Statement re agreement with L

RNS Number : 0495B

Rathbone Brothers PLC

20 October 2009

 



Rathbone Brothers Plc agrees to acquire certain private client funds from Lloyds Banking Group and enters into exclusive distribution agreement.

Rathbone Brothers Plc announces that it has today agreed terms with Lloyds Banking Group ("LBG") for the transfer to Rathbones of elements of Lloyds TSB's legacy discretionary investment management assets that are closed to new business and HBOS' discretionary investment management activities (the "Acquired Funds"). In aggregate the Acquired Funds represent up to £1.27 billion (as at 31 August 2009). The transaction will be effected through Rathbone Brothers Plc's principal subsidiary Rathbone Investment Management Limited ("Rathbones"). In addition, LBG and Rathbones have entered into an exclusive distribution agreement whereby Lloyds TSB and Bank of Scotland Private Banking clients with investable assets of up to £2 million, who require significant assets in direct investments within a discretionary investment management portfolio service, will be referred to Rathbones.

The Acquired Funds will come from:

• Two books of discretionary private client portfolios acquired from Lloyds TSB Private Banking Limited ("LTPB Funds") which, as at 31 August 2009, represented £493 million of funds under management ("FUM") and approximately 2,000 clients. Rathbones will pay 3.4% for the LTPB Funds at a market valuation date of 31 August 2009 adjusted for cash and asset flows at certain agreed transfer dates.  
• The Bank of Scotland Portfolio Management Service's portfolio of clients ("PMS Funds") which, as at 31 August 2009, accounted for £775 million of FUM and approximately 4,000 clients. Rathbones will pay 2.4% of FUM to LBG for the PMS Funds based on the value of FUM when they sign up to Rathbones' service.  

Should all of the Acquired Funds, valued as at 31 August 2009, transfer to Rathbones on Rathbones' own terms of business, the total cost to Rathbones will be £35.4 million. 

Highlights of the transaction

• If all the funds from LTPB and PMS transfer, Rathbones' FUM will increase by 11.8% to £12.0 billion (as at 31 August 2009). FUM in Rathbones were £10.7 billion as at 31 August 2009.
• This is an exceptional opportunity to work in partnership with Lloyds TSB and Bank of Scotland Private Banking whereby UK-based clients with investable assets of up to £2 million, who require significant assets in direct investments within a discretionary investment management portfolio service, will be referred to Rathbones.
• It provides an opportunity to strengthen significantly Rathbones' presence in Scotland and provide an increase in FUM across Rathbones' network of ten UK offices.

• The acquisition is expected to be earnings enhancing in 2011. 

Andy Pomfret, chief executive of Rathbone Brothers Plc, commented: 

"This acquisition is a very attractive opportunity to increase Rathbones' funds under management. The clients concerned are used to a very similar service to our own and can be confident that our reputation for investment management and personal service, and our stability, will provide them with a high-quality alternative. The transfer of funds will be managed in partnership with LBG with a high level of investment manager involvement which reflects the key element of our core proposition which is that private investors should have direct access to the individual who will be managing their portfolio. 

 "In addition, we are excited about the opportunity to work with Lloyds Banking Group under an exclusive distribution agreement to provide our core services to those Lloyds Banking Group clients who wish to have a discretionary investment management service with significant assets in direct investments."

Details of the Distribution Deal and Acquired Funds 

The distribution agreement between LBG and Rathbones will offer UK-based Lloyds TSB and Bank of Scotland Private Banking clients with investable assets of between £250,000 and £2 million, who require a bespoke discretionary investment management portfolio service with direct investments in securities, a referral to Rathbones. This exclusive agreement has an initial five-year term.

