Lawmaker Tyrie critical of JP Morgan fees on Co-op deal

Reuters

* JP Morgan paid 7 mln stg for advice on Britannia deal

* 5 mln stg of fee was dependent upon completion

* Banks, regulators need to look closely at fees - Tyrie

By Matt Scuffham

LONDON, Dec 3 (Reuters) - British lawmaker Andrew Tyriecalled for a review of fees paid to advisers on M&A deals afterit emerged JP Morgan had a financial incentive for theCo-operative Bank's ill-fated 2009 takeover ofBritannia to proceed.

JP Morgan executives on Tuesday told Britain's TreasurySelect Committee, which Tyrie chairs, that the U.S. bank waspaid 7 million pounds ($11.5 million) for advising Co-op on thedeal, 5 million of which was contingent on the transaction beingcompleted.

"A fee structure for the provision of independent advicethat heavily incentivises one outcome over others strikes me asinherently problematic," Tyrie said after a Treasury committeehearing. "The industry and the regulators will need to lookclosely at the way such advice is remunerated."

The Britannia takeover, which saddled Co-op with a portfolioof souring property loans, was a major factor behind a 1.5billion capital shortfall at the bank which has resulted in itfalling under the control of U.S. hedge funds.

Tim Wise, a managing director at JP Morgan's UK investmentbank, said the payment reflected the way the industry worked.

Tyrie had earlier suggested to JP Morgan executives they hada considerable financial interest in seeing this deal through tocompletion.

"You weren't sitting there neutrally giving advice, you werethinking there's 5 million riding on this," he said.

Wise defended the arrangement, which is not untypical, andsaid he didn't believe JP Morgan had suffered reputationaldamage from advising on the deal.

"In terms of the integrity of our advice and the clarity ofour advice and the honesty of our advice that is something thatis absolutely fundamental to the way we work and the way thevast majority of the industry works," he said.

"The way that clients choose to pay us whether it's M&Atransactions or capital markets transactions is (based) on theoutcome of the transaction happening," he said.

KPMG partner Andrew Walker earlier told the committee theauditor received 1.3 million pounds for its work on the deal buthadn't undertaken due diligence on Britannia's commercial loanbook. He said that work was done by the Co-op itself.

Co-op Bank's problems worsened last month when its formerchairman Paul Flowers was arrested as part of an investigationinto the supply of illegal drugs. The bank saidlast week that had damaged its reputation and it had lostcustomers.

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