German Custodian Banks Seen Consolidating, Missing Scale

(Bloomberg) -- Jens Hagemann, Chief Executive Officer of Munich based V-Bank AG, sees consolidation in the custodian business for independent asset managers because the market is too fragmented. He’s not the only one with that opinion.

“You need at least ten billion euros in assets under management to be profitable as a custodian for wealth managers in today’s market conditions,” he said in an interview with Bloomberg. “Most market participants are below that limit.” Frankfurt-born Hagemann is the founder of V-Bank, which operates exclusively in this business, and a former management board member of DAB, the predecessor bank of DAB BNP Paribas.

Ultimately, those who don’t reach critical size will not be happy in the long term, Hagemann said. Value creation lies with the asset manager - and "custodians only live on the crumbs."

Negative rates on cash deposits

Challenges facing the sector include regulatory issues and the low interest-rate environment, which weighs on interest margins, he said. His company decided to demand a fee of 0.4 percent for cash in excess of 500,000 euros in an account. That affects about 2.5 percent of customers.

“We share this view," Michael Bentlage, CEO of Hauck & Aufhäuser Privatbankiers AG, said regarding the possible consolidation in the custody business for asset managers. The Frankfurt-based bank has recently taken over Sal. Oppenheim jr. & Cie. Luxembourg and Oppenheim Asset Management Services. “After successfully integrating Sal. Oppenheim’s two Luxembourg units, we are generally open and ready for further acquisitions,” he said.

So far, V-Bank’s growth has been organic. Managed client funds stood at around 17.5 billion euros as of the end of 2017. Hagemann does not rule out acquisitions: "If sensible options arise to disproportionately gain additional market share through acquisitions, we will seize those. We keep our eyes open in this market."

DAB BNP Paribas, considered to be the market leader among the German custodian banks for independent asset managers, manages about 33 billion euros in client assets. “We want to continue to grow strongly and organically in the future, and we are currently massively expanding our digital service,” Robert Fuchsgruber, head of B2B business at DAB BNP Paribas said.

Ten strategic market participants

Michael Gillessen of Hamburg based Joh Berenberg Gossler & Company KG is more cautious. He considers it less likely that new providers will enter the market, but he also does not believe that existing market participants will feel pressure to consolidate.

Hagemann, whose bank cooperates with 355 asset managers and 35 single-family offices in the custody business, regards a consolidation as likely not only among custodian providers, but among asset managers themselves, too. "There will be fewer companies in the relevant target group with more client assets under management," he said.

Original Story:
Deutsche Depotbanken vor Konsolidierung gesehen - ’Krümel’-Lohn

Reporter on the original story: Stephan Kahl in New York at skahl@bloomberg.net

Editors responsible for the original story: Erhard Krasny at ekrasny@bloomberg.net, Stephan Kahl

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