European banks strapped for capital might be under pressure to sell off their money management businesses.
The announcement on Sept. 12 by Societe Generale SA, owner of TCW Group Inc., to sell off some of its assets “is just the tip of the iceberg,” said John Siciliano, chairman of money manager consultant Avondale Strategies LLC and advisory partner at investment banking boutique Grail Partners LLC in San Francisco.
“We're entering into a much more intense period in the industry in terms of transactions, obviously starting in Europe.”
Sources said if bank funding problems continue or worsen into 2012, others — including UniCredit Group and BNP Paribas SA — will need to consider shedding assets, including their money management businesses.
French banks in particular are under heavy funding pressure stemming from their exposures to sovereign debt issued by troubled eurozone economies such as Greece, Portugal, Ireland, Italy and Spain. Moody's Investors Service downgraded a notch the long-term credit ratings of SocGen to Aa3 and Credit Agricole SA to Aa2 last week amid plummeting share prices.
SocGen and Credit Agricole both lost as much as one-third of their market values within the first two weeks in September, but since have slightly recovered. The Stoxx Europe 600 Banks index fell 7.93% so far this month.
Bank funding stress remains “a key risk” in Europe, according to a research note to clients published by Morgan Stanley & Co. International PLC on Sept. 9. “Absent material policy response, this may lead many banks to shrink books, and the risks of a credit crunch in Southern Europe are rising.”
“To some degree, we're back to 2008 when capital-challenged banks turned to their crown jewels — their asset management businesses — because buyers will pay higher multiples for certain fund managers,” said Benjamin F. Phillips, a partner at Casey, Quirk & Associates, Darien, Conn. “You'll see the same type of discussions taking place now.”
However, Mr. Phillips warned that “multiples are higher when managers are strong and healthy. Selling an underperforming asset isn't going to do much to help raise capital because you can't secure a decent price in this environment. That's the challenge for the banks.”