Takeover appetite increases among Belgian luxury bankers

With profits under more pressure than ever, a new wave of mergers and acquisitions seems inevitable among Belgian private banks and asset managers. 'Everybody is talking to everybody.'

Swearing doesn't really fit the champagne atmosphere that people usually associate with private banking, the market for financial services and wealth management for clients with 1 million euros or more. But it can't be helped that among Belgian asset managers, brokerage houses and private banks, there was considerable swearing at Mario Draghi last week. The European Central Bank (ECB) president announced Thursday that Frankfurt is prepared to keep its interest rates low for longer than many market watchers had planned.

A serious blow to many bankers. They had counted on finally getting some more oxygen when interest rates picked up again. The annual reports published in recent weeks by the independent Belgian asset managers, brokerage houses and private banks show that they could use that extra oxygen. While the big banks held up relatively well last year, the medium-sized and smaller private banks and asset managers did not turn out very good figures for 2018 at all.

Difficult year

Degroof Petercam, the biggest player on the private banking market after the four major banks, saw its profits fall by a third in 2018 to 57 million euros. Bank Nagelmackers, the country's oldest bank, plunged nearly 30 million euros into the red last year. Brussels-listed Leleux reported a 41 percent lower net profit of 1.4 million euros. At Antwerp-based private bank Dierickx Leys, net profit even plunged more than 67 percent to 2.2 million euros. Although that's partly because that group was able to benefit from an exceptional windfall in Luxembourg the year before.

Bankers have been complaining for years about the impact of low interest rates and fickle investors on their results. But especially the necessary investments to keep up with digitalization and the stricter regulations imposed on the sector are taking bigger and bigger bites out of profits, it sounds.

That is also the first thing Koen Hoffman of Value Square cites when we ask him why the Ghent-based asset manager saw its net profit fall 46 percent last year. 'Of course there is no more money to be made in bonds and in a difficult stock market climate we are losing clients who are looking for security in real estate investments,' he says. 'Still, we did well operationally. Our lower profit is mainly because we invested in new software and people to deal with changing regulations. Meeting the Olympic minimum is no longer enough there. That's a good thing, of course, and we'll reap the benefits later. But now it weighs on profitability.

Since the crisis, the rules of the game have been thoroughly shaken. Banks and asset managers not only have to build larger buffers to absorb possible shocks. In recent years, they have also had to do everything in their power to comply with the new MiFID rules, the European consumer directive that requires them, among other things, to inform clients in detail about the costs they charge. At the same time, anti-money laundering laws have been tightened, new privacy directives have been introduced and financial institutions must do a much better job of guarding against new risks, such as cyber-attacks. For many smaller players, that's a lot to swallow all at once.

Deceptive calm

'Sometimes I don't know which hat to put on first,' says Herman Hendrickx, the chairman of the executive committee of the Antwerp private bank Dierickx Leys. 'Should I be the money laundering expert first when I bring in a new client? A tax expert? Or just a banker anyway?' It forced Dierickx Leys, originally a brokerage house, to focus more on the much broader private banking business. 'In the past, you could still distinguish yourself by executing customer transactions quickly. But today customers tend to consider that a standard service,' says Hendrickx.

Just to cope with all the costs imposed by regulation and digitalization, more and more institutions are looking for extra scale. Just last year, Dutch ABN AMRO acquired the Belgian private banking arm of Société Générale to quickly gain traction in our country. Since then, apart from a few smaller deals, things have remained quiet in terms of new mergers and acquisitions.

But that calmness is deceptive, says Koen Hoffman of Value Square. "Everybody is talking to everybody. That something is brewing was already clear at the end of April when reports suddenly surfaced that Degroof Petercam would end up in the shop window. At the same time, there is also plenty of speculation in the sector that Nagelmackers will soon be sold by its Chinese owner Anbang. Duet, Merit Capital's British shareholder, also announced late last month that it was on a takeover path.

'We, too, already noticed a lot of interest from larger parties,' says Nicolas van de Put, board member at the small Antwerp-based private bank Van de Put & Co. 'We've always said no to that so far. As a small family player, we are clearly in our own niche, and that works well. We continue to attract clients, mainly people coming over from large and medium-sized players. The smaller houses that don't manage to do that have to go into the shop window. Also because the regulations here barely distinguish between large and small players. In countries like the UK, Germany and France they do and you have much more diversity.'

Herman Hendrickx of Dierckx Leys: "Our door has also been knocked on several times. But we stick to our independent course. But the regulators have to ask themselves what kind of landscape they want here. Should we all end up in large-scale stories, with Deutsche Bank scenarios? Or do we still opt for a playing field in which multiple healthy players can compete?

DISCLAIMER

• Source: The Time
• Author: Pieter Suy, Editor Entrepreneurship
• URL: https://www.tijd.be/ondernemen/banken/overnamehonger-neemt-toe-bij-belgische-luxebankiers/10135242.html