Asset management: Botín doesn’t look back in anger

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Santander’s buyback of its asset management arm seems characteristically erratic, but opportunism has its advantages.


Ana Botin glance-R-600
Emilio Botín’s daughter and successor Ana


Santander is buying back the 50% stake in its asset management unit sold to General Atlantic and Warburg Pincus just three years ago, according to a regulatory filing on Wednesday.

It follows news over the summer that the Spanish bank and UniCredit, Italy’s biggest lender, were calling off a merger of their asset management arms, a year and a half after announcing that deal. UniCredit is instead hoping by year-end to sell its asset management arm Pioneer.

Consolidating 100% of Santander Asset Management, which operates in 11 countries in Europe and Latin America, and has €170 billion of assets, will bring the group revenues of €1.1 billion annually.

To mitigate the capital hit, the two US private funds and Santander have agreed to explore a sale or listing of Allfunds Bank, a mutual fund platform jointly owned by Santander Asset Management and Italy’s second-biggest bank Intesa Sanpaolo, which is also selling.

This comes at a tough time for banking, including Santander’s biggest markets of Brazil, Spain and the UK, as well as Poland, Mexico and the US – where regulators have targeted its consumer business.

It is not just populism, Brexit and Trump. Spain now looks like a country of exceptional moderation and stability, despite its recent political limbo, but it is still deleveraging from a mid-2000s property bubble, and suffering the European Central Bank’s ultra-low rates.

This was less apparent when the late Emilio Botín sold the stake. Today, fee-generating businesses, including asset management and insurance, are the first way in which Botín’s daughter and successor Ana will counter these challenges, and perhaps rightly so.

Godsend

Asset management has been a godsend for some of the biggest and best-performing banks in continental Europe: notably Intesa Sanpaolo, and French banks such as BPCE (with Natixis) and Crédit Agricole (with Amundi).

The decision is typical of a bank still more passionate about building businesses rather than dealing with monetary and regulatory headwinds by relentlessly cutting back. At home, it sees its large branch network as an advantage in building its SME franchise.

The bank argues, in any case, it is more efficient than most, even if the Spanish cost-to-income ratio is slightly higher than the group’s 48%.

The contrast with UniCredit’s sales of crown jewels, such as Pioneer and its Polish bank, Pekao, underlines Santander’s relative strength. A few years ago, UniCredit was one of the top contenders for the eurozone’s top commercial bank.

Compared to merging with Pioneer, the buyback is less interesting in terms of the diversity and growth opportunity, but has fewer integration risks. Net of the Allfunds sale, the bank says the investment will cost 11 basis points of CET1 by 2017, but will increase earnings per share by more than 1% by 2018 with a return on invested capital of more than 20%.

Botín’s move draws a line under a period of uncertainty about its asset management business. Yet it also adds to a sense of what Berenberg calls Santander’s strategic confusion.

The bank sold a 25% stake in its Mexican business in 2002, for example, only to buy it back in 2010. Aside this flip-flopping, Santander’s main countries are a motley bunch. Italy, alongside Spain, would have geographic fit, and in asset management – unlike commercial banking – it would have made business sense, at the right price.

However, Santander will still be too thankful of its 2007 sale of Antonveneta to Monte dei Paschi di Siena to worry much about completing a European jigsaw. Geographic coherence, such as strategic consistency, might be overrated.