The stranger is charming, clean-cut and well groomed. A good companion, witty and worldly, he takes you to the opera, to the races and he seems to know lots of people. He is attentive; you meet regularly for lunch in quiet corners at exclusive restaurants. He listens as you talk about your problems, and he seems to care, offering comfort and sensible advice.

Soon, you are confiding in this stranger, spilling your guts about your plans, business dealings and investments. Again, he has sensible advice to offer, but he asks for money. He explains that he has burdensome expenses and needs financial assistance if he is to carry on seeing you in private. You pay him and then he asks for more.

This could be the tale of Susanne Klatten, the German heiress who testified this week against her blackmailer, the Swiss gigolo Helg Sgarbi. But the scenario might well describe the fate of the chief executives of many large companies — wealthy but isolated, they are easy prey to the business world's predatory seducers: the investment bankers.

It may not be entirely coincidence that Sgarbi once worked at Credit Suisse, in the bank's mergers and acquisitions department. Of course, the Swiss bank is not a blackmailer and had nothing to do with his subsequent career pursuing lonely, rich women in spa hotels in Central Europe. Yet within the complex relationship that develops between a corporate financier and his client, there is a wooing, and the ultimate cost of that seduction is counted in millions, even hundreds of millions. In this case, the price is not paid by the target of the seduction, the chief executive, but by the company's shareholders — the pension funds and, ultimately, you and me.

We hear about a terrible recession but life is good if your job is about advising companies. Tot up the fees paid to investment bankers for the recent cash calls. The cost of underwriting share issues has more than doubled. Wolseley, the building products company, is paying £51 million in fees and commissions to its bankers for a £1 billion rights issue and share placing. Deutsche Bank and JPMorgan collected £126 million in fees for raising £4 billion for Xstrata, the Swiss mining group, while JPMorgan and Goldman are sharing in a pot of £344 million of underwriting fees to raise £12 billion for HSBC.

Fee escalation is rampant in the debt markets, too. There was a time, long ago, when the commission payable for underwriting a rights issue was fixed at 2 per cent — 0.5 per cent for the bank taking the initial risk (generally a mere 48-hour exposure) and 0.25 per cent to the stockbroker who syndicated the risk to institutions, to which the bulk of the commission, 1.25 per cent, was paid.

Commission rates have doubled to 4 or 5 per cent in many cases. For example, HSBC's lead bankers are taking 1 per cent for arranging the transaction and we need to look at these rates in their context. The lead bank may be on the hook for a single day and the sub-underwriting institutions have promised to be good for the money for the three to four weeks in which the rights can be traded. This is extremely good business that bolsters the cash income of pension funds with underwriting fees. They are likely already to be shareholders and therefore have every incentive to buy the new stock to maintain their proportionate interest. In the case of HSBC, the discount on the price of the new shares was 40 per cent, so the one or two-day risk for the advising bank is nothing but a flutter.

Over claret and Camembert, the corporate financier softly explains to his client, without even a shred of irony, that the doubling of his fee is due to increased market volatility and risk. This is an insidious relationship; a chief executive is often isolated, at odds with fellow directors, especially in difficult times. If he rejects the advice of his investment bank, where will he be if things go wrong? Who will promote the company's shares? More importantly, who will support the chief executive if institutions begin to ask questions?

There are two participants in every seduction. Confronted with a wall of bullying and flattery, most chief executives are happy to roll over, write the cheques and enjoy a week's shooting as long as their company is not paying over the odds. But the real villains in this tale are those who ought to police these relationships, not financial regulators but owners: the shareholders themselves. It is their inaction that drives up the cost of capital for business.

Without the continuous flow of cash from pension funds, the business of corporate finance advice — the dubious cavorting by bankers in boardrooms — would come to an end.

It could end or at least be curbed if pension funds began to take an interest in the business of raising capital. There is nothing complex about the pricing of a rights issue and the syndication of risk. In the end, it is a bargaining process, like any other involving the cost of money. It is no more than a conversation between corporate treasurer and shareholder.

We need new institutions and we need to shrink these investment banks, carve up their businesses and end their pointless and expensive posturing. Pension funds have it in their power to change the way companies raise money and they should use that power.

carl.mortished@thetimes.co.uk

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