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February 2, 2009

News Digest

Perpetual looks to partner in UK... Santander compensates Madoff investors... Cost control keeps Barclays lean...

By Verdict Staff

Perpetual looks to partner in UK…

Santander compensates Madoff investors…

Cost control keeps Barclays lean…

SocGen, CA agree to merge fund units…

Hedge funds face regulators…

STRATEGY

Perpetual looks to partner in UK

Perpetual, Australia’s sixth-largest private banking business, is looking to partner with a UK private bank to help serve its high net worth clients internationally.

John Nesbitt, Perpetual’s CEO, spent a week in the UK holding meetings with wealth managers in the country, though he declined to say who he was speaking to. Nesbitt said he was looking for a tie-up with a private bank with a complementary model to Perpetual.

“We are just looking for a relationship with a UK private banking business, preferably in the boutique area, which does not have high net worth operations in Australia,” he told PBI. “We’re hoping we can co-operate in situations where we have clients working over here for six months of the year and, if people want, outside those areas too.”

Perpetual, whose private banking business had A$7.7 billion ($5.1 billion) in assets under management in June 2008, is Australia’s oldest and largest trust business.

 

STRATEGY

Santander compensates Madoff investors

Clients of Santander private bank, which lost money on investments following the liquidation of Bernard L Madoff Investment Securities, have been offered preferred shares in the Spanish bank in an effort to placate them.

The bank said it would “offer a solution” to clients invested in Optimal Strategic, its US equity fund, which would pay back the principal amount invested, net of redemptions, in the form of preferred shares with a coupon of 2 percent. Santander will have the option to buy back the shares in year 10 of the scheme under a call option. The offer does not include institutional clients.

“The group has taken this decision in view of the confluence of exceptional circumstances in the case at hand and on the basis of exclusively business considerations, namely the Group’s interest in maintaining its business relations with those clients,” a spokesman said.

Santander said the pre-tax cost of the gesture would be €500 million ($644 million), which it booked against its 2008 figures. In its results announcement, Santander announced profit in its Latin American private banking operations increased 17 percent to €522 million.

Most of that was from its operations in Brazil, where it is the fifth-largest player by assets under management (see PBI 244). It did not break out global private banking figures in its annual results presentation.

 

RESULTS

Cost control keeps Barclays lean

Profit before tax at Barclays Wealth – winner of PBI’s Outstanding Wealth Strategy award last year – increased 12.3 percent to £345 million ($502 million) in 2008, excluding the impact of the disposal of its closed life business.

Profit increased 119 percent including the £326 million sale of the unit, which contributed £104 million before disposal. Income for the year was exactly in line with the previous year, but operating expenses were reduced by 4 percent, generating the improved profit figure.

Total client assets increased 10 percent to £145.1 billion, with net new asset inflows and the acquisition of Lehman Brothers North American business offsetting the impact of negative market movements and the sale of the closed life business.

The bank reported growth in deposits and lending, which was partly offset by the impact of lower equity markets on fee income.

It also saw a hike in loan impairments from a low base of £7 million in 2007 to £47 million in 2008.

“This increase reflected both the substantial increase in the loan book over the last three years and the impact of the current economic environment on client liquidity,” according to the results statement.

Overall, profit after tax at the bank increased 4 percent to £5.3 billion.

 

RESULTS

Deutsche Bank hit by DWS write-downs

Deutsche Bank’s Asset and Wealth Management division made a full year pre-tax loss of €860 million ($1.1 billion) following a charge on intangible assets relating to DWS Scudder, its asset management business in the US, and injections into money market funds.

These injections included a provision of €39 million in relation to Deutsche’s commitment to repurchase auction rate securities (ARS) at par from retail clients following a settlement in the US (see PBI 242).

Deutsche Bank’s Private Wealth Management unit, which serves high net worth clients and families, saw net inflows of €10 billion in 2008, though there was a decline of €8 billion in the fourth quarter. In the Private and Business Clients business, a separate segment which focuses on providing private individuals and small to medium-sized businesses with traditional banking products, saw a decline in profit of 18 percent for the full year, at €945 million. Nevertheless PBC acquired 230,000 new clients in the fourth quarter and 800,000 for the full year, along with €15 billion in new assets for 2008.

