Among the latest entrants from the private equity industry into wealth management is Bermuda National Limited (BNL), a Bermuda-based investment company formed to specialise in financial services. It is paying £50m for a 62.5% stake in JO Hambros Investment
(JOHIM), a UK wealth manager which has been seeking its independence from owner Credit Suisse. JOHIM’s management and staff will own the rest of their company under the BNL deal.
BNL was established to take advantage of the opportunities emerging from disruption sparked by 2008’s financial crisis. Its primary investment is its ownership of Bermuda Commercial Bank Ltd (BCB), one of the island’s four licensed banks.
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BNL in turn is one of the primary investments of Utilico investments, a Bermuda-domiciled and London-listed closed-ended investment company which holds 45% of the Bermuda vehicle.
It joins RHJ International, another wealth “consolidation” player, which in 2010 bought venerable London private bank Kleinwort Benson from Commerzbank for £225m in cash. RHJ then went on to acquire Germany’s BHF-Bank from Deutsche Bank, in a €384m transaction.
A combination of Kleinwort and BHF, with the latter’s €36bn of assets formed a group with about $55bn of client holdings, although the two units operate separately and their figures are not consolidated.
Bridgepoint takes over Quilters
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By GlobalDataAnother private equity force, Bridgepoint, backed the management of discretionary management firm UK Quilter in buying out owner Morgan Stanley. This was followed by the acquisition of Cheviot Asset Management, in a transaction completed earlier this year. Terms were not disclosed.
The new Quilter Cheviot has total assets under management of more than £12bn of which Quilter contributes around £8.2bn and Cheviot £4.1bn.
At the same time as the JOHIM divestment, Credit Suisse agreed to acquire Morgan Stanley’s European and Mid-East wealth management unit, in a deal which doubles the Swiss bank’s UK client business. Terms were not disclosed but reportedly Credit Suisse paid around 1% for the $13bn client assets business.
Morgan Stanley thus follows Merrill Lynch in exiting from a major portion of the international wealth management business.
Both operations are believed to have been loss-making and the parent companies both preferred to concentrate on their key North
American businesses.
Julius Baer was the buyer for the Merrill business, paying owner Bank of America the equivalent of 1.2% of Merrill’s $84bn of international client assets, in a transaction scheduled to be completed this summer.
Meanwhile, London bank Schroders has got itself back around the UK private clients’ top table with a £424m deal to acquire Cazenove Capital. The Cazenove wealth business will add around £8.2bn of assets to Schroders’ current private banking assets under management of about £16.3bn.
Robin Stoakley, Schroders head of intermediaries, said that, as a result of the transaction, “we will certainly be a premier league player in private wealth management….”
Rising costs a constant companion
One underlying theme of M&A transactions in private banking in recent months is the rising costs of remaining a serious private banking player, analysts say.
The burden of a barrage of regulation in all major jurisdictions, the cost of investing in emerging growth markets in Asia and elsewhere
and the particular cost pressures for Swiss banking because of the strength of the franc are among the factors at play.
The influx of private equity funds available for investment in the wealth management industry, to back start-ups, support executives wanting to buy out their owners or for straight acquisitions, thus comes at an opportune time.
Some ventures are even going direct to clients to raise money. Ray Entwhistle, former chairman of RBS subsidiary Adam & Co, is
seeking private clients to back Scoban, his proposed new private bank. Scoban is now looking for up to a further £30-40m before
full launch, due next year.
Despite all the reshuffling of ownership, private bankers won’t concede that their beleaguered industry is bound for a deep round of consolidation, which will result in significantly fewer players in coming years.
While some firms like Morgan Stanley and Merrill Lynch are in retreat from the international stage, new entrants are making their
presence felt, including private equity firms.
Crucially, cost pressures have not yet caused margins and profits to deteriorate, at least in the UK private clients market.
According to data from ComPeer, a London- based research and consultancy firm, UK wealth pre-tax profits are currently at
record levels while margins remain buoyant.
Furthermore, total assets managed and/ or administered by UK wealth management firms reached a new record of £527bn at the
end of 2012, a 9.2% increase helped by rising stock markets.
