Marriage of convenience

From Archive 02 July 2002

By PWM Editor

Dutch-based Rabobank, seeking its perfect match, wanted size, scale, brand credibility and distribution power. Its acquisition of a substantial part of the Swiss bank Sarasin goes a long way in satisfying its hunger, reports Henry Smith.

Rabobank’s requirements are hardly the usual lonely-hearts wish-list. But they are very understandable for a firm seeking a strategic partner to propel it into the big time in the lucrative onshore private wealth market through joint exploitation of distribution channels. Overtures were made three years ago to Sarasin, a 160-year-old Swiss private bank running E26.7bn. But it was not until August 2001 that the idea of a forging an alliance was mooted, according to Guido van Berkel, chairman of the management team of International Private Banking & Trust at Rabobank in Utrecht. Renewed talks culminated in Rabobank’s announcement in March that it had acquired a 28 per cent stake in Sarasin. Rabobank’s international private banking units in Geneva, Zurich, Guernsey, Luxembourg, Hong Kong and Singapore will be integrated into the Sarasin group, immediately boosting the latter’s assets under management by E11.7bn to E38.4bn. The deal also gives Rabobank a seven-year option to buy Sarasin outright. “Owning a publicly-listed bank in a stable and wealthy country like Switzerland was an attractive proposition for Rabobank,” says Mr van Berkel. To Mr van Berkel, this acquisition represents a golden key to a potential treasure trove of onshore private wealth business opportunities. Rabobank has ambitious plans to grow private wealth assets under management from approximately E11bn to more than E70bn within five to seven years. This will be achieved through organic in-house development, marketing and distribution, supplemented by further select acquisitions. But, says Mr van Berkel, no new strategic alliances with banks in the UK and continental Europe are planned for at least three years. Instead, the first step is to effect the smooth integration of Rabobank’s international private banking units. Then the focus will be on organic growth by introducing the Sarasin name and distributing Sarasin products to Rabobank’s existing worldwide private client base. This will pose challenges. In Asia, for example, Mr van Berkel notes that clients are familiar with the Rabobank name. But, he adds: “We want to push new products into the Asian market and also into Luxembourg where, until now, we have been doing business only as Rabo Robeco Bank. We are also very small in the Channel Islands and maybe we can identify new ways of operating from there.” If the Sarasin brand proves popular with Rabobank’s existing international clients, Mr van Berkel will consider upping the distribution drive to include the domestic market. Dutch private clients are currently catered for by Rabobank and two subsidiary institutions: private wealth manager Schretlen and investment adviser Effectenbank Stroeve. When expansion into new European markets under the Sarasin banner eventually hits the agenda, Spain will be top of the list for distribution efforts. “In contrast to France, which is generally over-banked, Spain is underserviced by private banks. And on account of all the baby-boomers, there is substantial growth potential,” says Mr van Berkel. He is less sanguine about prospects for rapid business development in France and Germany, two markets he feels will prove an uphill struggle. But what is very clear is that the Sarasin “brand” is seen as a considerable prize. Mr van Berkel adds: “Sarasin brings us a solid private banking brand name, with critical mass and expertise in the onshore market.” Remarking that brand names should be “maintained and cherished”, he points out that Rabobank did not relinquish the Robeco or Interpolis brands after buying these companies. In terms of product capability, he highlights Sarasin’s E1.71bn sustainable asset management business, which he hopes will prove a competitive advantage allied to Robeco’s E2bn ethical “green funds”. Sarasin also represents a new distribution channel for Robeco Group products, which include a range of structured fixed income such as collateralised debt obligations and alternative investments such as hedge funds. Sarasin has a total of 10 offices in Switzerland, the UK, Germany and Guernsey, which will be used for distribution. Jan Dost, Rabobank spokesman, said that following official shareholder approval of the Sarasin-Rabobank deal, the entities were exploring how best to combine their operations and distribute products. While Rabobank has, through the deal, given itself a massive boost in terms of distribution capability, making a quantum leap into the Premiership League of private wealth managers, its origins in this arena are humble. The AAA-rated co-operative bank, which is more than 100 years old, has total group assets of E363.6bn, funds under management of E178bn and 143 branches in 34 countries. But it did not start managing private wealth until the late eighties when it opened an office in Luxembourg. The volume of private wealth assets grew at a snail’s pace over the next 10 years, despite the opening of private wealth management offices in Switzerland in 1992, Hong Kong and Singapore in 1995 and Guernsey in 1996, targeting clients in the Benelux region, France, Germany, Switzerland and the UK. In 1999, with E4bn of assets under management for clients in Guernsey and the Far East, Rabobank was a still a minnow in the offshore private wealth pool. That changed with the purchase of the private banking activities of the Robeco Group in Luxembourg and Switzerland. This move, which boosted private wealth assets to E11bn and tripled clients to 30,000, led to the establishment of a separate Rabobank International Private Banking & Trust division. Rabobank is no stranger to M&A activity. Its most recent purchases include the Robeco Group, Interpolis and the ACC Bank in Ireland.

A ‘perfect strategic fit’ A “perfect strategic fit” with a “first-class, heavily capitalised partner”. So said George Krayer, Sarasin’s chairman and chairman of the Swiss Bankers Association, on hailing the Basel-based bank’s new alliance with Rabobank. But behind the fanfare lies a loss-making private bank whose ambitions to develop a substantial onshore business were being stymied for want of critical mass of assets under management, capital strength and the necessary distribution network. Sarasin recently blamed a 47 per cent drop in 2001 net profits to E48.11m on a sharp rise in overheads and declining revenues. Prior to forging the strategic alliance with Rabobank, 70 per cent of private wealth assets under management came from Swiss-based clients, with the remaining 30 per cent sourced internationally. The deal has altered the regional balance by increasing the international slice to 49 per cent of the total. Sarasin also brings a suite of investment products to funnel through the Rabobank distribution network, including investment funds, ethical funds, warrants and structured products and hedge funds managed by its subsidiary Acorn Alternative Strategies.

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