Julius Baer's purchase of ING's Swiss private banking assets marks the start of a consolidation wave in the wealth management industry, insiders told the Reuters Global Wealth Management summit.
Baer will buy the ING's assets for 520 million Swiss francs ($505 million) -- the biggest acquisition in the European wealth management industry -- with Baer paying about 2.3 percent of assets under management (AUM) excluding surplus capital.
Before the financial crisis began, similar deals attracted prices above 6 percent of AUM. With valuations now low, buys are attractive as banks' liquidity worries recede and the capital market turmoil calms.
There are some opportunities now that didn't exist two years ago, HSBC's global CEO for private banking Chris Meares said in Singapore. There is no doubt with the industry profits coming down, valuations have got a little better, become more interesting at least for a buyer.
But if markets continue to firm, this situation may not last for long, prompting consolidators to move in on targets quickly before valuations recover.
There is a lot of hope that if the market continues to go up, then the valuations must go up, said Justin Ong, head of PricewaterhouseCoopers' Asia Pacific wealth management practice.
This could happen at either end of the private banking spectrum, with small firms being netted by slightly larger companies looking to bulk up and the really big players sniffing out weaknesses in rivals for possible mega-deals.
Barclays Wealth Vice Chairman Gerard Aquilina said her group would be prepared to acquire an entity the size of Julius Baer or bigger to reach its ambitious growth targets.
There could be a major transformational buy for us, he said in Geneva.
Spiraling regulatory requirements and costs springing from clients demands for improved transparency means banks could be forced to take on entirely new support teams and develop new technology, private bankers said.
Add this to clients' demands for more contact time to explain what advisers are doing with their hard-earned money, and cost pressures could become too great for some banks, forcing them to seek the infrastructure of larger rivals by selling up.
Competition is tougher, regulation is another important factor. You need to have an infrastructure to allow you to participate in today's environment, said Felipe Godard, JP Morgan Private Bank managing director and head of European International Markets.
My guess is that smaller players will be the first ones to look for consolidation to create critical mass, he said.
Large players at the Reuters Wealth Management Summit suggested private banks needed a critical mass of about $10 billion in assets to be competitive.
Probably if you are below 10 billion, either you buy another bank or you sell, said Guillaume Lejoindre, managing director of SG Private Banking (Suisse) SA.
Reyl & Cies Chief Executive Francois Reyl said the threshold depended on the specific kind of business of a private bank, but added that his Swiss private bank was in several discussions for possible acquisitions and aimed to double its size from 2.5 billion Swiss francs in assets under management by 2012.
This would only require a 10 percent increase in the bank's current staff of around 90, Reyl said, suggesting economies of scale were a factor in the bank's drive for acquisitions.
We're conscious of our size, but yes, we're a consolidator in the middle, he said. Small banks managing sub-500 million Swiss francs -- which clearly lack the scale -- these are good acquisition targets for us.
(For summit blog: http://blogs.reuters.com/summits/)
($1=1.029 Swiss Franc)
(Additional reporting by Saeed Azhar and Kevin Lim; editing by Karen Foster)