Schroders, Britain’s second largest listed fund management group by assets under management, and Lloyds, its biggest retail lender, said they would launch a financial planning joint venture after confirming earlier this month they were in talks.
The deal, the highest profile of its kind between a British bank and fund manager, combines Schroders’ investment offering with Lloyds’ 27 million-strong customer base and wide distribution network.
It revives a traditional partnership model between banks and insurers that has dominated in mainland Europe for decades.
“The aim is to become a top three UK financial planning business within five years,” said Antonio Lorenzo, director of insurance and wealth at Lloyds and chief executive of its subsidiary Scottish Widows.
The bank launched a renewed push into insurance and wealth earlier this year. It is already a market leader in its core products like mortgages, and the limited opportunity for growth in key markets has helped drag its share price down 17 percent this year.
For Schroders, the deal is likely to boost its ability to sell its broad range of equity and fixed income products to Lloyds customers, and is the latest move in a long-standing plan to diversify its revenues.
“We think this move makes good sense for both parties,” Bernstein analyst Edward Houghton said of the deal, which follows a series of mergers and tie-ups in the asset management sector.
Schroders shares were down 4.2 percent at 2,649 pence at 1540 GMT on Monday afternoon, as the UK’s main stock benchmark, the FTSE 100, fell 1.2 percent. Lloyds shares were flat, down just 0.07 percent to 56.4 pence.
Lloyds’ CEO Antonio Horta-Osorio and Schroders Chief Executive Peter Harrison welcomed the deal, under which Lloyds will own 50.1 percent of the new entity and Schroders 49.9 percent.
The venture, whose branding was not outlined in the statement, will be led by a management team compromising representatives from both parties.
Lloyds’ Lorenzo will be its chairman, while James Rainbow, Schroders’ co-head of UK intermediary, will be its chief executive.
Schroders also won an 80 billion-pound investment contract from Lloyds, 67 billion of which represents a large part of the 109 billion-pound mandate that Lloyds pulled from previous manager Standard Life Aberdeen (SLA.L) earlier this year.
The assets previously managed by SLA are subject to arbitration, after SLA disputed Lloyds’ right to terminate the contract.
However the statement said they will transfer to Schroders whatever the outcome of this process, either once arbitration concludes or when the bank’s contract with SLA expires in March 2022, and remain with the firm for at least five years.
Lloyds has been using negotiations over the mandate to leverage partnerships that support its push into the sector. It also handed 30 billion pounds of the assets to BlackRock in return for an alliance.
The joint venture with Schroders, which the firms aim to have in operation by the end of the first half of 2019, will offer a personalised, advice-led service focused on affluent customers, the companies said in a joint statement.
Lloyds will transfer 13 billion pounds of assets and associated advisers from its existing wealth management business to the joint venture, and a further 400 million pounds of its private client assets to Schroders as soon as possible, they said.
Under the deal, Lloyds will also take a 19.9 percent stake in Schroders’ UK wealth management business.
St James’s Place, Britain’s largest standalone listed wealth manager, on Tuesday posted a 4.1 percent rise in third-quarter funds under management to pass 100 billion pounds for the first time.
($1 = 0.7693 pounds)
Reporting by Emma Rumney; Editing by Sinead Cruise, Jane Merriman and Jan Harvey