Lloyds agrees to sell private client funds portfolio for £35m to Rathbone Brothers

LLOYDS Banking Group has finally reached an agreement with investment firm Rathbone Brothers to offload portfolios of private client funds, despite the blow caused by the defection of wealth managers last week.

Lloyds expects to raise about 35.4 million from the sale.

It is hoped 6,000 customers with a total of 1.27 billion of funds under management will transfer to Rathbone from Lloyds TSB private banking and Bank of Scotland portfolio management service (PMS).

However, Rathbone will only pay for the BoS assets – 775m of funds under management for 4,000 clients – if, and when, they are all transferred.

Rathbone is concerned that clients will follow the eight former BoS portfolio managers who have defected to rival firm Rensburg Sheppards in Edinburgh, as revealed in The Scotsman last Thursday.

On the departure of the BoS managers, Andy Pomfret, chief executive of Rathbone, said: "It's disappointing when people move. It's very unsettling for clients, who will be wondering, 'What the heck is going on', and looking for reassurance."

Pomfret said that, as a result of the loss of the BoS managers, the deal had been structured so that Rathbone would pay only for what they actually received from that part of the business.

Numis Securities, a broker, said it would not expect anywhere near 775m, because of the senior team members who have left BoS and "natural attrition" in such deals.

Rathbone will pay 2.4 per cent of the total BoS assets which are transferred when clients sign up.

But Rathbone has agreed to hand over 3.4 per cent of the 493m of Lloyds TSB private banking assets, their value on 31 August, as part of the deal.

If all the funds transfer from Lloyds, Rathbone's funds under management will increase by 11.8 per cent to 12bn. The firm has ten offices in the UK: one in Edinburgh employs 12 investment managers and has just under 1bn of assets.

Pomfret described the deal with Lloyds as "opportunistic", saying that little consolidation occurs in private banking.

As part of a distribution agreement, Lloyds TSB and BoS private banking clients with at least 2m to invest within a management portfolio service will be referred to Rathbone.

In the wake of the deal with Rathbone and last week's sale of the Halifax Estate Agency, Cavendish Asset Management is urging shareholders to back a Lloyds rights issue.

Paul Mumford, senior fund manager at Cavendish, said: "The costly rights issue rumoured in the market represents the lesser of two evils for shareholders, who should back the bank in its bid to escape the asset protection scheme."

He added that, from looking at the performance of banks such as Barclays, which avoided government protection, it is clear that the market recognises the upside of an independent banking sector.