Large banks might have shed their money management businesses to raise capital after the financial crisis, but some of their smaller brethren are back in the market for such units.
Sources said those banks have their eyes mostly on businesses serving retail clients. Whether that interest extends to institutional clients is another question.
Although recent deals involved more retail-oriented managers, Jeffrey Brand, Chicago-based managing director and head of bank mergers and acquisitions at Silver Lane Advisors, said institutional money managers as well as defined contribution plan record keepers are in play.
“Institutional asset managers are more sophisticated, scalable and performance-oriented,” he said. “The last four years, there was little focus on bank earnings. It was all about asset quality and capital concerns. It was, "Do we have enough capital to keep going?' We're coming out of that cycle now ... No bank made lots of money during those years. Their earnings power was very low. Now the shift is on from capital and asset quality to earnings.”
The largest recent acquisition was the April sale of Atlantic Trust Private Wealth Management by parent Invesco Ltd. to the Canadian Imperial Bank of Commerce for US$210 million. Atlantic Trust manages $20 billion in wealth assets, but also manages money for endowments and foundations.
Last fall, First Republic Bank, San Francisco, announced it was acquiring Luminous Capital Holdings LLC, a $5.5 billion money manager for family offices and foundations.
The renewed interest among banks in money management stems from the desire to find less volatile sources of revenue in a climate of increased regulations affecting everything from bank capital to credit cards, said Mr. Brand. (Silver Lane assisted on the First Republic-Luminous deal.) “It's driven by fee generation,” he said, and not as much for investment performance. The banks “assume the performance is good” with the managers they're seeking.
Traditionally, banks make on average 75% to 85% of their earnings from the interest spread on loans, with the remaining 15% to 25% from fee-generating businesses. Regulations like those proposed under Basel III, and those imposed by the Consumer Financial Protection Bureau, “not only increase costs, but also limit fee opportunities like interchange fees and proprietary trading and investing. Asset management is seen as a way to replace lost revenue opportunities,” Mr. Brand said.