Bill Jamieson: Standard Life and AAM may not be Bon Accord

In proposing any £11 billion mega asset management merger between Standard Life and Aberdeen Asset Management (AAM), both sides believe they have an ideal solution for the challenges facing both companies.
AAM boss Martin Gilbert would become co-chief executive of the combined group. Picture: Ian RutherfordAAM boss Martin Gilbert would become co-chief executive of the combined group. Picture: Ian Rutherford
AAM boss Martin Gilbert would become co-chief executive of the combined group. Picture: Ian Rutherford

Under the proposed deal, Aberdeen shareholders would have a third share of the enlarged group while investors in Standard Life would hold 66.7 per cent. Standard Life’s Keith Skeoch and AAM’s Martin Gilbert would be co-chief executives.

For AAM, wounded by hefty recent outflows as disillusioned investors pulled out of the ailing emerging markets sector, it provides the opportunity for a reset and new start with a like-minded management giant – and one close to its home base. The investor exodus from its funds has accelerated in the wake of the Donald Trump US presidential election victory and concerns over US foreign trade policy.

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Backlash looms over Standard Life's £11bn AAM deal
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For Standard Life it further consolidates its position as a major fund management business competing with the world’s biggest and best. And for both it would provide greater resource and marketing firepower against the relentless advance of low cost passive funds.

If the merger talks do bear fruit it would create a fund management colossus with some £660 billion of assets – a prospect really to gladden many proud Scottish hearts. This is an intensely competitive industry where size does matter, where middle ranking firms such as AAM have difficulty in achieving significant expansion against the larger and more powerfully resourced likes of BlackRock.

That’s not to say the group has lacked for anything in ambition: under chief executive Martin Gilbert it has done an outstanding job in building the group to the size and prominence it now has. It has truly been a remarkable story from the early days in a tiny office in Aberdeen and one of which AAM can be proud.

So what of my reservations? First, I have seen too many mergers promoted on the basis of synergistic benefits to be swayed by the rhetoric and the promises of evident gains. For this proposed merger to work will require significant slimdown, rationalization and job cuts.

Second, it will reduce the diversity and range of Scotland and the UK’s fund management sector and the grooves available for investors. This is a sector that does best when there are many competing players and innovative investment approaches, more often than not pioneered by smaller, entrepreneurial firms. Independent financial advisers would also be leery of recommending that clients have all their investment funds in one management basket.

And third, it does not, as yet, address the looming issue of management succession. Martin Gilbert and Standard Life chairman Sir Gerry Grimstone together with Keith Skeoch are players of long experience. The duo at Standard LIfe has done well to build the business through the traumas of the 2007-9 financial crisis. And the launch of GARS (guaranteed absolute return fund) proved a brilliant and highly successful innovation.

Both will be looking to exit before too long. New top management blood and ideas will soon be needed. There will be heady claims that the mooted merger will create a formidable Scottish force in the global fund management industry. But that is critically dependent on events outwith the financial services sector.

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It would be sad to see the joint business opting to move from its Scottish domicile in the event of political separation in a second independence referendum, But its hand may be forced by the uncertainty and unease within the joint group’s investor base as the vast majority are located outwith Scotland,

We would thus stand to lose two of our most prominent and successful fund management businesses and with knock-on effects right across the Scottish financial sector.

A marriage of mutual convenience this mooted merger may well be. But in the end it might not prove to be quite so Bon Accord.

Selective recovery under way

Nine years after the global banking crisis, shares in banks still bear the scars. Some, like Lloyds Banking Group, have been enjoying a rally, cheered by prospects of a return to dividends. Others such as Royal Bank of Scotland, are still a pale shadow of what they once were.

Selective recovery is under way. Shares in Lloyds Banking Group at 68.9p have rallied from a low last year of 47.5p. Barclays shares have climbed from a low last June of 127p to 229p. And HSBC Holdings has hauled itself up from 416p to 664p though the shares were recently knocked back by disappointing fourth-quarter 2016 results.