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Standard Life Aberdeen: Ta-ta Lloyds

Shares in Standard Life Aberdeen are sharply lower this morning after Lloyds Banking Group announced it would terminate a contract with the asset manager held with its Scottish Widows business. The two sides had previously reached agreement that the contract, worth £109bn, would not be terminated for a six month period after the merger of Standard Life and Aberdeen Asset Management.

Negotiations had been ongoing during the 6-month transition period to broker a new agreement between the two companies, with Lloyds intent upon seeing a reduction in fees on their investment or a transferral of a chunk of SLA’s pension bulk annuities business. However, just a day after the expiry of the agreement, Lloyds has jumped at the opportunity to remove a significant chunk of the all-Scottish asset manager’s assets under management (AUM), with the newly-merged company losing its largest client half a year into its post-merger life.

Management at the UK’s largest asset manager have been quick to reassure that Lloyds’ decision to withdraw around 17% of the company’s £646bn AUM (previously a third of Aberdeen’s assets) would not have a material impact, however some shareholders disagreed, seeing shares fall as much as 10% after the open.

Some relief will come from the knowledge that Lloyds’ funds only amounted to 5% of total group revenues due to the lower margin returns in comparison with the majority of assets. However, losing a further £109bn having been crowned the worst-selling European-headquartered asset manager in the first nine months of 2017 isn’t exactly a vote of confidence in what was supposed to be a dynamic merger for the UK fund management industry.

The challenge now facing Standard Life Aberdeen is to plug the hole left by Lloyds’ departure, while the latter will seemingly now look to reinvest part or all of Scottish Widows’ funds without delay in order to avoid a protracted period with their funds in cash, especially given significant pressure on UK pensions with a growing elderly population.


Henry Croft, Research Analyst, 15 February 2018


 

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