Commerzbank wealth management nips at Deutsche's heels
Combined company will have access to largest wealth pool on the continent
Now that Commerzbank and Dresdner Bank have pooled their private banking resources to create a $220bn (€154bn) institution, the combined bank poses a serious challenge to the European wealth management industry.
The merger last week has been hotly debated because of its impact on the investment banking landscape. But little has been said of the combined private bank, which has been propelled into the top 10 European wealth managers overnight, nosing ahead of ABN Amro, Barclays Wealth and Goldman Sachs, nipping at the heels of BNP Paribas and Deutsche Bank, which has $286bn of assets under management.
The new private bank is gearing up as a challenger in the fiercely aggressive private banking sphere.
Ted Wilson, a senior analyst at consultant Scorpio Partnership, said the two banks created “a very exciting combination. With Dresdner’s international presence, and Commerzbank’s strength in its home market, they cover all bases”.
An important string to its bow is Commerzbank’s dominance in the structured products market, which is gathering pace in Europe. While Deutsche has the monopoly on this market, with a 22.8% market share in 2006, Commerzbank now has Dresdner’s added weight, bringing the potential total to 21.6%.
Structured products, which have rapidly gained popularity across Europe and particularly in Germany over the past two years, are set to continue their strong growth trend, according to Raimar Dieckmann, an analyst at Deutsche Bank.
One variation is structured notes, known in Germany as certificates, offered to investors. They can provide guaranteed returns and are well suited to nervous markets. Deutsche Bank has estimated circulation of German structured products grew by 30% in 2007 and predicts further strong growth.
Another of Commerzbank’s strengths, according to a German-based consultant, is that it enjoys a close relationship with the Mittelstand, the country’s small and medium-sized enterprises, which are considered the richest corporate accounts in Europe and are mainly family run. Many larger banks have tried to access this important sector, including JP Morgan and Goldman Sachs.
Germany, in spite of being the world’s third largest economy, is often overlooked as a hot spot for wealth management destination because of its fragmented advisory network. But the nation has more than nine million wealthy individuals holding more than €1.6 trillion ($2.3 trillion) in onshore liquid assets, and they are predicted to grow to €2 trillion by 2010, according to Datamonitor. It is Europe’s largest wealth pool, and Commerzbank is hoping to tap this bounty with renewed vigour after the merger.
Commerzbank will find itself caught between two sets of competitors in Germany. At the top is Deutsche Bank, which monopolises the market because of its global reach and reputation. At the bottom, and no less intimidating, are the hundreds of independent banks that have a dedicated following of wealthy German clients.
Wilson thinks the move will most threaten Deutsche, which has so far dominated the German banking horizon. It may also trigger more desperately needed consolidation of the country’s fragmented industry. He said the push would not be without its challenges. “To take on the German wealthy client market Commerzbank needs three things to stand out: innovation, cheaper costs and better service.
“It will be almost impossible for it to better the service that Germany’s small independents provide, so it may focus on innovative new products and lowering costs for clients.”
Rob Taylor, chief executive of Kleinwort Benson, the UK-based private bank subsidiary of Dresdner, said: “In the private wealth management business line there will likely be a few job losses in integration of the Commerzbank and Dresdner Bank areas that the business overlaps, mainly Switzerland and Luxembourg.
“I would expect these would mainly be in support areas – in the UK and the Channel Islands, Kleinwort Benson has no Commerzbank entity to integrate with.”
He added: “It is too early to know for sure yet, and overall Kleinwort Benson’s and Dresdner Bank’s private wealth will dramatically increase the Commerzbank’s presence in the industry in Europe, Middle East, Africa and Asia Pacific.”
Kleinwort Benson is separate to Dresdner’s private wealth management business, and claims it will not lose any staff because of the merger.
Michael Magnay, a director at Kleinwort Benson, said: As far as we are concerned it remains very much business as usual. Commerzbank is firmly committed to Private Wealth Management and the outlook for Kleinwort Benson in both the UK and the Channel Islands as an integrated part of the new group sets us on a firm setting for the future.”
A Commerzbank spokeswoman confirmed that wealth management would be “a significant area of interest” for the group.
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