The Strategist

JPMorgan: Asset management industry is ready for consolidation

05/29/2018 - 14:54

JPMorgan has prepared a report, where it states that 32 largest companies that manage large-scale capital account for only 50 percent of the market. Analysts at JPMorgan say that in the next five years the financial market is expected to consolidate, most likely involving Swiss companies.

Mimzy via pixabay
Mimzy via pixabay
According to the report of JPMorgan, the large capitals management is the most fragmented sector in the financial industry. The world's 32 largest companies account for only about 50% of the market. It is a key business for Swiss banks Credit Suisse and UBS and one of the most important for other major banks, including Citi, Morgan Stanley and HSBC. At the same time, there are many small players in the market, whose number continues to increase. The example of Switzerland is particularly indicative - more than 100 companies are involved in the management of capital in this country. According to analysts at JPMorgan, management of large capitals is in sharp contrast to other sectors of the financial sector - for example, dealing with fixed income securities, currencies and commodities, where the six largest players control more than 60% of the market.

"I can predict that reputable private banks specializing in this one area will be consolidated with other banks in the next five years. Banking for wealthy customers is the best business in the whole banking sector. There are stable cash flows, high profitability of capital, there is no additional regulation, and growth rates are relatively high," said Kian Abu Hussain, head of the European division of JPMorgan in banking research. In his view, in the long term, consolidation can be a significant incentive for increasing margins. JPMorgan analysts are sure that the best option for consolidation is the Swiss banks, as their situation with super-rich clients from Asia is the best. UBS is the largest bank in Asia by large-scale assets under its management ($ 383 billion), followed by Citi ($ 256 billion) and Credit Suisse ($ 202 billion).

According to Mr. Abu Hussain's forecasts, during the consolidation large companies managing assets will buy smaller or larger banks engaged in various areas, as well as acquire managers of capital. In his view, the likelihood of mergers is now higher than before, as compliance with regulatory requirements and investing in technology is becoming increasingly difficult for small players. In addition, wealthy people want the bank to work in several markets, which is also more affordable for large players.

At the same time, analysts believe that management of large assets will still remain a less consolidated market than many others. "Any business that relies more on consultations will always have more players. Local players with a well-known brand will always compete for a share of local wallets," said Mr. Abu Hussain.