UBS and Deutsche Bank asset managers in ‘serious’ merger talks

UBS was the world’s largest asset manager 12 years ago before a dramatic decline after the financial crisis. © Keystone / Gaetan Bally

The asset management arms of Deutsche Bank and UBS are in serious talks to merge, according to people close to the discussions, in a deal that would create a new European champion in the investment industry.

The discussions about a deal have been taking place “for a couple of months”, one of the people said. If completed, the merged asset manager would leapfrog France’s Axa and the UK’s Legal & General and create a rival to France’s Amundi, Europe’s largest money manager with just over €1.4tn under management.

One structure being considered would see UBS hive off its asset management unit, which oversees €700bn, and fold it into Deutsche’s DWS in exchange for shares in the larger group. DWS, which is 79 per cent-owned by Deutsche, has €662bn of assets under management. The German bank would remain the company’s top shareholder but its interest would be diluted.

A DWS and UBS asset management combination would be better able to compete with BlackRock and Vanguard, the US giants of the investment world that have combined assets of $11.7tn.

Deal activity in the fund sector is expected to be strong in 2019 as the biggest groups — those with at least $1tn in assets — win the bulk of new business inflows and leave smaller rivals struggling.

UBS was the world’s largest asset manager 12 years ago before a dramatic decline after the financial crisis. A tide of investor outflows during much of the past decade saw the business drop to 16th spot globally last year in a ranking compiled by Willis Towers Watson, the investment consultancy.

DWS has attracted other suitors. Allianz, Germany’s largest insurance group, has been looking at a potential bid for the business, according to a person briefed on the matter. Other potential partners include Amundi, which is close to completing the integration of the €3.5bn acquisition of Italy’s Pioneer, and multi-boutiques Natixis Investment Managers and Generali.

DWS is listed as “partnership limited by shares”, or KGaA — a structure that gives Deutsche Bank special voting rights as long as it holds a stake of at least 40 per cent. For now, Deutsche can replace DWS’s executive board without consulting other shareholders.

All of the people close to the talks cautioned that a deal was not guaranteed and a deal announcement was not imminent. Earlier this month, Bloomberg reported that UBS has considered a number of scenarios for combining its asset management arm with DWS.

Shares in DWS have climbed about 35 per cent to €31.78 since the start of the year, giving it a market value of €6.42bn. Despite the rally, the shares still trade slightly below their book value on Deutsche Bank’s balance sheet, of about €32.50 a share.

The talks come as DWS has emerged as one of the crown jewels in Deutsche Bank’s portfolio at a time it is holding its own merger discussions with the country’s number two lender, Commerzbank.

People familiar with Deutsche’s internal discussions have previously told the Financial Times that an outright sale of DWS was “not seriously considered”, as it would contradict chief executive Christian Sewing’s commitment to wean Deutsche off fickle investment banking revenue and to increase earnings from stable sources such as retail banking and asset management.

A minority stake in DWS was listed at the Frankfurt stock exchange in March last year in an attempt to decouple the asset manager from its parent’s negative newsflow and to increase the management’s focus.

However, just four months after its initial public offering, DWS ditched its growth target of increasing assets under management by 3- 5 per cent a year. In fact, they fell 5.4 per cent to €662bn in 2018.

Asoka Woehrmann, chief executive of DWS, told the FT in March he wanted to be an active participant in M&A activity. “Our size and scale is not something we should hide,” he said. “We have to look at opportunities in the market.” However, he added that DWS first needed to improve its position.

DWS suffered €22bn of investor outflows last year, which Mr Woehrmann attributed to the one-off effect of redemptions related to US tax reform, retail fund sales growth being muted by the introduction of the new Mifid II regulations and several large insurance mandate withdrawals.

Copyright The Financial Times Limited 2019