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What stops the depositary banks of American Depositary Receipts (ADR) from charging the maximum possible fees?

Personal Finance & Money Asked on April 12, 2021

Depositary banks of ADRs periodically charge depositary fees (custodial fees) to the owners of the ADRs by subtracting from ADR dividends. The maximum fees that the depositary bank is allowed to charge is usually summarized in Form 20-F and Form 6-K. The details of the fees are in the Deposit Agreement. I have observed that the depositary banks do not usually charge the maximum amount as allowed by the Deposit Agreement. What stops them from charging the maximum allowed depositary fees?

Examples:

  • Take Sony’s ADR (NYSE: SNE) for example. The Deposit Agreement says that there is a fee during "Distribution of cash dividends or other cash distributions", and that this fee is "Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held". However, the historical fee data shows that the depositary bank (Citi) charged less than the $5.00 per 100 share allowed:

    Sony ADR (NYSE: SNE) historical fees

    In 2019, Citi charged a total of $3.65 per 100 shares ((0.0183 + 0.0182) * 100 = 3.65) by subtracting from dividends, which is less than the $5.00 allowed under the Deposit Agreement.

  • Another example is AXA’s ADR (OTC: AXAHY), where the depositary bank (BNY Mellon) charged $0.045 per share every year from 2015-2020 (source: BNY Mellon), even though the maximum fee allowed is $0.05 per share (source: Deposit Agreement).

This appears to be rather typical of depositary banks. Given that depositary banks have discretion in the amount of fees that they charge, what stops them from charging the maximum amount as allowed by the ADR’s Deposit Agreement? Are the depositary banks charging less in order to make the company and its ADR holders happy?

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