 

MARKETING

HSBC launches $10 million rebrand

HSBC has launched a $10 million rebrand of its global private banking operations to bring it into line with the bank’s retail and Premier businesses.

A bank spokesperson said the move was a result of a review of its marketing and communications globally and would replace its former Assume Nothing campaign, which had been mis-translated in some territories as ‘Do Nothing’.

In an interview with the Financial Times, Chris Meares said the bank was “challenged by the fact we can do only what clients want to do – and they want to sit in cash”. That put strains on traditional private banking models, particularly when clients say they want to invest execution-only with no fees, he said.

“In the UK, you can’t get away with a custody charge, and we can’t turn around and say we’ll give no advice. We’ve got to get more done under the mandate,” he said in the interview.

 

REGULATION

UBS faces wider tax case

US tax investigators believe the number of American clients UBS allegedly helped avoid tax could be higher than the 17,000 first thought.

The Wall Street Journal reported several people involved in the case as saying investigators were also looking into whether other parts of the bank were involved. UBS denies any wrongdoing. New CEO Peter Kurer said in a January presentation it was prioritising a settlement with the Department of Justice on the matter in 2009 and a recovery of the bank’s reputation.

UBS first became embroiled in the controversy in 2007 after a tip-off from Bradley Birkenfeld, a former executive at the bank. He said it had been advising clients since 2002 that US clients did not need to disclose their identities to the Internal Revenue Service (IRS).

In a July 2008 statement, the Department of Justice issued a statement saying a federal judge in Miami had issued an order for the bank to produce records identifying US taxpayers with accounts at UBS in Switzerland who elected to have their accounts hidden from the IRS.

There has also been speculation UBS is looking into a sale of the US business, with reports it held talks with Wachovia Securities and Morgan Stanley late last year.

 

RECRUITMENT

EFG hires in Asia-Pacific, launches Chinese brand

EFG International has moved to enlarged offices in Hong Kong as it continues to hire client relationship officers in the Asia-Pacific region.

Despite job cuts and cost cutting at many universal and investment banks, EFG has moved to Austin Road, West Kowloon, in anticipation of further expansion over the next few years. EFG said most of its new hires had come from rivals including UBS, Citi, ABN AMRO, HSBC, DBS and Fortis.

The bank said its Asia business, and Hong Kong in particular, was growing quickly, with an increase in assets under management in the first six months of 2008 up 20 percent, though that will have been tempered by a difficult second half of the year. In a mid-November business update, EFG said overall clients’ AuM had been impacted by negative investment performance and market conditions. It said it would declare full year results on 25 February.

In Asia, the business now operates in Hong Kong, Singapore, Bangkok, Jakarta, Manila and Taipei. It also announced it was introducing its Chinese name to the region, 瑞士盈豐銀行.

 

MERGERS AND ACQUISITIONS

SocGen, CA agree to merge fund units

Société Générale and Crédit Agricole have signed an agreement to create a top 10 global player in asset management with combined assets under management of €638 billion ($822 billion).

The new entity’s ownership structure is 70:30 in Crédit Agricole’s favour. It includes the asset management arm of Crédit Agricole, and the European and Asian businesses of SGAM, Société Générale’s asset management business, as well as its asset management subsidiary in the US, TCW.

The unit will have more than €1.8 billion of net banking income and €0.9 billion of gross operating income. The deal creates three major benefits, according to the banks: a tailored product offering for institutional and retail clients, reduced production costs and extended geographical coverage.

It extends the co-operation between the two banks, which were tipped to join up on a wider level when SocGen ran into trouble at the start of 2008 following its €4.8 billion loss from rogue trader Jérôme Kerviel. They also have a significant brokerage joint venture, Newedge, a global top five player in derivatives clearing and execution.

