Asset managers

Bundling together investment banking wizardry with asset management heft produces dubious results. The supposed benefits of selling banking services to large investors are hard to produce in practice, which means banks seeking ready cash find it easy to rationalise any decision to sell off their asset management arms. Bank of America this week became the latest, selling its long-term asset management operations to Ameriprise for about $1bn. At nine times earnings, estimates Credit Suisse, that was far short of the 18 to 20 times that such independent outfits attract in the public market – a gap that may be deterring less motivated sellers. For example, Morgan Stanley is still considering a sale or joint venture for its retail fund business.

This is the culmination of a longer US trend. Regulators there take a dim view of brokers shovelling bank-branded products to captive clients, while asset allocators prefer independent outfits. Meanwhile, as a business asset management tends to underperform in bad times – as investors rush to withdraw funds – yet is unable to shine against investment banking in the good. Banks have also not proved adept at running asset-gathering operations while controlling costs.

Moreover, banks have found their middle-of-the-road operations caught between the rise of alpha-chasing hedge fund managers and the growth of cheap exchange-traded funds. European banks have started to respond. But deals so far, such as Lloyds Banking Group’s sale of Insight, or Intesa’s planned sale of Fideuram, have involved reasonable quality, third-party operators. Around Europe, where the International Monetary Fund estimates banks need to raise about four times as much capital as in the US, many markets remain dominated by managers selling their own products through owned distribution channels; that makes them less appealing to potential buyers. Getting out of asset management makes sense. But it won’t plug Europe’s capital shortfall.

E-mail the Lex team confidentially

OR

Post public comments

The Lex column is on Twitter