Banks will benefit from fund changes

BWhat happens next? US stalwart Bear Stearns has been sold to JP Morgan for peanuts. SocGen is clearing up the wreckage following unhedged derivatives dealing, while $18bn in asset ‘writedowns’ at UBS may lead to serious implications for the bank’s corporate structure. There is increasing talk of splitting the profitable wealth management division from the Swiss giant’s once infallible investment bank. Will the ‘one bank’ mantra, shouted from the Zürich rooftops, finally be laid to rest? What will happen to similar slogans adopted at neighbouring Credit Suisse, where asset management has struggled to integrate into a frequently restructuring private and investment banking group? Divide to prosper Germany’s Dresdner Bank, which is mooting a split into an investment banking and private and retail unit is the latest institution to be hit by the market’s need for restructure. The Dresdner Kleinwort investment bank has provided disappointing value for shareholders ever since it was purchased by the Allianz group. Wealth management, on the other hand, is highly profitable, and well regarded internally. Yet it has prospered specifically because of the group’s integration. Its mainstay products have been the derivative led structured solutions pumped out by the investment bank. Guaranteed products in particular are crucial to the success of Dresdner’s PWM unit. True, these can be bought on an open architecture basis if the investment bank is sold off, but it will no longer be so easy, convenient and economical to create products for private client use. Internal funds go F&C is another group experiencing a change of ownership. Friends Provident, the UK insurer currently holding a majority stake in the cross-border funds house, says that its strategic review has decided that because of a market moving to open architecture, it no longer makes sense for an insurance company to have an internal funds house. This is a debatable strategy, particularly as Friends has struggled to create shareholder value from elsewhere, while F&C has just returned to profitability. But F&C has seen, along with peer-groups like Schroders and Julius Baer, that in the current uncertain world, less assets often means more profits. It pays to show certain assets – particularly old-school balanced mandates – the door, especially if they are not delivering high margins, provided you can replace them by funds from distribution. These policies will clearly have a beneficial effect on distributors. As fund houses put less emphasis on retaining pension fund mandates, they invest in distribution outlets, products and fund managers, which should improve their brand and standing in the eyes of banks, wealth managers and insurance companies.