Say you’re the biggest bank in America, with lots of cash on hand. You can’t use it for buybacks or increased dividends due to pandemic-related rules imposed by the Federal Reserve, and you want to grow assets under management. What do you do?
Answer: You look for acquisitions in the asset management space for competitive purposes.
That is the scenario feeding the latest rumors about JPMorgan looking to acquire Waddell & Reed and possibly Lazard.
Both firms provide wealth management and asset management services, but Waddell & Reed serves U.S.-based clients and Lazard serves clients globally and also provides investment banking services. Waddell & Reed had $67.billion in assets under management at the end of September, down from $70.3 Billion at the end of August; Lazard had $227.7 billion in AUM at the end of September, down from $232.3 billion at the end of August.
Seeking Alpha, a financial newsletter, reported the Waddell & Reed rumors, citing Dealreporter, which also reported that JPMorgan was also looking at Lazard. By mid-afternoon, WDR shares were up more than 7%, while the broader market fell slightly. Lazard shares were trading over 1% higher.
JPMorgan declined to comment on the rumors; Waddell & Reed and Lazard didn’t return emails or calls seeking comment.
Also feeding the rumors was news last week that Morgan Stanley was acquiring Eaton Vance, which followed an SEC filing the week before reporting that Trian Fund Management had taken big stakes in Invesco and Janus Henderson in the hope of merging the two asset managers to better compete against giant asset manager BlackRock.
In its earnings report this week, BlackRock, the world’s largest asset manager, reported that assets swelled to $7.8 trillion, up 12% from the year before.
JPMorgan, in contrast, has $2.6 trillion in assets under management, up 16% from a year ago, and $3.5 trillion in overall client assets, according to its latest earnings report. Its profits rose 4% from a year ago, beating estimates.
In his earnings call with analysts on Tuesday when asked about “participating in the consolidation of asset management and wealth management businesses,” JPMorgan CEO Jamie Dimon said the bank “would be very interested” in participating and expects to see more consolidation in the industry but wouldn’t be “more specific than that.”
Ken Leon, director of equity research and bank analyst CFRA, tells ThinkAdvisor, “Everyone is chasing Blackrock,” and financial institutions with just $2 trillion to $3 trillion in AUM today are “losing wallet share and losing presence in an attractive growing market,” meaning asset management.
“Banks are flush with capital and can’t return dividend increases or do buybacks now, which creates a great opportunity to look at strategies to gain assets.”
Tim Welsh, president of Nexus Strategy, says, “Banks historically have always acted en masse when it comes to strategic acquisitions. If one does something, the other megabanks have to follow. Case in point, these recent asset manager acquisitions.
“It’s very similar to them buying up broker dealers in years past.” adds Welsh. “Wealth management has continued to be a shining spot in financial services and they see how well UBS and Morgan Stanley and BofA have done with those wealth divisions. There’s nothing like steady, annuitized revenues from asset management basis points to smooth out and enhance revenues in these interesting times!”
Welsh says mid-tier targets like Waddell & Reed are especially hot for M&A now.
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