How European banks can consolidate without merging

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If they stand any chance of making money from serving the small and medium-sized clients that American investment banks will never touch, European firms must gain scale by bringing together the continent’s disparate financial markets. That sounds like wishful thinking.

However, despite the gloom surrounding European banking, there are two sector leaders – Amundi, in asset management, and Kepler Cheuvreux, in equities – showing how continental consolidation can happen, even in the absence of big bank mergers.

Amundi and Kepler’s successes reflect the special importance of size to both asset management and equities. Europe’s Markets in Financial Instruments Directive II has made their business models even more attractive, as smaller brokers and asset managers die in greater numbers.

Amundi and Kepler have common origins in France’s close-knit market, and in the kind of federal structure epitomized by France’s biggest domestic bank, Crédit Agricole. Former Société Générale banker Jean Pierre Mustier, now UniCredit chief executive, has also been instrumental in the development of both firms.

It was in 2012, when Mustier was running UniCredit’s corporate and investment bank, that Kepler gained its first big break since the crisis. After Mustier shut UniCredit’s own unprofitable broker, he instead took a stake in Kepler: continuing to originate deals on which the latter then takes care of the placement and research.

Olivier Khayat, now UniCredit’s CIB co-head and a Kepler board member, says this is one of the bank’s best decisions this decade, as its equities-distribution capability has increased exponentially. It could never have had as many analysts as Kepler has now.

Kepler’s second break came soon afterwards, in 2013, when Crédit Agricole followed UniCredit’s lead and put Cheuvreux on the platform – almost bringing chairman Laurent Quirin back to where he started (he set up Crédit Agricole’s research and brokerage unit in the late 1980s, before founding Kepler in 1997).

Last summer, Bob Diamond’s Atlas Merchant vehicle bought a 20% stake in Kepler Cheuvreux, as French private equity firm BlackFin exited. And the reason for the former Barclays chief executive to believe in Kepler is surely its proliferation of these profit-sharing partnerships, anchored in equity ownership in Kepler: most recently with Swedbank and Belgium’s Belfius, in 2017.


The key is that Kepler only works with one big bank in each market: Crédit Agricole in France, UniCredit in Italy and Germany, Rabobank in the Netherlands, and so on.

Today, Quirin’s 130 analysts cover more European stocks than anyone else, about 1,100, and spread across European cities (relatively few are in London). Its sales force is also unusually large, covering around 1,400 clients from big US and UK institutions to smaller asset managers in Florence or even family offices in Marbella.

“It’s a partnership that works,” Quirin argues. “The local banks are very strong in their local markets… This local approach is totally unique in Europe and we continue to think that the service to clients is better for it.”

Meanwhile, the 2009 merger of Crédit Agricole’s asset manager with that of SocGen created Amundi in 2009, shortly after Mustier had overseen SGAM. The 2017 sale by Mustier of UniCredit’s Pioneer later propelled Amundi to €1.5 trillion in assets under management. Distribution agreements with these banks remain vital to Amundi.

“We sold Pioneer as part of the strategic plan to raise more capital but even if not, I would have proposed to sell it as it lacked scale,” says Mustier. Maintaining mid-sized asset managers, in other words, can be capital-intensive for banks if they require acquisitions to be competitive.

Amundi and Kepler are rare but specific examples of successfully pan-European financial firms, albeit in appropriately loose structures. Can other companies do the same?

In equities, Berenberg has a similar agreement with Bayern LB, but this is not the basis of its equities business, even in Germany. BNP Paribas Exane is a Europe-wide joint venture, but only with one bank; it is more London-centric than Kepler, and less focused on small and mid-cap stocks.

Long term

In asset management, firms like UBS need greater scale and have the breadth of products that local distributors lack. But here, too, the scope for a multitude of Amundis – buying up mid-sized asset-managers of big local banks – is clearly limited, partly because smaller captive asset managers remain highly profitable.

The longer-term question is whether the relatively simple origination and distribution agreements of Amundi and Kepler could encourage more fiddly back-office shared-services platforms among European banks in areas like IT, credit processing and supervisory affairs. These schemes could help unlock the profitability of entire groups, including retail.

Amundi and UBS are already marketing outsourcing services to independent fund managers across Europe. Banks have also begun to outsource things like non-performing loan servicing domestically. Outsourcing custody and securities services, too, is already relatively common, even in Europe, where the big French banks and HSBC dominate.

European banks have long needed to follow their US peers, and cede those parts of their businesses where they have no leadership, even while maintaining local client relationships. As low margins and increased regulatory burdens make high costs even harder to bear, firms like Amundi and Kepler show how European banking can consolidate, in its own manner.