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Many City of London observers are scrambling after the news that another prestigious financial institution is selling to American buyers. Nuveen’s purchase of asset manager Schroders – one of the last remaining old-school financial institutions in the Square Mile – was widely portrayed as another nail in the city’s coffin.
But what if selling out isn’t a bad thing? What if, contrary to fears over the loss of a British icon, a sale to American owners could be good news all around? There may be a valid analogy to the case of the sale of another gem of British asset management in 2009.
When Barclays Bank was on the brink of minimum regulatory capital due to the stress of the global financial crisis, it concluded that the quickest and easiest way to raise funds was to sell its Barclays Global Investors business. It was sold to BlackRock for $13.5 billion.
The divestment was undeniably painful for Barclays – it lost a business that was generating half a billion pounds of pre-tax profit (10 per cent of the group’s total) and provided a valuable element of diversification from its core banking business. The transaction was one of several factors that worsened the group’s health. Barclays has recouped some of its old fortunes in recent months, but profits have risen only 50 per cent since 2008 and shares trade at a fraction of their pre-GFC peak.
But for BlackRock, BGI was a game-changer. The acquisition doubles the size of the US asset manager to nearly $3 trillion assets under management. And it laid the foundation for a bigger, more profitable business: today net income is about 10 times what it was before the BGI deal.
Plus, BGI’s dare — its iShares exchange-traded fund operation — helped cement a global love affair with ETFs, an inexpensive, efficient fund structure designed to mimic index performance. Backed by a massive marketing machine and unmatched global reach, BlackRock is now the largest ETF provider in the world – iShares has almost £6tn under management. Barclays can only wonder what might have been.
But as policymakers and City commentators consider what many of them view as a disappointing sign of Schroders’ purchase by Nuveen, they should consider this: the success BlackRock has achieved in the ETF business, largely thanks to its iShares acquisition, has benefited the City, not stolen business.
BlackRock today employs more than 21,000 people (about a quarter of them in the UK), more than double the 5,300 it employed in 2008, and the 3,700 it inherited with BGI. The Bank of England has its Throgmorton Avenue international headquarters where it manufactures and trades iShares ETFs that are sold throughout Europe as well as much of Asia and Latin America. (iShares’ US operations in San Francisco and New York are larger, but always were, even in the Barclays days.)
The larger a company’s City of London operations, the broader its supporting jobs will be – from custody and technology to legal and capital markets support.
It’s the financial sector equivalent of the Wimbledon argument: the tennis tournament has long been a thriving global attraction for the world’s top players, even though players like Andy Murray and Virginia Wade were only occasional British winners.
The City of London has always thrived on its international outlook, being a hub not only for UK financial services but for Europe and the world. Of course, Schroders itself is a powerful symbol of this, built like many famous names of 19th-century financial entrepreneurship on the hard work and intelligence of German immigrants.
The analogy between BGI and Schroders is imperfect – in some ways even counterintuitive. Where BlackRock was a hungry, fast-growing global asset manager that would lead ETFs to international dominance, Schroders’ new ultimate owner is a cozy mutual. Where iShares was at the vanguard of a new fund structure that would dominate the way it manages first equities and now bonds, Schroders remains hopeful that old-style active management is not a dying industry.
But what these acquisitions share, spanning 17 years, is also important: they show that the City of London is still seen as a hub for good value acquisitions and talented financial services knowledge. The nationality of the owners is irrelevant.
patrick.jenkins@ft.com
