WR Hambrecht to Cut IPO Fees

San Francisco-based investment bank WR Hambrecht & Co. is cutting its fees for underwriting initial public offerings, breaking ranks with Wall Street competitors.

The company, which ranked 19th in U.S. first-time stock sales last year, will charge 4% of the amount raised by an offering if it serves as the lead manager of an IPO, and 5% if it acts as co-manager, said William McDermott, Hambrecht’s head of equities. The strategy aims to challenge securities firms such as Morgan Stanley, which charge 6% to 7% on average to sell a company’s stock.

“This will not win Hambrecht any friends on Wall Street,” said Ben Holmes, managing director at Protege Funds, which analyzes initial share offerings. “There will not be a lot of other firms rushing to support Hambrecht IPOs. It’s threatening to the status quo.”

The number of initial offerings is expected to rise this year after 2003 was the weakest year for IPOs in more than a decade.

The most hotly anticipated IPO is that of Internet search company Google Inc., and Hambrecht is one of several investment banks hired to manage the expected $4-billion offering.

Founded by William Hambrecht in 1998, the firm advised on IPOs that raised $68.4 million last year, Bloomberg data show. It’s trying to lure more customers and boost a proprietary IPO trading system that Hambrecht developed in the late 1990s.

Called OpenIPO, it’s similar to a Dutch auction, an offering that allows investors to place bids specifying the price at which they are willing to buy or sell a stock.

“We want to make capital raising more cost effective,” McDermott said. “This system offers more transparency for the issuer, a better defined pricing range and a more democratic distribution.”

WR Hambrecht used the system last year to sell shares for Genitope Corp., a biotechnology company seeking to develop cancer treatments, and Internet retailer RedEnvelope Inc.

The biggest test of OpenIPO may come in April when Hambrecht may use it to help sell shares for Google’s IPO.

U.S. investment banks last year charged an average of 6.7% to underwrite domestic IPOs, according to Bloomberg data. That’s more than twice the price in Europe and Asia.

The U.S. fees prompted the Justice Department to investigate allegations of price fixing in domestic IPOs in 2000. The investigation was dropped a year later.