LGT Bank was confirmed yesterday as the buyer of ABN Amro’s Asian wealth management business – but there is a lot of hard work to come, say sources, pointing to cultural differences between the firms.
The central motivation behind the merger – and the consolidation trend in private banking generally – is clear: the need for economies of scale. Both LGT, with $25 billion in Asian assets under management, and ABN Amro, with $20 billion, were seen as lacking the size necessary to sustain their regional businesses.
A combined entity with $45 billion in AUM and 200-odd relationship managers is a more viable proposition. Assuming, of course, that LGT manages to retain the staff it wants to keep.
The Liechtenstein bank will decide in the coming months how many employees to transfer from ABN Amro in Hong Kong, Singapore and Dubai, said an LGT spokesman. “We will offer positions to all client-facing employees and many middle- and back-office employees.”
But there is no guarantee that they will all have made the switch by the time the merger completes, expected in the second quarter of next year.
“The hardest thing to integrate is the human resources aspect of the platform,” said a Singapore-based wealth management consultant. “How do you convince bankers and their clients to stay? Will ABN Amro bankers think it is an upgrade or a downgrade by going with LGT?
“If LGT can prevent client and manpower outflow, then it will be a good deal for them,” he told AsianInvestor.
One key cultural difference between the firms is that LGT is family-owed, while ABN Amro has shareholders to think of.
Morever, a senior private banker at a rival international bank in North Asia said of LGT: “It’s regarded as a bit of a niche player with a set of stable and safe clients.
“But it’s not seen as an easy place to get new clients,” she noted. “If you want to go to a Swiss bank you’d likely look to UBS or Credit Suisse, and if you wanted a bank with deal access, you’d likely look at some of the American ones.”
On top of that, many ABN Amro clients are non-resident Indians, who are notoriously difficult to bank, added the banker. “They’re highly demanding and major hagglers over costs. I’m not sure how well LGT’s culture will fit with that. I wouldn’t want that client base.”
Fewer bidders these days
In the past, said the consultant, there would have been five to 10 bidders for the ABN Amro unit, but these days people in banking realise M&A is not an easy thing to do.
“Banks are more cautious to buy; they have to make sure there’s a good fit so integration will be less challenging,” he noted. “I think LGT has taken this into consideration.”
Asked how challenging it will be to integrate the product platform and bank systems, the consultant said: "Funds platform-wise, there usually aren’t that many variations in terms of funds or products across different platforms, so integration in this aspect is not going to be an issue."
It will be more difficult, however, to integrate the systems, in terms of transferring clients’ data and history from one bank's set-up to another, he noted. "It may look easy, but usually will turn out more challenging and costly than expected."
All these are issues that DBS will have been aware of when it announced its purchase of ANZ’s Asian wealth units in October. That deal effectively ruled the Singaporean bank out of the running for ABN Amro, leaving Julius Baer and LGT. DBS chief executive Piyush Gupta knew his firm would not have had the bandwidth to integrate two sizeable businesses at the same time.
Meanwhile, another Singaporean bank, OCBC, was seen to be absent from the ABN Amro bidding – despite its desire to expand – after it agreed to acquire Barclays’ Asian wealth arm earlier this year.