SocGen said to explore sale of Asia private bank for $600 million (or valuation of 3.8-4.6% of its $13-16 billion AUM vs valuation of 1% of AUM for fund managers

SocGen said to explore sale of Asia private bank

12:53am EDT

By Saeed Azhar and Denny Thomas

SINGAPORE/HONG KONG (Reuters) – Societe Generale, France’s No. 2 listed bank, is exploring the sale of its Asia private banking arm, people familiar with the matter told Reuters, seeking to exit a market where small managers are getting hit by rising costs and competition. The Singapore-based division could fetch around $600 million, the people familiar said, though the actual sale price has yet to be determined and may exceed that figure. The sources declined to be identified as the discussions are confidential.A Paris-based spokeswoman for SocGen declined comment.

SocGen is the third major global financial institution to seek to sell its Asian wealth arm in the last five years, as the region’s surging tide of millionaires and billionaires have posed a challenge to smaller private banks, which lack the asset base to compete with large global players and local upstarts.

According to the 2013 Capgemini/RBC Wealth Report, Asia Pacific is expected to be the region with the world’s biggest population of high net worth individuals by next year. Asia’s high net worth individuals – a term used to describe people with more than $1 million of investable assets – hold $12 trillion in assets, just shy of North America’s total.

While Asia is among the fastest growing regions in the world for individual wealth, its millionaires and billionaires tend to offer small chunks of their riches to many wealth managers, rather than picking one to preserve over time.

That goes counter to the pattern in the U.S. and Europe where private bank clients tend to hand over their money to the managers for the long haul. Private bankers in Asia often remark that because the money they receive is usually first or second generation wealth, they act more like brokers than private bankers – an arrangement that can be costly.

Standard Chartered Bank plc, Singapore’s United Overseas Bank Ltd and DBS Group Holding Ltd are among the companies that may express interest in the business, according to the people familiar with the matter.

All three banks declined to comment.

Although SocGen does not break out country details for the private bank, the Asia business may account for around 10 billion euros to 12 billion euros of assets under management, according to Jean-Pierre Lambert, an analyst at Keefe, Bruyette & Woods.

The potential sale of its Asian private bank would be the next step in a series of initiatives the French bank has taken to cut costs and boost profits.

The French bank is restructuring its asset-gathering operations after recently combining them with its corporate and investment bank under Didier Valet.

SocGen earlier this year sold its Japan private bank to Sumitomo Mitsui Banking Corp for an undisclosed sum.

ASIA WEALTH

Bank of America Corp last year sold its Asia and other non-U.S. private banking business to Julius Baer for 860 million Swiss franc ($911 million). ING Groep offloaded its Asian private bank to Singapore’s Oversea-Chinese Banking Corp in late 2009 for $1.5 billion.

One factor leading to private bank consolidation in Asia is competition. Barclays said in a research note on Monday that 15 private banks have opened in Asia since 2009, bringing the total to 45. Another is the growing separation between the big and smaller players in the field.

The world’s top 5 private banks have around 50 percent of assets under management in the industry, according to consulting firm Scorpio Partnership, showing how the industry is consolidated around a few top players.

UBS and Citigroup for example, both manage over $200 billion each in Asia-Pacific.

In Asia, the fastest growth is in the lower-to middle end of the wealth management market rather than so-called ultra high net worth individuals, whose numbers contracted in China last year thanks to the economic slowdown according to the Wealth-X and UBS World Ultra Wealth Report.

That trend serves the bigger banks with the scale to serve the mass affluent high net worth, rather than the ultra-rich high end of the market targeted by more niche firms.

OCBC paid a net multiple of 5.8 percent for ING’s Asian private bank, which was managing $16 billion when the deal was announced in late 2009, allowing the Singapore lender to triple its private banking assets.

The sale of SocGen’s private bank in Asia, one of only a few managing more than $10 billion, is expected to attract suitors ranging from global lenders to major regional banks in Asia, people familiar with the matter said. ($1 = 0.9448 Swiss francs) ($1 = 0.9348 Swiss francs)