Dexia Asset Management will be a hard sell, with likely suitors being other banks and insurers with existing money management units able to integrate a business that has been largely dependent on captive assets from a troubled parent company.
Dexia SA on Oct. 20 announced the sale of its money management subsidiary as part of a major restructuring following grave funding problems, becoming the first major victim of the eurozone crisis.
Among institutions considering a purchase of Dexia Asset Management, the Royal Bank of Canada stands out as the lead candidate because of existing ties with the parent company.
Other banks with money management businesses that could be considering a bid include Amundi Asset Management's owners Credit Agricole SA and Societe Generale, and Natixis SA, sources familiar with the matter said.
However, others say regulators will frown on any M&A activities by European banks unless they are well capitalized.
Private equity firms such as Hellman & Friedman, TA Associates, J.C. Flowers & Co., Bain Capital and CVC Capital could make a bid if the price is at bargain-basement levels, but otherwise they will find it difficult to swallow a business with a relatively low potential for growth and profitability, according to several sources.
“I don't think anyone will be leaping at the opportunity to buy” Dexia AM, said Keith Baird, asset management analyst at Oriel Securities Ltd., a corporate and institutional brokerage based in London.
Said Kevin Pakenham, co-founder of Pakenham Partners Ltd., London, which advises on asset management mergers and acquisitions: “It may end up a long drawn-out struggle” to find a buyer for Dexia AM. Mr. Pakenham is not involved in the sale.
“I suspect (Dexia AM) doesn't have a lot of third-party assets, so the buyer must have existing operations to continue servicing the assets currently managed for Dexia's banking and insurance businesses,” Mr. Pakenham said. “The portion of the (captive) assets will have a lot of bearing on the value” of any transaction.
The decision to sell Dexia AM comes at “a particularly difficult time, especially considering the other properties owned by stressed European banks,” Donald H. Putnam, managing partner of Grail Partners LLC, San Francisco, said in an e-mailed response to questions.
Under a blueprint to tame the eurozone crisis announced Oct. 27, European banks will need to raise an aggregate e106 billion ($147 billion) to meet capital requirement shortfalls. Many will also suffer losses from the 50% write-down on Greek sovereign debt imposed as part of the rescue plan, sources said.
Benjamin F. Phillips, partner at Casey, Quirk & Associates LLC, a management consultant for money managers based in Darien, Conn., added: “We believe eurozone banks (with asset management subsidiaries) that would fail a stress test given a 50% haircut on Greek sovereign debt probably control roughly one-third of European (assets under management) overall, and nearly half of continental European AUM.”