Wealth managers blowing South Africa’s vuvuzela

South Africa, still basking in the glow of a successful World Cup, now has another claim to fame – being the latest emerging market to attract the attention of local and international wealth managers.

Chief among the acquisition targets is Nedbank, the banking division of London-listed Old Mutual, which has recently been linked with HSBC and Standard Chartered.

Nedbank’s attraction is two-fold: first, there is a lack of quality acquisition targets in the South African market, and second, the bank offers the opportunity to acquire a fully fledged multi-channel wealth unit.

The lack of targets is primarily due to the fact that two of the market leaders, Standard Bank and Absa Bank, are off limits. Standard Bank is 20 per cent owned by the Industrial and Commercial Bank of China (ICBC), which paid $5.6bn (€4.4bn) for its stake, while Absa Bank was bought by Barclays in 2009 for $5.5bn. The domestic private banking leader, Investec Private Bank, while still independent, is likely to rebuff any approach due to its integral role in the wider Investec group’s strategy.

This is not to say that Nedbank is a second tier acquisition. In fact, in PWC’s annual survey of the South African banking sector it was ranked just below its two major competitors by the wider industry.

Moreover, Nedbank has deep roots within the South African wealth market, having merged industry stalwart Syfrets Private Bank with Nedbank Private Bank (NPB) in 1999. The consolidated NPB is responsible for providing bancassurance and wealth services to the group’s retail, business and corporate banking divisions, as well as the independent South African financial adviser market.

Nedbank has another domestic offer in the form of wealth manager BoE Private Clients, and also holds a stake in Imperial Bank.

In 2009 Nedbank purchased the remaining shares of the Nedbank/Old Mutual joint venture in BoE and Fairbairn. This consolidated the four, previously independent asset management operations, and aligned the domestic and international wealth management businesses into a single HNW business and proposition. Domestically the bank had solid net inflows of £627m (€766m) in 2009.

Nedbank’s competitors, domestic and foreign, are however breathing down its neck. Absa Bank has probably been the most aggressive since its acquisition by Barclays, effectively turning it into a re-branded Barclays Wealth, but the other banking groups are also starting to flex their muscles. First National Bank’s (FNB) parent FirstRand acquired listed financial services company Barnard Jacobs Mellet (BJM) and will integrate the largest operation acquired, BJM’s stockbroking business, into FNB’s wealth segment.

FNB already offers online share trading to its lower, middle and upper income segments via FNB Share Investing. The acquisition of BJM will facilitate bond and equity trades for the bank’s wealthier customers.

Among the foreign players, Credit Suisse has signalled its intent to expand in the South African market by bringing its brokerage joint venture with Standard Bank to an end a year early, and aims to recruit its own staff in South Africa as it builds its businesses there.

With competition therefore clearly increasing in the South African wealth market, the question is who will emerge as the victor? Nedbank has significant potential to topple its two closest rivals with the backing of an international parent due to its strong cross selling ability, streamlined operations, established wealth brands and deep penetration into the domestic financial adviser market.

Investec’s domination of the wealth market is likely to remain unchallenged for now but with time a bank like Nedbank with its focus on the mass affluent and HNW segments may emerge as an unexpected rival for the top spot.

Karl von Bezing is a director at wealth management strategy think-tank Scorpio Partnership.