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INTERVIEW: Falcon Swoops On Venerable Swiss Firm; Eyes More Industry M&A

Tom Burroughes Group Editor October 5, 2012

INTERVIEW: Falcon Swoops On Venerable Swiss Firm; Eyes More Industry M&A

One of the oldest names in banking history will be consigned
to the archives when Falcon Private Bank absorbs the London-based Clariden Leu
(Europe) business that it bought from Credit
Suisse yesterday.

Bank Leu – which dates back to 1755 – became Clariden Leu in
2007 after merging with some of Credit Suisse’s other operations in 2007. But
rather than try and integrate the firm fully into Credit Suisse, the latter
bank has chosen to spin it off into the arms of Falcon, which is owned by Aabar
Investments PJS, a company that is 95 per cent owned by the government of  Abu Dhabi.

The Clariden Leu brand will eventually disappear under a re-branding
exercise. No final name has been chosen yet although it might be
prefaced by the word “Falcon”, Eduardo Leemann, chief executive of
Private Bank, told sister publication WealthBriefing in a telephone interview.

The purchase price of the deal was not disclosed. The
addition of the Clariden Leu (Europe) business
will increase Falcon’s assets under management to almost SFr15 billion (around
$16.0 billion) from SFr12.5 billion. A study this week by Scorpio Partnership,
the consultants, suggests prices for such businesses have fallen. Its 2012
Wealth Management Deal Tracker showed the valuations benchmark is now resting
at 2 per cent of assets under management compared to nearly double that in
2010. There are strong indicators this will continue downward to 1.5 per cent
in the next one or two years, said the report. This price changed has spurred a
fuller pipeline, and M&A in wealth management has maintained pace in the
past 21 months, with over $9.42 billion being spent on deals involving high net
worth client funds.

The Falcon-Clariden deal prompted praise from Sebastian
Dovey, managing partner at Scorpio.

“Falcon Private Bank’s CEO is steadily rebuilding the
integrity of the bank following its re-emergence on the market scene after its
AIG Private Bank era. The process of the build is constructive and methodical.
The fact the business is now able to acquire a more sizeable asset base
indicates a new level of maturity. On the other side of the deal, Graham
Stapeley has been the lead architect in building a team that is tightly knit
one and well regarded. It also always thrived in a more boutique environment
and they are most likely going to be more comfortable in this new structure,”
he said.

Dovey was referring to how the private banking arm of AIG,
the embattled US
insurer, had been bought by Aabar Investments PJS in April, 2009.


Asked if a management buyout had been contemplated by
Clariden Leu (Europe) staff, Leemann said he
was not aware of such a push. “I am sure they [Clariden Leu (Europe)]
thought about it,” he said. (This publication had heard from a source that an MBO
at Clariden Leu was on the cards.)

An issue for Credit Suisse might have been that if it tried
to completely integrate Clariden Leu (Europe)
and change the nature of the firm, a large number of managers, and client
assets, could go. So it probably made more sense for Credit Suisse to find a
buyer for the business, he said. As of the time of the announcement, Clariden
Leu (Europe) employed 57 people.

Christopher Wheeler, an analyst at Mediobanca who looks at
the wealth management sector, said Credit Suisse’s decision to offload this
business was a “tidying up” exercise by a bank looking to improve profit
margins and cut costs. “This is all about making the [Credit Suisse] business
more cost-efficient,” he said.

After what has been a relatively quiet first half of 2012
for merger and acquisitions, activity has picked up in the wealth space. Julius
Baer has bought the non-US wealth management business of Bank of America
Merrill Lynch, while Deutsche Bank has sold BHF Bank.

Hard to find Mr Right

Leemann said a suitable acquisition for Falcon Private Bank
had been hard to find; the firm was not interested in a business with, say,
only SFr100 million of assets.

“We have always been looking to expand our business. If we
grow things organically it is less risky but it can sometimes take too long to
reach a decent size. We were specific that it [an acquisition] needed to be of
a certain size and fit our regional approach,” he said.

Lehmann expects more industry consolidation to take place
for various reasons and for Switzerland
to expand its asset management industry as the traditional bank secrecy model
comes under the cosh. 

“There are a lot of marginal players out there that have
pieces of business they cannot properly concentrate on,” he said.

Answering the inevitable question about any impact on jobs,
Lehmann said: “I don’t think there are any positions at the firm that
will fall
redundant; it has been a relatively lean machine,” he said of Clariden
Leu (Europe). “Most people will hopefully stay,” he said.


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