Indosuez Wealth Management is making a bold statement of intent in moving to buy the Asian private bank of Credit Industriel et Commercial (CIC) but would still remain short of the scale it needs in the region if it goes through, say industry observers. Hence Indosuez, part of French group Credit Agricole, is still seen as a likely acquisition target itself, amid the current industry trend for consolidation.
Indosuez said on Friday that it had started exclusive discussions with rival French bank CIC to acquire the latter’s wealth businesses in Singapore and Hong Kong. The transaction is expected to be finalised by the end of the year, added Indosuez in a statement.
Yet industry estimates put CIC's Asian assets under management at just $4 billion to $5 billion. Adding Indosuez's $10 billion would give the merged entity less than $15 billion in AUM. That is below the $20 billion seen as the minimum needed to run a private bank in the region, and indeed less than ABN Amro Private Banking's $20 billion when it was acquired by LGT late last year. In fact, figures of $30 billion to $60 billion are now being quoted as the magic AUM threshold.
Indosuez did not disclose the valuation or size of the assets being acquired, apart from to say the deal “would have a negative effect below 2 basis points on the fully loaded CET1 [common equity tier 1] ratio of Credit Agricole”.
“The interesting thing here is not the scale but the statement it makes about Indosuez's commitment to Asia,” said Keith Pogson, senior partner in EY's Asia-Pacific financial services practice. “It makes them look like a buyer rather than a seller, as others have voted with their feet.” ABN Amro, ANZ and Barclays have all offloaded their Asian wealth businesses in the past year.
“But, long term, Indosuez may struggle to grow big enough in the region,” he added, reflecting the views of several industry experts that AsianInvestor spoke to.
"Pimping the ride"?
A Hong Kong-based headhunter summed up the question that is on many lips: is Indosuez trying to “pimp the ride” for a potential sell-off later? After all, the Asia business was believed to be on the block for some time – though Indosuez chief executive Paul de Leusse has denied that was the case.
Certainly, the proposed merger is in line with the regional expansion strategy set out by de Leusse in February and with its addition of a number of senior bankers this year. He told AsianInvestor at the time that the firm would need to grow larger and was seeking acquisitions.
Sources say that the CIC deal had come down to a run-off between Indosuez and Liechtenstein's VP Bank, a smaller player in Asia. The region's big private banks – those with $50 billion-plus in Asian assets – will have felt that such a small acquisition was not worth the time or effort, agreed experts.
Some suggested the deal was a “clean-up trade” – a mutually agreed deal at a reasonable price for assets that CIC no longer wanted. “I would not expect to see a massive valuation multiple on a deal like this,” said a Hong Kong-based consultant.
It seems CIC decided it was not worth trying to build out the Asia business last year. The firm had obtained a banking licence in Hong Kong in August – to add to the one in Singapore – but then did not proceed with its planned buildout in the Chinese territory, noted the headhunter, who asked not to be named.
“CIC was initially quite ambitious; it wanted to makes hires [in Hong Kong],” he said. “But then Paris obviously got cold feet and decided it wasn't worth putting in more money.” The firm's business in Singapore is significantly bigger than that in Hong Kong, he added.
Sub-scale players are already struggling with rising compliance costs in Singapore, and expanding in Hong Kong would only put a further strain on resources, pointed EY's Pogson.
The Monetary Authority of Singapore has grown more “toothy” following the scandal involving Malaysian state fund 1MDB, he added. Private banks such as BSI and Falcon have had to close their businesses in the city-state as a result.
Indosuez declined to confirm CIC's regional AUM or comment on whether VP Bank had also been vying for the deal.
Asked to comment on Indosuez's prospects for achieving sufficient scale in Asia, a spokeswoman said the region was a key part of the firm's growth strategy and that it had a long banking tradition there. She added that the proposed acquisition underlined the bank's commitment to building its presence in high-growth markets.
VP Bank did not respond to an emailed request for comment over the weekend.