In the alien financial world wrought by
the credit crisis, several banks seem to have gained a competitive
advantage for their global wealth management businesses. If the
credit crisis does not trigger any more surprises, then these
players should have a real head start on their rivals.

The wealth management groups poised to be active consolidators,
after successfully attracting client inflows throughout the crisis,
as well as making acquisitions in the last few weeks of turmoil,
are already becoming apparent.

“I think we are now coming to the moment of truth in the market and
I am sure we will see some fascinating things,” says Boris
Collardi, chief operating officer of Julius Baer.

“There will be consolidation opportunities,” adds Collardi, whose
bank sees itself as a strategic buyer of other firms.

In Europe, BNP Paribas has bulked up significantly
with its E14.5 billion ($19.9 billion) acquisition of much of
Benelux group Fortis, while in the US the combined Bank of
America/Merrill Lynch takes on gargantuan new scale.

BNP declared it will now be the number one private bank in the
eurozone after the Fortis deal. On a pro forma
basis after the transaction closes, BNP’s asset management business
will become one of the top five in Europe with E549 billion; its
wealth management arm will boast E214 billion in assets under
management.

Among major European banks, HSBC still leads BNP
in private banking, with its E310 billion of client assets under
management globally.

Deutsche Bank ranks as the biggest direct eurozone
private banking rival to BNP, just behind the French group with
E210 billion, according to industry data. This is based on those
two banks’ year-end 2007 AuM totals, so is not strictly comparable
with BNP’s new total.

The breakup of Fortis, meanwhile, means that a major private bank,
in the shape of the ABN AMRO wealth operations in
the Netherlands and overseas, is now owned by a government.

After its E16.8 billion nationalisation of Fortis/ABN operations in
the Netherlands, the Dutch government has become owner of some
premier private banking brands, including Germany’s
Delbrueck Bethmann Maffei and Banque
Neuflize OBC of France owned by ABN. In addition, another
top wealth name, Fortis MeesPierson, is staying
with ABN.

The plan is for the Dutch central bank to fully integrate of all
the businesses it has nationalised, creating a combined banking and
insurance company with 45,000 employees, before it approaches the
market either via an IPO or sale to a stable bank after the crisis
has subsided, PBI understands.

Another bank felt to have made a strategically clever move is
Barclays Wealth, which has gained valuable
presence in North America by acquiring Lehman
Brothers’ Private Investment Management business. This has
assets of $50 billion, 12 offices in the US and Latin America and
about 850 employees.

The deal forms part of the purchase by Barclays of the Lehman
Brothers Capital Markets and Investment Management operations in
North America.

This new partnership brings scale, talent and expertise to Barclays
Wealth, CEO Tom Kalaris says.

Kalaris adds: “We have for some time talked publicly about our
ambitions to enter the US; the world’s largest wealth management
market. This acquisition gives us a tremendous opportunity to
accelerate our strategy; moving from a standing start to a
significant presence in a very short space of time.”

According to Barron’s data, Barclays Wealth was the 19th largest
wealth manager in the US with $71 billion under management as of
mid-year.

In Britain, the proposed Lloyds TSB acquisition of
HBOS would create the fourth-largest UK private
client manager, with a combined pro forma of £34.3 billion of
assets under management.

The third largest in the UK would remain UBS, with
its £37 billion, according to 2007 data recently issued by PAM, the
wealth-tracking service. The two biggest UK private client managers
are Barclays and Coutts, with £48.8 billion and
£42.9 billion respectively at the end of last year.

The Lloyds-HBOS merger plan has not lifted uncertainty about St
James’s Place Wealth Management, a highly-regarded client house
around which speculation has recently surfaced about its continued
majority ownership by the ailing HBOS.

Meanwhile, industry talk suggests HSBC is positioning for a
strategic deal in wealth management and other financial sectors.
However, the UK-based bank has played down talk it would be
interested in UBS or other Swiss private banking properties.

Indeed, HSBC could be prepared to go for much bigger fish, after
recently pulling out of an acquisition agreement for Korea
Exchange Bank.

According to analysts, it is astutely waiting for key acquisition
opportunities if a weakened major bank becomes available at a
bargain-basement price, enhancing HSBC’s current franchises in
North America, Europe or Asia.

Elsewhere, Coutts provided a stable and solid wealth franchise for
Royal Bank of Scotland, which looks likely to be effectively
nationalised via a government stake of up to 60 percent.

Client balances remained at “very healthy levels” during the
crisis, with the marginal amounts of money moving out balanced by
new business, according to Coutts sources.

