Asset management M&A to rise

Weaker American banks and other financial institutions will continue to sell off large asset management operations to raise capital, according to a new report from Freeman, an investment bank.

The latest edition of Freeman’s twice-yearly asset management industry overview estimates that American banks may see more than $1 trillion (£610 billion) of new credit losses over the next 18 months, on top of the $140 billion of losses recorded over the first half of 2009.

With rising credit losses also predicted in Europe throughout 2010, increased demand for capital raising could lead to increased merger and acquisition (M&A) activity as banks sell off subsidiaries, including asset managers.

In the first half of 2009, M&A activity in the asset management sector slowed, with 74 transactions announced, compared with 119 in the first half of 2008.

Whilst the number of deals fell, total size of deals increased by $1 trillion of assets under management.

However, this was the result of two significant transations: the sale of Barclays Global Investors to Blackrock, which accounted for $1.5 trillion of assets under management, and the $808 billion asset merger of Crédit Agricole Asset Management with Société Générale Asset Management.

The overview says that whilst fund inflows are stabilising, there is a contrast between investors’ increased willingness to take market risk and continued reluctance to take liquidity risk.

American household net worth has fallen by $12.3 trillion since 2007, a 20% decline. This has been driven by falls in property, accounting for 32% of total losses, and equities and collective investments, which represent 45% of total losses.

Whilst net worth has fallen, personal savings have grown from 0.6% in 2007 to 4.4% in the first quarter of 2009. This trend towards higher savings rates will benefit asset managers globally.


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