 

PRODUCTS

Handelsbanken top on structured products

Handelsbanken has regained its position as the largest player in the Swedish capital protected products market after increasing its market share by 2 percentage points to 18.2 percent in 2008.

Swedbank, with a market share of 17.8 percent, was second, Nordea, with 13.9 percent, was third and SEB was fourth with 11.9 percent.

In 2008, new savings in the products in Sweden totalled SEK46.1 billion ($5.6 billion), according to VPC AB (the Swedish Central Securities Depository and Clearing Organisation), down from SEK94.7 billion in 2007. The money was mainly invested in equity-linked bonds.

Structured products have been criticised by some investment managers for offering unlimited downside risk and limited upside as counterparty risk becomes an increasingly real concern. Following the collapse of Lehman Brothers, some customers with Lehman issued products lost 100 percent of their investments on products which had been branded “capital-protected”.

Mats Nyman, a sales strategist for the products at Handelsbanken, said the decline in Sweden was more to do with a shaky investment environment than investors turning their back on capital protected products. He added the decline in new savings in the products needed to be set in the context of outflows at equity funds and individual share portfolios across the industry.

 

MERGERS AND ACQUISITIONS

Citi looks at Nikko sale

Citi could be ready to start listening to bids for Nikko Cordial, its Japanese brokerage, according to local press reports.

The US banking giant, which recently reported an $18.7 billion loss and announced wide-ranging changes to its business structure, has repeatedly denied suggestions it would offload the unit.

Following the loss and Citi’s partial sale of its Smith Barney brokerage to Morgan Stanley, Nikko could become the latest to be sold off as the divestment process at Citi accelerates.

According to Japan’s Kyodo news service, sources said Citi was studying selling of Nikko to some of Japan’s top banking groups and an auction was expected to begin soon. It said bids were expected to be several hundred billion yen. Nikko Asset Management was also said to be on the block.

Though it is reported Japan’s largest banking group, Mitsubishi UFJ Financial Group, could be interested, it remains unclear how many Japanese banks would be able to fund a purchase given their shaky financial position. The Bank of Japan recently announced a bailout package to buy back equities held by banks because of large losses on their investments.

 

PEOPLE

New UBS Japan chief targets cross-selling

UBS has appointed Toshiharu Kojima, the former Nikko Salomon Smith Barney CEO, as head of its Japan operations.

He will formulate and implement UBS’s business strategy in the country, including at its wealth and asset management units. The bank is looking to take advantage of the relaxation of firewall regulations in Japan, which will allow subsidiaries to consolidate operations and provide greater cross-business synergies. Kojima is also looking to step up cross-selling between the investment bank, asset management and private bank.

Kojima’s 35-year career started at Nomura before moving to Salomon Brothers Asia in 1983. He is most well known for his CEO role at Nikko Salomon Smith Barney, the Citigroup/Nikko Cordial joint venture, which he held between 1999 and 2004.

He will report to Rory Tapner, UBS’s Asia Pacific chairman and CEO, and Jerker Johansson, head of the investment bank.

Kojima is also in charge of the business’s regulatory relationships, as well as charity and community affairs programmes.

 

REGULATION

Hedge funds face regulators

Hedge fund managers were summoned before a UK government committee to explain their role in the current financial turmoil as pressure mounts for the industry to be better regulated.

Representatives from Black Rock, Marshall Wace, The Children’s Investment Fund and NewSmith Capital Partners appeared at the hearing. As well as being grilled about making money from short-selling banks, they were also questioned on self-regulation in the industry, which currently operates through the Hedge Funds Standards Board (HFSB).

In a memo to the UK committee, HFSB said there was no need for large scale financial reform of hedge fund managers in the UK, which had behaved responsibly. But it said it was working with international bodies, “delineate a global approach to hedge fund standards”.

Only 36 members are signed up to the body so far. Yet despite regulatory scrutiny, institutional managers remain largely committed to hedge funds, according to a report from SEI, a US processing and asset management business, and consultants Greenwich Associates. But they are increasingly demanding higher levels of transparency, client reporting and communication with managers.

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