In Switzerland, Credit Suisse (CS) has embarked on
a charm offensive to ensure it is perceived as a ‘winner’
institution, reiterating plans to hire another 1,000 advisers by
2010.

CS chief executive Brady Dougan says the bank’s strong balance
sheet and good client flows in both investment banking and private
banking have put it in a position to benefit when the global
markets finally rebound.

In Spain, Grupo Santander has taken advantage of
industry stresses, agreeing to acquire the rest of Sovereign
Bancorp in the US in a stock deal worth $1.9 billion. This is the
latest bank hurt by the crisis to have been snapped up by Santander
chairman Emilio Botin – his bank this year also bought
Alliance & Leicester and branches and deposits
of the failed Bradford & Bingley in the
UK.

The BoA/Merrill behemoth

For sheer scale, nothing rivals the size of Bank of America and
Merrill Lynch once their planned $45.3 billion merger goes through.
The combined company will have almost 20,000 brokers worldwide,
assuming chief executive Kenneth Lewis and Merrill CEO John Thain
succeed in mitigating defections by advisers.

Still, the combined group now towers above the competition. Adding
BofA’s private client assets under management total to Merrill’s
$1.75 trillion gives a grand total of $2.5 trillion. This
significantly outstrips the hitherto global leader, UBS with its
$2.04 trillion as of end-2007.

Questions have been raised about integrating a brokerage house like
Merrill within what is essentially a retail and corporate bank.
Acting to give Merrill a say at the highest level, Thain is to
become the head of a new unit entitled Global Banking, Securities
and Wealth Management. But there has been no announcement over the
future position of Robert McCann, Merrill’s current head of global
wealth.

New York industry talk suggests Thain, mindful of fitting the
brokerage model into BofA, may divest some wealth operations at the
combined company, such as US Trust with its blue-chip client list
and Merrill’s own similar well-regarded First Republic arm.

Robert Ellis, a wealth specialist with US consultancy Celent,
predicts that Thain will significantly remake the investment
management side of the combined company, including spin-offs, in
order to ease the way to full integration.

What is clear is that BoA and Merrill will still have the
overwhelming majority of their clients located in North America,
meaning that their main competitive threat will be at home rather
than overseas – at least for the time being. Some 90 percent of
Merrill clients are US based and BofA has had virtually no wealth
presence outside the US.

Citi consults the lawyers

Citigroup had planned a similar giant banking
combination, with a $2.2 billion offer for the banking operations
of Wachovia, an institution with traditional
strengths in wealth management. But the California-based
Wells Fargo came in with a counter offer for the
entire bank for $15 billion, sparking a suit by Citi for
compensation of up to $60 billion.

The Wells Fargo deal will create the largest bank branch network in
the US. It also brings Wells Fargo the third-biggest US securities
brokerage and Wachovia’s Evergreen mutual fund unit with more than
$250 billion in assets, adding to Wells’s existing
businesses.

Asian opportunity

Asian banks keen to invest at rock bottom prices in their Western
financial services counterparts have an unbeatable
opportunity.

In some cases, gaining clout and expertise in wealth management is
a major priority, as seen with Bank of China’s
$378 million purchase of 20 percent of France’s La Cie
Financière Edmond de Rothschild. The partnership deal,
marking the first strategic investment of a Chinese bank in a
euro-zone peer, is aimed at boosting the Chinese lender’s European
product expertise and distribution capacity.

Japan’s Mitsubishi UFJ Financial Group agreed a
reworked $9 billion investment in Morgan Stanley,
in a deal giving it a 21 percent stake in the struggling US
investment bank. That will give the Tokyo company a valuable
entrance point into a restructured Wall Street as well as the
international wealth management business.

In Australia, negotiations by Suncorp-Metway, a
major bancassurer to sell its banking and wealth management arms
were abandoned after the Canberra government moved to guarantee all
banks’ deposits and debt.

Commonwealth Bank of Australia was reportedly the
most likely buyer for the Suncorp assets, but the company said that
it had terminated talks because it was unlikely to receive offers
“reflecting the operational or strategic value” of the units.

Canadian soundness

Meanwhile, Canada’s banking system is now judged the world’s
soundest after the credit crisis.

A survey by the World Economic Forum found that, as bank failures
shook world markets, Canada retained the strongest banks, following
by Sweden, Luxembourg and Australia.

Major Canadian lenders, including Royal Bank of
Canada and CIBC, are expected to be
strategic buyers of banking assets, including weakened US banks, in
order to build large North American financial services
empires.

RBC is also expected to be a consolidator in wealth management,
acquiring weakened rivals to grow its own global banking
capability.