The LTPB businesses consist of two books of private client portfolios with over 80% being managed on a discretionary basis. For the year ended 31 December 2008, it is estimated that the combined LTPB businesses generated £5 million of revenues. As the LTPB Funds are held within a larger division of LBG, there are no separate gross assets and profit figures directly attributable to them. Each transferring client will be allocated a Rathbones investment manager, from one of Rathbones' 10 offices nationwide, who will manage their portfolio on a bespoke basis.  

As at 31 August 2009, PMS had total FUM of £775 million, of which 95% were discretionary managed accounts. For the year ended 31 December 2008, it is estimated that the PMS business generated £7.5 million of revenues and operating profits before group overhead recharges of £2.8 million.  As above, there is no separate gross assets figure for PMS.  Depending on the level of transferring funds, a number of PMS employees, including investment professionals and related staff, will be offered roles with Rathbones' existing operations on, or shortly after, 30 June 2010. No other assets are included in this transaction. 

Terms of the acquisition 

LTPB Acquired Funds

The initial consideration of £13.4 million for the LTPB Acquired Funds will be payable in cash on 26 February 2010 and has been calculated by reference to 80% of FUM at 31 August 2009. 

Consideration is payable to (or repayable by) LBG pursuant to an adjustment mechanism. As a result of the adjustments, further consideration could be payable to LBG or amounts could be repaid by LBG to Rathbones. It has been agreed that a minimum amount of consideration will be payable to LBG. This minimum consideration will be calculated by reference to 50% of FUM as at 31 August 2009 in relation to the LTPB businesses. Any client FUM which have remained with or transferred back to other specific LBG product offerings will not be included for the purposes of calculating the minimum level of consideration. 

PMS Acquired Funds

Rathbones will pay 2.4% of FUM to LBG for the PMS Acquired Funds based on the value of FUM as and when they sign up to the Rathbones' service, payments to LBG being made in instalments following six-monthly calculation dates starting on 30 June 2010 and ending on 30 June 2011 based upon FUM which is then signed up to Rathbones. The final payment or adjustment is expected to be made in the third quarter of 2011.

Total consideration 

If all the funds from LTPB and PMS, as at the date of this announcement and at 31 August 2009 values, transferred to Rathbones and became subject to Rathbones' terms of business, the aggregate consideration payable to LBG would be £35.4 million.

The maximum aggregate consideration theoretically payable by Rathbones for the Acquired Funds has been capped at a figure of £50 million. 

The parties to the acquisition documentation are Rathbone Brothers Plc's subsidiary, Rathbone Investment Management Limited, and Lloyds Banking Group's subsidiaries Bank of Scotland plc, Lloyds TSB Bank plc, and Lloyds TSB Private Banking Limited. The Distribution Agreement is being entered into between Bank of Scotland plc, Lloyds TSB Bank plc and Rathbone Investment Management Limited. 

The consideration will be paid in cash from Rathbones' existing resources.  In 2008, Rathbone Brothers Plc completed the sale of its Jersey offshore trust operation for an initial cash consideration of £23.5m. 

For further information contact:

Rathbone Brothers Plc  Tel: [phone]  email: [e-mail] Mark Powell, Chairman Andy Pomfret, Chief Executive Paul Stockton, Finance Director Emily Morris, Marketing Director

Brunswick Tel: [phone] email: [e-mail]  Kate Holgate/Claire Gore

Rathbone Brothers Plc
Rathbone Brothers Plc is a leading independent provider of high-quality, personalised investment and wealth management services for private investors, charities and trustees. This includes discretionary investment management, tax and financial planning, and unit trusts.

Rathbones has nearly 700 staff in 10 UK locations and Jersey, and has its headquarters in New Bond Street, London.

Rathbone Investment Management Limited ("Rathbones"), its principal subsidiary, is a provider of high-quality, personalised investment services, the majority of which are managed on a discretionary basis. Rathbones is the UK's third largest manager of discretionary funds in the UK (source: Canaccord Adam estimates January 2009) with around £11.2 billion of funds under management as at 30 September 2009.  

More information is available at www.rathbones.com.

 

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