Schroders’ acquisition of Cazenove Capital will allow the firm to expand its scale and product offering and will enhance its revenue margins, says Freddy Barker
The realpolitik of Schroders’ acquisition of Cazenove Capital, according to Peter Lenardos at RBC Capital Markets, is that operating margins at Schroders Private Bank fell from historic norms of 30 per cent to 12.5 per cent in 2012.
In a world where organic growth is tough to come by, that was the result of lack of scale, limited positioning in the UK wealth management market and lack of a full-product offering. ‘The Cazenove Capital acquisition thus brings the scale (especially in UK wealth management) and products (such as financial planning) that Schroders was lacking,’ says the diversified financials specialist.
A piercing assessment, and one that to a certain extent explains the ‘significant benefits and enhanced opportunities’ that Philip Mallinckrodt, Schroders Group Head of Private Banking, has been talking about.
Breaking down the numbers even further, Lenardos adds that it won’t hurt Schroders that revenue margins at Cazenove are 67 basis points compared to its 58 basis points. ‘Therefore, Cazenove’s focus on higher revenue margin products and channels (including wealth management, equities and retail) will enhance the revenue margin at Schroders’ overall business.’
On top of this, cost synergies of £12 million to £15 million per annum are anticipated from distribution and infrastructure as well. The latest thinking is that these will not derive from front-office activities and that they will be split equally between the private banking and asset management divisions.
Taking into account that Cazenove Capital complements Schroders’ funds business – on top of the multi-manager capability, Julie Dean will be a strong, if different, replacement for Schroders star UK equity manager Richard Buxton, who will be leaving in June to work for rival Old Mutual – the £424 million deal, therefore, looks a winner all round.
Andrew Ross will be Head of UK Private Banking following the acquistion
You can see why Andrew Ross, Cazenove Capital’s CEO, happily declared that ‘This is a very exciting development…we will create a pre-eminent independent private banking and charities business in the UK.’