UniCredit's decision last month — almost a year after the top Italian bank said that it would consider all options for its $274 billion money management operation — removed what was the biggest potential prize in play on the mergers-and-acquisitions scene.
Over the past three years, a number of hefty lenders, including
Bank of America Corp. and
Barclays PLC, unloaded their asset management businesses to bolster capital that had been depleted during the global financial crisis.
UniCredit executives said in a statement that the decision to work on a “focused strategy” to build on Pioneer's recent organic growth was cemented by the “market evolution of the past 12 months,” which saw both the money manager's revenue and profits jump 13% last year.
Some observers saw politics lurking behind UniCredit's decision amid apparent resistance to the idea of selling a major Italian-owned asset manager to a French bank such as Natixis Global Associates, which was seen as the top bidder.
In the global market, broader factors could be prompting banks to put a higher value on the advantages of owning a money management affiliate.
Laurence D. Fink, chairman and chief executive of
BlackRock Inc., predicted that stricter capital requirements under the Basel III global bank regulatory standards will leave banks more interested in acquiring money management affiliates for the steady revenue that they provide without taxing the parent company's capital base.
“I'm sure that's going to happen,” said Richard Bové, a banking analyst with Rochdale Securities LLC. He cited asset management as one of the fee-based businesses that banks will pursue because of the attractive mix of high returns on investment and low capital requirements.
The recent wave of divestments was, at the same time, a sign of weakness for banks and evidence of just how attractive that asset management is, insofar as there proved to be a ready market for those businesses even during a time of extreme stress, Mr. Bové said.
There have been many forays by banks into money management over the years, ending more often than not in disaster. Opinion among investment bankers and analysts remains sharply divided as to whether the lessons of past failures can lead to better outcomes next time.
CONTINUED DIVESTITURES
Donald H. Putnam, managing partner of investment bank Grail Partners LLC, predicted that the business culture prevailing at banks will remain “inimical to portfolio managers.”
Although the landscape is clearly tricky, the allure of a steady revenue stream with few capital requirements will remain compelling for banks, said Benjamin F. Phillips, a partner and director of research for money manager consultant Casey Quirk.
If a bank already owns a money manager, it is a non-capital-intensive source of fee income, but buying a sizable one now, where the entire purchase price were an intangible asset, would amount to a considerable capital constraint, said Aaron H. Dorr, managing director of Sandler O'Neill & Partners LP's asset management advisory practice.
While there is a consensus that banks with money management units will be eager to expand them, some bankers said that the cost of entry now would cut against the argument that it is a capital-light commitment for banks.
For banks, an annuitized money manager revenue stream can be attractive, but with money manager price-earnings ratios higher than those of banks, a bank would still have to have “a really good reason” to buy a money manager, said Brian A. Murdock, chief executive of TD Asset Management Inc.
The universal banking model, with its cross-selling opportunities, remains stronger in smaller asset management markets in Canada and Europe than in the United States, where open architecture is the rule and examples of banks' successfully owning money managers have been few and far between, he said.
Even so, in the United States, the evolving needs of retail and mass-affluent investors in retirement could provide new opportunities for banks as providers of both advice and the money management capabilities needed to implement that advice, Mr. Murdock said.
REGIONAL FLAVOR
Some market watchers think that the regional flavor to the next wave of bank interest in asset managers could prove stark.
Interest in building asset management franchises now is likely to be stronger in markets where captive distribution remains more robust, more so in Canada and continental Europe than in the United Kingdom or the United States, said Kevin Pakenham, a veteran investment banker and founder of boutique advisory firm Pakenham Partners Ltd.
But if two years ago, the presumption was that banks were likely to dispose of their asset management affiliates, today the attractiveness of retaining and strengthening those businesses appears clearer, he said.
Most observers expect that banks that have disposed of their asset management affiliates in recent years will stay out of the sector. Those that have remained, however, are likely to look to make further investments, especially if they have been successful at building third-party businesses.
Douglas Appell is a reporter for sister publication Pensions & Investments.
