Western Europe: Rothschild & Co bulks up in private banking
CEO seeks to ease regulatory hit; merger doubles French business.
Rothschild & Co’s merger with Marseille-based Martin Maurel in January more than doubles its French private-banking assets to around €20 billion under management, making France its biggest private-banking market. It is also another sign of consolidation in European private banking – a process through which Paris-based co-CEO Olivier Pécoux hopes to grow his firm.
Pécoux says the firm intends to steer clear of acquisitions in its other two pillars, advisory and merchant banking, notwithstanding the acquisition of Leonardo & Co spin-off, L&Co Belgium, in 2016 (he describes the L&Co deal as more of a series of hires on the advisory side). In private banking, the priority now is integrating Martin Maurel, but in an interview, he leaves open the possibility of bulking up through new acquisitions.
“The only area of the business where we could in principle consider to do acquisitions is in private banking, because we need to improve our critical mass,” says Pécoux.
Advisory makes up two-thirds of earnings at Paris-listed Rothschild & Co, which changed its name from Paris-Orleans in 2015, following the fusion of the French and English branches of the family financial business from the early 2000s. In recent years, the advisory business has enjoyed a series of record results, growing an equity and debt capital markets advisory stream to complement its traditional M&A revenues.
After the Martin Maurel merger, Rothschild & Co’s asset and wealth business in Europe now stands at around €54 billion under management, spread across France, Switzerland, the UK, Germany, Belgium and Italy. But the group is still exposed to a slowing M&A market, as financing costs creep up, though that might benefit money-management products, whose fees can be calculated as a proportion of the return.
The latest merger is partly the result of a consultant’s analysis commissioned by Rothschild & Co that showed how the changing regulatory environment for private banks increases the need for economies of scale. Specifically, the report concluded that French private banks with less than €10 billion under management (roughly its own level at the time) could struggle.
Adding Martin Maurel’s assets under management, it will compete with ABN Amro’s subsidiary Neuflize to be the biggest independent French private bank.
Rothschild & Co ranked fourth in France in Euromoney’s private banking survey 2017, down one position from last year. It ranked ninth in western Europe. (It is not to be confused with Edmond de Rothschild, another private bank. Edmond de Rothschild owns 10.6% of Rothschild & Co.)
Martin Maurel’s non-family shareholders previously agreed to tender their holdings in a cash offer, while the merger was primarily carried out through a share swap between the two families, in addition to an €88.3 million external bank facility. With operational integration taking place in 2017, Rothschild Patrimoine and Compagnie Financière Martin Maurel will become Rothschild Martin Maurel.
Pécoux says Martin Maurel was chosen partly because of its similar profile in private banking – focused, like Rothschild, on the higher end of the market (typically clients with net worth of more than €10 million) and on wealth preservation rather than higher-risk strategies. He adds that their geographic strengths are complementary – Martin Maurel is stronger in southern France, with branches in Aix-en-Provence, Grenoble, Lyon and Monaco. Martin Maurel also brings added financing expertise.
“It’s a family controlled business, so we share some aspects of their DNA,” says Pécoux. “There have been strong links between the Rothschild and Maurel families for many decades. We’ve been working in an informal way in the past.”
Before the merger, he notes, his chairman, David de Rothschild, sat on the board of Martin Maurel, while Lucie Maurel (then her firm’s vice-chairman) sat on Rothschild’s board. Rothschild & Co held 2.3% of Compagnie Financière Martin Maurel, which in turn held 0.9% of Rothschild & Co.
Pécoux says the private bank ties in well with advisory and with the group’s primarily European mid-market merchant banking business. Although a relatively small part of earnings, the merchant bank is growing rapidly, counting around €5 billion of equity and debt assets under management, of which about 12% is Rothschild & Co’s own investment.
“We believe there are strong synergies between the three businesses,” says Pécoux. “The clients in private banking and asset management can be limited partners of the [merchant banking] funds… The advisory business gives us a good reading of the situation [in merchant banking].”
In M&A, Rothschild is more focused on mid-market deals than close rival Lazard, so tends to post higher numbers of deals but lower volumes. It employs more bankers in Europe, but is weaker in the US, where Lazard is headquartered.
Now Rothschild wants to do more US deals and not just those involving Europe. It opened a Chicago office late last year and hired former UBS bankers James Neissa and Lee LeBrun as heads of North America and North American M&A, respectively.