LONDON - If you're an American money management firm with bucks to blow, you might want to look across the Atlantic to where European firms are closing the books on one of the bloodiest and tightest years ever.
Experts say many of the banks and insurers here are looking at ways to minimize exposure to the asset management sector by seeking buyers for their damaged money management businesses or by selling off unprofitable units.
Others are outsourcing administration or specialist investment activities such as U.S. or emerging market equities in the attempt to reduce costs.
Earnings across the board are down, with few exceptions.
Firms leveraged to growth equities, such as AMVESCAP PLC, London; UBS Global Asset Management, Zurich; and Danske Capital, Copenhagen; were among the worst affected.
AMVESCAP's 2002 earnings fell 33% on the previous year, driven by client outflows and underperformance of the markets. UBS Global's earnings last year also dropped 33%, while Danske Capital, the investment unit of one of Denmark's largest banks, fell 27%.
London-based insurer Aviva PLC reported Feb. 26 that earnings at its investment arm, Morley Funds Management Ltd., fell 82% during 2002, prompting speculation the firm would consider selling the operation.
Aberdeen Asset Management, Aberdeen, Scotland, saw earnings plunge 54% in its fiscal year, which ended Sept. 30. Taking their toll were falling markets and bad publicity over major losses at several of its retail trusts that were marketed to investors as risk-free.
This fallout in the sector was the subject of a research report by Morgan Stanley & Co., London, analyst Huw van Steenis. He said the publicly quoted U.K. money managers were trading around 12.6 times expected 2003 earnings. That was compared with the average in the United States, where the listed firms were trading at 13.6 times Morgan Stanley's estimated earnings.
AMVESCAP PLC, whose London shares were trading £2.80 last week, was valued at less than 12 times 2002 earnings; Friends, Ivory & Sime was valued at 15.5 times earnings; Aberdeen was valued at 5 times earnings.
Expected to drop
Although Mr. Van Steenis expected these valuations had room to drop, he believed mergers and acquisitions would continue this year.
"There are still traditional players out there who lack certain capabilities who would consider buying. There is definitely scope for insurers to sell," he said.
It was a view shared by Andrew Nason, a banker with Lazard in London.
"The asset management unit may be running smoothly, but if you have a parent facing a liquidity crisis, who needs cash in a hurry, then management often decides to sell on that basis," said Andrew Nasser, a banker with Lazard in London.
One example is Commerzbank AG, Frankfurt. Facing record losses at its retail and investment banking divisions in 2001 and 2002, the company's board hired Goldman Sachs & Co., London, to find a buyer for its money management units, including Jupiter Asset Management, London, and Montgomery Asset Management, San Francisco.
Zurich Financial Services AG, Zurich, is regularly cited as a seller of its U.K. subsidiary, Threadneedle Asset Management, London, at the right price.
Allianz AG, Munich, already under pressure from losses at its Dresdner Bank subsidiary, has stated it will sell a Chicago-based money management subsidiary, Cadence Capital Management LLC, when valuations improve.
Credit Suisse Group AG, Zurich, under massive pressure over losses at insurance subsidiary Winterthur, didn't disclose the earnings of its money management unit when it reported its 2002 earnings results last week. The group overall reported its biggest loss, at 3.3 billion Swiss francs ($2.4 billion). Informed estimates suggested earnings at Credit Suisse Asset Management, Zurich, fell by as much as 10%, led by institutional client outflows in its key U.S. market, where investment performance has been subgrade.
The carnage has attracted investment bankers.
Calls every day
"There isn't a day going by that I don't get a call from someone proposing some sort of a deal," said the chief executive at one money management firm, who preferred not to be named.
"Sometimes it's a book (an information memorandum) proposing the sale of a whole business ... more often than not it's a unit - such as a trust - or someone looking to sell off a desk (a unit within a money manager's investment team)," he said.
Gilles Glicenstein, chief executive officer of BNP Paribas Asset Management, Paris, a firm that would like to make a money management acquisition or do a joint venture, said his desk has been swamped with information of businesses for sale.
While he decidedly ruled out making a big acquisition this year, he did believe there would be "some activity."
2002 wasn't a good year for BNPPAM, which saw its operating income fall 11.4% to €784 million. Its French rivals didn't fare much better. At SG Asset Management SA, earnings fell 7% to €237 million, while earnings at AXA Investment Managers - including its majority-owned subsidiary Alliance Capital LLC, New York - fell 8% on the previous year.
Others also circling
Investment bankers aren't the only ones circling overhead.
Alan Shortell, a managing director of international business development at New York Life Asset Management, Parsippany, N.J., recently visited Europe on the hunt for small money managers considering outsourcing the management of their international portfolios as a cost-saving measure.
"The firms are under pressure there at the moment and I can confirm a trend for them to look at reducing costs and increasing efficiencies by outsourcing some of their investment capabilities," he said.
Cazenove Asset Management, London, recently decided to do just that. It outsourced its entire emerging markets desk to First State Investments, the Edinburgh-based firm owned by Commonwealth Bank of Australia, Sydney.
Another "large well-known" money manager based in New York also is touring Europe in the next two weeks looking for similar opportunities, another source confirmed.
"I think they (American companies) can smell blood. The thing is there are so many balanced mandates still around in England. ... They are still running international money even though they don't have the resources or the expertise," the source said.
Other investment firms might be looking for opportunities, too.
John Hodson, chairman of Singer & Friedlander PLC, London, whose money management unit last week reported a 40% slide in pre-tax earnings, said his firm had considered making an acquisition last year.
They didn't because vendors' prices still were too high.
Instead, the firm, which has £3.6 billion in assets under management, now is looking at poaching an entire investment team from rivals.
"Trading conditions in the industry are currently such that an increasing number of teams are disposed to moving, and we are in discussions with a number of potential targets," Mr. Hodson said.