European banks under pressure

Continental Europe’s banks and insurers must adapt if they are to compete effectively, says a new report.

Continental Europe’s banks and insurers, owners of over €12 trillion in managed assets, must embrace significant structural changes if they are to compete effectively with foreign and independent asset management companies, says a new report from Casey, Quirk & Associates.

Wholly owned asset managers of Continental Europe’s banks and insurers in Continental Europe have been steadily losing market share to groups in the US, UK and Australian counterparts that have entered the mutual funds market in Continental Europe. Casey Quirk estimates that radical reform could unlock an additional €175 billion of franchise value from their asset managers by 2015, increase revenues by 24% and add €2 trillion-plus in new client money.

Casey Quirk’s white paper, ‘Untapped Opportunity: Realizing Value in Continental Europe’s Asset Managers’, suggests that offering equity linked to long-term asset management performance will help European banks and insurers battle more effectively in the war for talent. Another essential reform is a consolidation of the investment products on offer, which could also mean deciding whether to fully globalize or to concentrate on select European markets.

Kevin Quirk, partner at Casey Quirk and one of the report’s author, says these changes will “spur growth in Continental Europe’s asset managers and make them as competitive as their foreign counterparts, both at home and abroad. Moreover, these enhancements will create significant value for their parent banks and insurers, a critical advantage in Europe’s crowded financial services marketplace, where fierce competition for shareholder capital has begun.”

Continental Europe’s asset management operations are worth approximately €150 billion today, according to Casey Quirk’s analysis. That’s the equivalent of approximately 7% of the current estimated enterprise value of Continental Europe’s banks and insurers. Optimizing growth strategies recommended in the report – through a combination of stronger asset-gathering, higher fee realization, and greater efficiencies – would boost their valuation to a level approximately that of listed money managers, according to Casey Quirk.

Historically, Continental European banks and insurers have viewed their asset management operations more as utilities that provide services to their other core businesses. Ben Phillips, a Casey Quirk partner and co-author of the report, said: “The 2008 global financial crisis significantly changed perceptions within Continental European banks and insurers by illuminating the inherent value asset management can have relative to other financial services franchises. Shareholders, too, increasingly realize this and are willing to pay a premium for financial services companies with vibrant asset management businesses.”

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