Canadian banks have set their sights on acquiring foreign asset managers, recently pulling the trigger on several key deals as they look to build their wealth-management capabilities and spur growth.
“Banks are focusing on growing fee-based revenue,” says Raj Kothari, partner and leader, national asset-management practice, with PricewaterhouseCoopers LLP in Toronto. “And what could be an easier fee-earning opportunity than asset management?”
Asset managers provide banks with a stream of reliable revenue at low risk — and asset managers, Kothari says, require less capital to grow relative to other businesses.
Acquiring foreign asset managers gives Canadian banks an opportunity to diversify geographically, leverage asset-management capability across borders, cross-sell products and achieve greater cost synergies.
In July, Toronto-based Canadian Imperial Bank of Commerce bought a 41% stake in Kansas City-based asset-management firm American Century Investments for US$848 million in an all-cash deal. American Century manages US$112 billion in assets for institutional and retail clients and has offices in Missouri, California, New York, London and Hong Kong.
That is only one of the several wealth-management acquisitions in recent months. Some others:
> Last autumn, Toronto-based Royal Bank of Canada bought Britain-based Bluebay Asset Management PLC, which specializes in managing fixed-income products, for £963 million ($1.6 billion). In July, RBC launched Bluebay Monthly Income Bond Fund, the first product to be managed by Bluebay and marketed by RBC for the Canadian market since the deal.
> In January, Toronto-based Bank of Montreal bought Hong Kong-based Lloyd George Management, a portfolio manager specializing in Asian and emerging markets, for an undisclosed amount. The purchase of Lloyd George, which manages $6 billion in assets, will allow BMO to provide its clients with access to global investment strategies, according to the bank’s senior management at the time of acquisition.
In addition to these transactions, management at Toronto-based Bank of Nova Scotia has made it clear in recent statements that Scotiabank is interested in making wealth-management acquisitions in emerging markets, including Asia and South America.
In buying international asset managers, Canadian banks are trying to capitalize on a number of key strategic opportunities. These include meeting the investment needs of the baby-boom cohort that is entering the retirement years, as well as the rising new class of affluent individuals in emerging markets.
“It’s quite a transformation from how things were 10 to 15 years ago,” says Kothari, regarding the emergence of global wealth.@page_break@Banks around the world also are anticipating the prospect of a huge intergenerational wealth transfer over the next 25 years, he says, and they want to be in a position to capitalize.
For Canadian banks, acquiring foreign asset managers allows them to build their asset-management capabilities, which allows the banks to offer their domestic clients strong global asset management and provides potential new foreign markets for the banks’ existing lineup of products.
The U.S. asset-management market, in particular, is becoming more attractive to Canadian banks, Kothari says, as Canadian firms look to take advantage of strategic opportunities, including a vast pool of consumers looking for investment guidance. The U.S. savings rate has been on the rise since before the credit crisis, during which it dipped into negative territory.
In June, RBC elected to sell its U.S.-based retail bank, RBC Bank (USA), to PNC Financial Services Group Inc. for US$3.6 billion, saying that it wanted to redirect its focus in the U.S. to growing its wealth-management and capital markets businesses.
And both BMO and Toronto-based Toronto-Dominion Bank have significant U.S.-based retail units that could eventually be leveraged to build more significant wealth-management businesses in the U.S.
Finally, Canadian banks are looking abroad in part because of the lack of suitable targets in Canada.
“If you look at asset managers in Canada,” says Shane Jones, managing director and head of Canadian equities with Scotia Asset Management LP in Toronto, “there’s really not a lot available for sale.”
Banking analysts generally laud CIBC’s acquisition of American Century as being a relatively low-risk, cautious way for that bank to re-enter the U.S. market. The bank has studiously avoided the U.S. after several well-publicized missteps in recent years.
“It gives CIBC a big opportunity in the U.S.,” says Gavin Graham, global investment strategist with Mississauga, Ont.-based Excel Funds Management Inc. , “but also a big opportunity to expand internationally.”
CIBC management says the acquisition will allow the bank to participate in American Century’s existing strong business in the U.S. and internationally. It will also provide CIBC with the opportunity to sell its Canadian asset-management products and services to clients in the U.S. and, conversely, to give its Canadian clients access to American Century’s asset-management expertise. CIBC is particularly interested in using the American Century deal to build its Canadian institutional business.
“We have a suite of products now,” says Victor Dodig, senior executive vice president and group head of wealth management at CIBC, “that we can [use to] go to the Canadian institutional marketplace to raise assets in a significant fashion over time.”
CIBC now holds 10.1% voting rights in American Century, whose majority owner is the Stowers Institute for Medical Research. IE
The target: Foreign asset managers
Canadian banks look abroad to diversify, cross-sell products and boost fee-based revenue
- By: Rudy Mezzetta
- August 2, 2011 October 30, 2019
- 09:51