Ask European investment bankers in financial institutions groups (FIG) about asset management, and their eyes light up. Here is a sub-sector where transformational deals are happening, even cross-border ones.
Soon after the 2008 crisis, it looked like the UK banks were showing the way forward for in-house asset managers – by selling them. Lloyds and RBS respectively sold to Aberdeen and Barclays to BlackRock.
The greater prevalence of bank distribution has slowed the rise of passive funds in Europe. Even on the continent, however, banks must think to the future. Regulators are pushing for more transparency on quality and cost, which will make it harder to stuff weak proprietary funds down bank clients’ necks.
Banks will have to offer funds that are more varied and better able to outperform the indices – emerging markets, alternative investments and not just local stocks and government bonds. Most cannot do so (or, at least, not well) on their own. The other option is to make money despite lower fees on passive funds by finding synergies with other bank or insurance distributors.
Crédit Agricole, unusually, is an example to follow. A merger with Société Générale’s asset management arm in 2010 created Amundi, whose chief executive, Yves Perrier, has built Europe’s biggest listed asset manager, with €1.4 trillion of assets under management.
Perrier has done this through in-house distribution, mergers and a 2015 IPO that saw SocGen exit. The separate brand facilitates what is now essentially a Crédit Agricole product distributed through rival banks’ networks. Its acquisition last year of UniCredit’s asset management arm, Pioneer, came with a long-term distribution agreement across Italy, Germany and emerging Europe.
Natixis – part of another French retail firm, BPCE – is arguably the next best. It is on an asset-management acquisition drive and heading towards the symbolically important €1 trillion mark (it has €830 billion in AuM today). Its asset management arm is not listed and uses an array of semi-autonomous boutique fund houses, mostly in the US.
Banks’ asset management arms sometimes seem better when the core banking franchise is weaker
The news in late April that Natixis’ chief executive Laurent Mignon will take over from Francois Pérol as head of BPCE is testament to Mignon’s success, including that in asset management. He worked for much of the early 2000s in asset management and insurance groups, including Schroders.
Now other big banks – notably Deutsche Bank, HSBC and Intesa Sanpaolo – are following the French lead.
Intesa has thrived in a tough market largely thanks to managing Italian household wealth. But it must develop the product offering of Eurizon. Selling a minority stake to an independent asset manager could help (as with Dutch asset manager Aegon’s acquisition of a 25% stake in La Banque Postale Asset Management). This could also bolster its capacity as an acquirer.
HSBC might do something similar, if it doesn’t sell. New chief executive John Flint is paying more attention to this somewhat neglected business and will consider mergers. HSBC occupies an awkward and unsustainable middling position in asset management, with $470 billion under management.
Meanwhile, DWS’s IPO in March could make it easier for it to engage in consolidation. Like Amundi, the new brand de-emphasizes the link to Deutsche Bank, facilitating partnerships with rivals. Staff, too, may better appreciate being paid bonuses in DWS shares.
More generally, spin-offs help deal with the rise of bank-bonus caps relative to salaries. Fund managers are generally compensated according to fund performance, which is more of a problem at closer-held bank subsidiaries.
Interestingly, banks’ asset management arms sometimes seem better when the core banking franchise is weaker. DWS is one of Deutsche’s best businesses. Its €700 billion AuM is healthier than BNP Paribas’ €570 billion and Santander’s €182 billion. Both of these may look for mergers or partnerships.
Nordea is the other big bank doing relatively well in asset management, partly thanks to greater focus (Christian Clausen, group chief executive until 2015, was formerly asset management head and is now BlackRock’s Nordic chairman).
A good Danish grounding, inflows from wholesale clients and from Germany and the UK have helped Nordea’s assets rise by 50% to €330 billion in the last five years.
The lesson from the French mutual banks and Nordea is that a big home-bank base, including retail, is important. But so is geographic and client diversification. Above all, this is one of the few areas in European financial services where large-scale cross-border M&A is an obvious way forward, even in the absence of true banking union.
No wonder FIG bankers are rubbing their hands.