CS deal to boost iShares’ Asia insto, private bank biz

BlackRock’s agreement to buy Credit Suisse’s exchange-traded funds arm may be a Europe-centred deal, but the international nature of the ETF industry gives the move global implications.

The deal was announced yesterday, is subject to regulatory approvals and is expected to complete within the first half of 2013. The terms were not disclosed.

It will strengthen BlackRock’s position as the biggest ETF provider in Europe by assets under management. Credit Suisse’s $17.6 billion in ETF assets across 58 funds (making it the fourth biggest provider in Europe) will expand iShares’ Emea ETF range to 264 with $157.6 billion in AUM, as of December 30.

iShares is the second biggest ETF provider in Asia Pacific by assets (after State Street Global Advisors), with $10.9 billion across 49 funds listed in the region, including the $7.6 billion iShares FTSE A50 China Index ETF.

However, Credit Suisse does not have ETFs listed in Asia; it has relied on selling Europe-domiciled product to Asia-based institutions, which, unlike retail investors, can buy on any exchange they choose.

“In Asia [BlackRock] are not getting any increase in terms of platform,” remarks an executive at a rival ETF firm. “The question is how many new institutional clients they are able to reach now in Asia because of this investment.

“I would expect Credit Suisse’s ETF team in Asia to have a good relationship with their private banking network in Asia, which is strong,” adds the executive.

But that private banking team will have limitations in what they can buy in terms of iShares ETFs. Financial entities benefit from scale, but individual clients have internal risk controls that limit the amount they can hand to any one provider, so among institutions, BlackRock should expect to retain only part of the wallet currently given to Credit Suisse.

A big local question is whether Joseph Ho, Credit Suisse’s Asia-Pacific head of ETFs, remains with iShares. That, say sources, will depend on whether an offer is put on the table, and what that offer might be, given that iShares has an existing regional head in the shape of Jane Leung.

Ho declined to comment when contacted by AsianInvestor.

It would seem logical for the US firm to retain Ho’s services. He is a widely respected ETF expert who would fit with BlackRock’s ambitions in this space. He is certainly familiar with iShares, having worked there for eight years when it was part of Barclays Global Investors, although whether that is a positive or a negative in terms of his desire to stay is another matter.

“At this point there is relatively little to talk about,” notes a source familiar with Credit Suisse. “iShares in Asia has gone through a reorganisation in terms of sales and how they support their product. Whether they have vacancies and what those would be will be discussed in the next few months.”

Credit Suisse, too, is undergoing a strategic overhaul, folding its asset management arm into its wealth business as part of a reorganisation to meet Basel III capital requirements.

“[Credit Suisse’s] ETF business is a successful one, but obviously if you don’t keep investing in it, you’re wasting the potential,” says the unnamed source familiar with CS. “The sale of the ETF business was part of that decision – first mentioned around September – and they’ve gone through the process of seeking a company which could make that business bigger and more successful.”

One thing is certain: the deal will bolster BlackRock’s presence in Switzerland, representing the firm’s second acquisition in the country in the last year following the purchase of Swiss Re Private Equity Partners in 2012. “In Switzerland their [BlackRock's] position is much stronger than before,” notes the rival ETF executive.

State Street Global Advisors had been among the bidders for the Credit Suisse ETF business, while some had thought Deutsche Bank might acquire it to strengthen db X-trackers’ position in Europe. Both firms declined to comment.