6 July 2009

Banks expect end to fragmentation Analysts say the credit crisis will result in a wave of consolidation, writes David Bain CORBIS

Coming together: renewed confidence and low valuations expected to drive a period of M&A across Europe

Switzerland has more than 150 lysts believe the forces unleashed erate. Buyers can be smart and be private banking businesses, Ger- by the credit crisis will drive selective as valuations have many can boast at least 40 wealth acquisitions and mergers across dropped to 2002 levels.” managers and the UK has at least the European wealth manage- Soudah’s views are supported 30. Despite years of talk of con- ment industry in the next few by those working in the sector, solidation, the wealth manage- years. with three quarters of private ment sector remains by far the Ray Soudah, managing partner bankers polled in a survey by most fragmented part of the finan- of M&A bou- accountancy firm KPMG saying cial services industry. tique MilleniumAssociates, said: acquisitions are worth making in But that might be about to “The acquisition trend over the the current environment. change. Private bankers and ana- next 12 months is likely to accel- Big-name wealth managers

©Financial News 2009 – Click here for terms and conditions Financial News, 29 - 33 Scrutton Street, London EC2A 4HU Tel. +44 (0) 20 7426 3333 / Fax. +44 (0) 20 7426 3329 they plan to sell their Swiss sub- Acquisitions in wealth management sidiaries. Dow Jones Wealth Bul- Rank of Potential Potential letin survey entitled Wealth Man- likelihood acquirers sellers agement After the Crunch 1 Barclays Wealth Kleinwort Benson demonstrated the breakdown in 2 Credit Suisse RBS Coutts 3 (Switzerland) trust between client and adviser. The fraud committed by Bernard 3 BNY Mellon St James’s Place Madoff has suggested to many 4 SG Lloyds TSB (Switzerland) that the word of individuals can- 5 Bank Julius Baer Citibank (Switzerland) not be trusted. 6 JP Morgan Dexia Private Bank (Switzerland) Wealth managers have come 7 EFG International Clariden Leu under pressure to improve their computer-driven systems to 8 Schroders Union Bancaire Privée enhance the levels of data made 9 Sal. Oppenheim - available to clients. Efforts to Source: Dow Jones Wealth Bulletin ensure the elimination of fraud will also drive expert systems expenditure. This will push up such as Walter Berchtold, head of try government capital assistance costs for wealth managers at a private banking at Credit Suisse, into their parent banks.” time when wealth creation and Tom Kalaris, his equivalent at UK wealth manager Kleinwort remains subdued, although the Barclays Wealth, are buoyed by Benson is first on the list from a growing financial literacy of the their success at riding out the restructuring point of view, with first generation wealthy means credit crisis. They have gone on the bank’s parent Commerzbank they will be prepared to carry out record saying they are looking for announcing its intention to sell more research themselves. deals. Both banks believe they the firm in May. The German Sebastian Dovey, managing will act as big consolidators in the bank has been pressured by the partner at the wealth manage- sector. European Commission to restruc- ment consultancy Scorpio Part- Schroders is also interested in ture and sell businesses after nership, believes costs will be acquisitions, as is Bank of New receiving a bailout from the Ger- critical in driving acquisitions in York Mellon, keen to use its com- man Government last year. the sector. He said: “Cost-income petitive edge in computer-driven The Royal Bank of Scotland, ratios are rising for many wealth administration. A BNY Mellon majority owned by the UK Gov- managers and this might prompt spokeswoman said: “We are inter- ernment, has a sizeable wealth some to sell.” He also thinks ested in organic and inorganic management business, which has some of these deals could be big. opportunities to develop our as its core private bank Coutts. “There’s likely to be at least one wealth management business. RBS has denied it plans to sell trophy brand which will come up Our wealth assets under manage- Coutts, but it might want to dis- for sale in the next year.” ment are $130bn, with the major- pose of the private bank’s offshore Nevertheless, some analysts ity in the US.” business in Switzerland as part of play down the likelihood of cross- Since the beginning of the year its restructuring efforts. border acquisitions. A Price- acquisitions in the sector have RBS Coutts in Switzerland, waterhouseCoopers survey in been conspicuously absent, with better known by its previous global wealth management found only two of any size. One involved name Coutts Bank von Ernst, has few respondents envisaged acqui- BNP Paribas Wealth Management Sfr54bn (€35bn) of assets under sitions across borders. buying a majority stake in Bank management, making it one of the It said: “In the new era of tight- Insinger de Beaufort and Ameri- top 20 wealth managers in the ened regulations, the fly in/fly out can International Group’s sale of country – and a tasty target for model increasingly appears ques- AIG Private Bank to Aabar those looking to acquire. tionable. Cross-border expansion Investments, based in Abu Dhabi. Other likely candidates using could also expose wealth man- Soudah said: “The reason for a the restructuring criteria include agers to additional regulatory and lack of acquisitions in the first half UK wealth adviser St James’s tax risks.” It agreed acquisitions is simple – most institutions Place and Lloyds Private Bank in were likely to increase. Managers lacked confidence to do anything Switzerland, both owned by with an edge in administration given the unprecedented financial Lloyds Banking Group, which in could play a big part in the crisis.” turn is 43% owned by the UK process. He predicts a revival of confi- Government. Dovey was less convinced that dence, coupled with restructuring Other Swiss private banking buyers would be interested in pressures, will drive M&A activ- subsidiaries of international banks smaller wealth managers. He ity in the sector. Soudah said: might also be up for sale. High on said: “The queue isn’t big for “The real reason for the rush of the list, say analysts, include smaller banks. For example, disposals of private banking sub- Citibank (Switzerland), Dexia Pri- banks managing less than Sfr10bn sidiaries of European and Ameri- vate Bank (Switzerland) and ING in Switzerland – unless they have can banks is the restructuring Bank (Switzerland). The parent a banking licence – aren’t as pressures following home coun- companies of these banks deny saleable as might be expected.”

©Financial News 2009 – Click here for terms and conditions Financial News, 29 - 33 Scrutton Street, London EC2A 4HU Tel. +44 (0) 20 7426 3333 / Fax. +44 (0) 20 7426 3329