Last week we reported on some chatter among fund managers that a major arm of one of Australia’s major banks might be up for sale.
Former Liberal Party leader John Hewson has also floated the idea at a financial conference, saying the big four may be regretting their decisions to buy wealth management businesses and could now be thinking about offloading them.
“There was this era in Australia where our banks wanted to become broad-based financial conglomerates providing all sorts of financial services,” Hewson told the Wraps, Platforms & Masterfunds conference, according to a report in Independent Financial Advisor. “Westpac bought BT, ANZ bought ING, CBA bought CFS etc.”
Hewson added: “I suspect that there will be a push by the major banks to break down the process of owning [wealth businesses, and that they will] move out of funds management [and] on-sell them.”
The backdrop to this is a coming day of reckoning for Australia’s banks with the recommendations of the Financial System Inquiry, led by David Murray, due in November. Much of the recent debate has been about the capitalisation levels of the banks but the problems inherent in the diverse business lines of the banks are also under the microscope.
The specific problems of the wealth management businesses in the major banks were tackled in a recent lengthy analysis from independent brokers CLSA, who suggest the banks are are not “natural owners” of their vertically-integrated wealth management business. In their report which looks at wealth management options – and is scathing of the current state of the industry, saying it should “hang its head in shame” because of exorbitant fees and poor returns – actually goes as far as to ignore the wealth management arms of the major banks because they don’t think they will exist in their current form in the medium-to-long term. Here’s an excerpt from the CLSA report:
[We] are not analysing the wealth management arms of the banks because, in many ways, they sum up all that is wrong with the current system. OnePath (ANZ), Colonial (CBA), MLC (NAB), and BT Financial Group (WBC) contribute to the underperformance of the superannuation system, in that they are excellent at acquiring the customer (distribution) and rather less
capable at serving them (manufacturing performance).
We do recognise that the banks are addressing this issue and we would suggest that, over the medium term, it is highly likely that elements of these businesses will be “hived off” and this could potentially, over the long-term, see the banks divest the capital-heavy elements of these divisions.
Ask yourself this: ‘Why are none of the wealth management arms of the banks named after the actual bank? Does this indicate that they are the natural owners of this manufacturing piece of the wealth-management equation?’ We do not think they are.
CLSA says “the old model of vertically integrated wealth managers servicing customers from start to finish has not delivered and we are seeing a more specialised industry emerging.”
(For the record, they put a Buy on Platinum and Magellan, while rating AMP, Henderson, BT Investments and Perpetual as Outperforms.)
Rumours about different parts of banks getting sold off can start for all sorts of reasons. But it seems more people are coming to the view that big parts of the Australian banks could eventually be on the block in transactions that would transform the country’s financial landscape.