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Many observers of the City of London have been wringing their hands following news that another iconic financial institution was selling out to US 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 is not a bad thing? What if, contrary to the doom-mongering about the loss of a British icon, a sale to American owners can be good news all round? There may be a valid parallel in the case of the sale of another jewel of British asset management back in 2009.
When Barclays bank was teetering on the edge of regulatory capital minimums, thanks to the stresses 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 $13.5bn.
The divestment was unquestionably painful for Barclays — it lost a business that was generating half a billion pounds of pre-tax profit (10 per cent of the group total) and provided a valuable element of diversification from its core banking business. The transaction was one of many factors that took the wind out of the group’s sails. Barclays has recovered some of its old chutzpah in recent months, but profits are up only about 50 per cent since 2008 and the shares are trading at a fraction of their pre-GFC peak.
But for BlackRock, BGI was transformational. The acquisition doubled the size of the US asset manager to about $3tn of assets under management. And it laid the foundations for a far bigger, more profitable business: net income today is roughly 10 times what it was prior to the BGI deal.
Along the way, the guts of BGI — its iShares exchange traded funds operation — helped power a global love affair with ETFs, a cheap, efficient fund structure designed to mimic index performance. Underpinned by a huge marketing machine and unmatched global reach, BlackRock is now the biggest ETF provider in the world — iShares has nearly $6tn under management. Barclays can only wonder at what might have been.
But as policymakers and City commentators contemplate what many of them see as the bleak omen of Schroders’ purchase by Nuveen, they should reflect on this: the success that BlackRock has racked up in the ETF business, largely thanks to its iShares acquisition, has benefited the City, not stolen business away.
BlackRock today employs more than 21,000 people (about a quarter of them in the UK), more than double the combined 5,300 it employed in 2008, and the 3,700 it inherited with BGI. Its Throgmorton Avenue international headquarters near the Bank of England is the location for the manufacture and trading of iShares ETFs that are sold throughout Europe, as well as most of Asia and Latin America. (iShares’ US operations in San Francisco and New York are bigger, but always were, even in Barclays’ day.)
The chunkier the company’s City of London operations, the more expansive the ancillary jobs it sustains — from custody and technology to legal and capital markets support.
It is the financial sector equivalent of the Wimbledon argument: the tennis tournament has long been a thriving global draw for the world’s top players, even though the likes of Andy Murray and Virginia Wade were only occasional British winners.
The City of London has always thrived on its international outlook, on being a hub not just for the UK’s financial services but for Europe’s and the world’s. Schroders itself, of course, is a powerful symbol of that, built like so many of the famous names of 19th-century financial entrepreneurship on the labours and smarts of German immigrants.
The parallel between BGI and Schroders is imperfect — inverse even in some ways. Where BlackRock was a hungry, fast-growing global asset manager that would take ETFs to international dominance, Schroders’ new ultimate owner is a cosy mutual. Where iShares was at the cutting edge of a new fund structure that would go on to dominate the way first equities, and now bonds, are managed, Schroders is clinging to the hope that old-style active management is not a dying industry.
But what these takeovers, 17 years apart, do share is also significant: they show that the City of London is still viewed as a hub for good value acquisitions and a wealth of talented financial services knowhow. The nationality of the owners is an irrelevance.
patrick.jenkins@ft.com