European banks will still look to acquire asset managers, even if regulators prevent them from using their insurance subsidiaries to get favourable capital treatment on those deals, Fitch Ratings says.
In a new report, the rating agency noted that while European banks are currently able to risk weight their equity stakes in insurers, which lessens the impact on their regulatory capital, their ability to apply the same treatment to their insurers’ acquisitions of asset managers is in some doubt.
The European Central Bank (ECB) has initially denied that treatment to an Italian bank that’s seeking to acquire an asset manager through its insurance subsidiary, Fitch noted — although the final decision on this will come from the European Banking Authority (EBA).
“If the EBA takes the same view as the ECB, banks will have to fully deduct the often-significant goodwill from their [regulatory] capital, when acquiring asset managers, even through an insurance subsidiary,” it said.
Preventing this sort of regulatory arbitrage would be “more in line” with the principles that underpin the Basel capital rules for global banks, the report said.
And, if the favourable treatment is rejected, this “could make some acquisitions more expensive,” it said. However, Fitch added that “we would not expect it to deter banks from deals that they view as compelling.”
For instance, “BNP Paribas’s planned acquisition of AXA Investment Managers through its insurance subsidiary Cardif would add critical size to its asset-management business and enhance its investment capabilities,” it noted.
Indeed, many banks are looking to diversify their traditional banking businesses, and so-called “bancassurance” models that include asset management, “offer strong synergy potential, particularly by channelling retail savings into life insurance products.”
So, while the prices for these kinds of deals may be affected by the regulatory capital treatment, “deals with compelling strategic rationale are still likely to proceed amid significant ongoing consolidation in the European asset management market,” the report said.