in ’06, a third more than in any prior year, data compiled by Bloomberg show.
“It’s irrelevant to us where companies list,” said Nicholas Andrews, the Hong Kong-based head of Asia equities at JPMorgan. “We’re able to help them in whichever market makes sense the most for their business.”
That’s because the same CEOs who are determined to avoid compliance with Sarbanes-Oxley are turning to American financiers to raise money in Europe and Asia. The US investment banks have earned $3.4bn in IPO fees worldwide, a 17% increase from the same period in ’05, the best since they netted a record $4.2bn in ’00.
While everyone from the Business Roundtable to Treasury Secretary Henry Paulson is lobbying to emasculate Sarbanes-Oxley, the law conceived to protect shareholders is helping America’s own securities firms dominate international markets.
No country’s domestic financial institutions come close to the 31% share of international IPOs that US investment banks have managed this year. Switzerland, the home of Zurich-based UBS AG and Credit Suisse Group, would be a distant No. 2 with 15%, followed by China with about 10%.
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“Some might expect Wall Street firms to cry foul for Sarbanes-Oxley pushing business away,” said Tamar Frankel, a professor at Boston University who has taught corporate law for 38 years. “But they’re all over the world, so if revenue goes down here, it goes up elsewhere.
They can even use it as sales pitch: We’ll give you the IPO without the Sarbanes-Oxley requirements, wherever you want it.” Timothy Trankina, president and founder, Peach Holdings, a Boynton Beach, Florida-based company, said the decision came down largely to costs, much of them a direct result of Sarbanes-Oxley. He hired New York-based Bear Stearns and Collins Stewart Tullett in London to raise $210m in March in a stock offering on the Alternative Investment Market, a unit of London Stock Exchange.
“The cost of being a public company is lower by more than a third in the UK,” Trankina, said. “It would cost us as much as $3.5m a year to comply with the vigorous reporting requirements in the US. For a $100m company, that’s 3 to 4% of gross revenue.”
US president George W Bush signed Sarbanes-Oxley into law in July ’02 after Enron and WorldCom collapsed in the two biggest bankruptcies in the US history. Enron’s decline wiped out $68bn of market value, 5,000 jobs and at least $1bn in retirement funds. WorldCom’s $11bn accounting fraud prompted investors in 110 countries to file 450,000 claims.
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