Three British lions join M&A feeding frenzy
The pace of private banking mergers and acquisitions has finally shifted up a gear as another E2bn has been pumped into the industry in the second half of October. The spending spree came this time from the British private banking majors – HSBC Republic, Royal Bank of Scotland and Barclays Bank (BPC). Each deal has significant strategic characteristics and it is worth considering how well-placed each business is in terms of absorbing the new partners.
The latest deal – HSBC Republic and Bank of Bermuda (BoB) – was the largest. The $1.3bn (E1.1bn) deal will eventually add a further $11.8bn to the private client AUM data. The private banking spending tally is almost $22bn. No doubt HSBC holdings’ chairman Sir John Bond was pleased to add another trophy brand to his private banking stable. However, HSBC Republic still only contributes 4 per cent to group pre-tax profits.
Nevertheless, in terms of an integration process, HSBC Republic’s senior management has now had vital experience with Safra and CCF. The BoB deal augments its global trust and administration capabilities.
On the down side, the bank has completed a rebranding exercise that may now need to be re-purposed to accommodate the latest member. On the other side of the deal table, even though BoB contributed 15.4 per cent to group pre-tax profits, it lacked the capacity to deliver a full-service wealth management proposition and the future did not look rosy in terms of broadening revenue lines.
Meanwhile, the Gerrard deal provides BPC with a major fillip in its local UK market. Interestingly, the gross private client earnings of Gerrard ($192m) are attractive in spite of tumbling assets under management at the firm in recent years. It is possible that a management overhaul by a committed private client operator could turn the business around.
Old mutual pulls out
Old Mutual has just divested its UK securities broking and fund management arms to the Secure Trust Group and Aberdeen Asset Management respectively, which gave rise to questions on the South African bank’s UK intentions. The Gerrard network will add value to BPC, which has long sought a broader UK wealth management capability.
The deal doubles BPC private client assets under management and may permit the operation to become a truly balanced full-service provider to the attractive middle market of HNW business. In essence, BPC strategy moving forward might draw inspiration from the Swiss powerhouses UBS and Credit Suisse, which have managed to build strong volume-based businesses for clients with a net worth between $100,000 and $1m.
Lastly, the RBS deal plays to the international private banking strengths of Coutts as well as adding a significant European franchise. RBS is acquiring Bank von Ernst via its Coutts (Switzerland) operation.
Bank von Ernst is a Zurich-based private bank with a German focus, although it also has some international exposure. It has branches in Monaco, Madrid, Miami, and Montevideo, Uruguay. The Latin American link is of interest as the bank sold Coutts’ $2.6bn client book to Banco Santander Central Hispano for $75m in May.
The $387m price tag for Bank von Ernst appears to be the most expensive of the three current UK deals on the table. Gross private client revenues are significantly lower compared to the others and the business as a whole. Yet observers have said that the deal price is half the amount RBS would have paid a year ago.
Bank von Ernst has 16,000 clients and around $20bn in client assets, making the average client account $1.25m. Hence, the client base is likely to be much more in line with the Coutts objectives of servicing higher-end HNW customers offshore. The business will be integrated with Coutts’ Swiss business.
Overall, the three deals mean that pricing of wealth management businesses is again at the forefront of senior management minds. But buying a business is one matter. Whether the businesses are well positioned to be bought or to absorb new entities is what will determine the real value of the investment in the end.
Sebastian Dovey is managing partner at wealth management strategy
think-tank Scorpio Partnership
