Tougher regulation, the attack
on offshore money centres and more competition for client business
should rationalise the industry significantly, although the biggest
premiums for deals will likely be paid in rapidly-recovering Asia.
And growing numbers of banks are throwing their hats in the M&A
ring. John Evans
reports
The sale by ING of its Swiss and Asian private banking assets and
divestment by Commerzbank of Kleinwort Benson Private Bank in quick
succession looks to be jump-starting the M&A business in wealth
management, a process long-expected as some marginal players fail
to keep up the pace in a much more demanding marketplace.
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Consultancy McKinsey & Co, in a wealth research report,
declared: “Industry profitability has experienced a massive hit,
offshoring is under unprecedented pressure… and the pressure on
the industry consolidation is rising.”
Chris Meares, HSBC’s global CEO for private banking, said at the
PBI Wealth Summit in Singapore in October: “There is no doubt with
the industry profits coming down, valuations have got a little
better, become more interesting at least for a buyer.”
Still, troubled ING and Commerzbank, which has been ordered by the
EU to sell banking assets as a condition for €18.2 billion ($27
billion) of German state aid, are retreating from private banking
because of financial stresses at home rather than as a direct
result of flagging private banking operations.
Of the three most recent deals, the richest price was paid by
Singapore’s Overseas-
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By GlobalDataChinese Banking Corp (OCBC), which is buying for $1.2 billion the
Asian private banking assets of ING, which has so far received €10
billion of Dutch government aid.
Transformational acquisition
As a result, OCBC’s private banking assets will rise more than
threefold to $23 billion, putting it in the ranks of the top 10
private banks in Asia. OCBC chief executive called the deal a
“transformational acquisition.”
Analysts believe that OCBC, which out-bid rivals like DBS and HSBC
for the ING assets, paid out top money, conceding a price
equivalent to 5.8 percent of assets under management and 17 times
normalised earnings.
By comparison, the deal considered the benchmark acquisition in
recent private banking history – the $860 million purchase of
American Express Bank by Standard Chartered in 2007 – was pitched
at a price equivalent to a little under 1 percent of private
banking AuM.
Still, OCBC is clearly going to use the deal as a springboard for
its wealth management proposition, planning to enter new markets
such as the Middle East and Europe. And high-growth Asia, forecast
in the wealth report issued earlier this year by Capgemini and
Merrill Lynch to be the largest single wealth region by 2013, is
likely to see a premium paid on the rare occasions that private
banking assets come onto the market, analysts say.
Baer buys ING’s Swiss operations
In the other ING transaction, Bank Julius Baer about $500 million
for the Dutch bancassurer’s Swiss private banking operations. At
the end of August, ING Bank had assets under management of CHF15
billion, adding 10 percent to Baer’s overall private client assets
and doubling its presence in Geneva. Combined AuM will be CHF160
billion ($14.7 billion) after the deal. Baer is paying the
equivalent of 2.3 percent of assets under management for the
acquisition.
Julius Baer chief executive Boris Collardi told PBI that the
transaction will add to his domestic business in the
French-speaking part of Switzerland as well as to selected European
core markets. It will also substantially increase its business
volume in Central and Eastern Europe, Russia and other growth
markets, providing an attractive base for future growth. The sale,
covering the 310 people employed by ING, will include the Dutch
firm’s Jersey and Monaco subsidiaries.
Matthew Clark, analyst at Keefe, Bruyette & Woods, says that
the deal’s economics “appear pleasingly favourable” for Baer,
including a target for generating CHF35 million of cost synergies
by 2012.
In what could prove the most controversial of the various new
deals, RHJ International is paying £225 million ($360 million) to
Commerzbank for Kleinwort Benson Private Bank, believed the first
time that a private equity group has bought a significant bank in
Europe. Kleinwort has £5.4 billion of assets under management and
£15.7 billion under administration as of end-2008.
Brussels-based RHJ is the publicly-traded investment firm started
by Timothy Collins, who founded private equity firm Ripplewood
Holdings. The deal also marks the reuniting of RHJ chief executive
Leonard Fischer with Kleinworts. He headed the City bank for more
than two years when it was owned by Dresdner Bank, before departing
in 2002 over what was called “differences of opinion” on the best
way to run the firm.
RHJ’s assets include some former investments of New York-based
Ripplewood. It currently owns or has stakes in seven companies, six
of which are based in Japan. Collins is credited with helping to
revive the collapsed Long-Term Credit Bank of Japan (LTCB), which
became Shinsei, after Ripplewood headed an investor group which
raised more than $6 billion in an IPO in 2005.
After the three transactions, Commerz and ING are effectively out
of international private banking. Bank Vontobel in July bought
Commerz’s Swiss business while Liechtenstein-based LGT Group took
over Dresdner Banks’ Swiss Unit.
Regulatory assault
Further attrition is expected in the Swiss and Liechtenstein
private banking markets, which have been subject to strong
regulatory assault and where more foreign players may decide on
divestments. Swiss domestic private banks believe that, like Baer,
they can expand as foreigners withdraw.
McKinsey analysts expect smaller private banking operations with
less than €5 billion in assets under management and which chiefly
offer offshore services to be absorbed by bigger players. Credit
Suisse sees “a lot more opportunity” for private banking purchases
at home, according to chief executive Brady Dougan, talking
recently.
Finally, several big banks are signalling they are in the market
for a private banking buy. Gerard Aquilina, vice-chairman of
Barclays Wealth, says the bank would be prepared to go for a
business at least the size Julius Baer in a “major transformational
buy”, to achieve its target of ranking in the top five private
banks in the world.
At the same time, Bank of New York Mellon is ready for wealth
management acquisitions across the US as well as several key
overseas markets.
