One of the perks of working in an investment bank is - or rather was - a fairly casual approach to expenses. Almost everything is billable back to the employer, who directly or indirectly passes the expenses on to the clients.
Investors might take only a passing interest in such matters. But those who regularly invest in initial public offerings might note that listing expenditure is deducted from funds raised. In other words, shareholders ultimately end up paying for IPO costs, including any expense-account padding that might unfold during the execution and marketing phases.
To be fair to bankers, they incur many (and mostly) legitimate expenses while preparing and presenting IPOs. These include taxis and meals taken at the office when staying late; restaurants, flights and hotel bookings.
Travel policies vary for each firm, but financiers generally fly business class, stay in good hotels and are often ferried around in chauffeured cars. Exceptions are sometimes made in the case of short-haul flights or for junior staff, or when the head office decides to switch to cost-cutting mode - which can have an impact on morale, and usually doesn't last for too long.
But banks directly pass on to their corporate clients the main costs of an IPO, such as legal fees and road show expenses.
What the banks are able to get away with all depends on what has been negotiated upfront with the issuer. Some companies - perhaps on the recommendation of an independent adviser - often include a cap on expenses as part of the mandate, or ask the banks to pick up the tab for some items.
Just a decade ago, sponsors and global co-ordinators would have been able to get away with an estimate of expenses incurred being drawn up and deducted - alongside their fees - from the proceeds paid out to the company on an IPO. This would then be reconciled down the line, in a process that could take several months and one where, as a young graduate, I was once asked by a greedy managing director to "add £10,000 for good luck".
