$932 Million Explains Why Nobody’s Buying What GAM’s Selling

(Bloomberg Opinion) -- Five weeks ago, I suggested that Swiss fund manager GAM Holding AG might have fallen by enough to be attractive to potential bidders, despite the laundry list of challenges it faced. If it was cheap then, it’s a whole lot cheaper today.

$932 Million Explains Why Nobody’s Buying What GAM’s Selling

News Thursday that the firm expects to lose 925 million Swiss francs ($932 million) this year, compared with a net profit of 123.2 million francs in 2017, wiped as much as a third off GAM’s shares. As my Bloomberg News colleague Patrick Winters reports, the loss erases eight years of earnings.

The stock’s plunge suggests that the deterrents to a takeover that I detailed last month — the damage done to its reputation by the suspension of star investment manager Tim Haywood in July, the risk of staff departures, the possibility of regulatory fines, and the ongoing customer withdrawals — are still dissuading any potential buyers, no matter how affordable GAM looks. The firm currently trades at less than six times its 12-month blended forward earnings, down from about 16 times in January.

If GAM were making money for its customers, the picture might improve. But it isn’t.

$932 Million Explains Why Nobody’s Buying What GAM’s Selling

Net outflows from the end of September to the end of November were 4.2 billion francs; market losses and currency movements contributed a further 1.6 billion francs of erosion to the investment management division’s assets under management. The company expects its performance to deliver just 3 million francs of fees this year, down from 44.1 million francs last year. No wonder its clients continue to head for the exit.

$932 Million Explains Why Nobody’s Buying What GAM’s Selling

Losing almost 10 percent of your assets under management in the space of eight weeks isn’t a good look in an industry where scale is increasingly important. And while that shrinkage makes a cost-cutting program inevitable — GAM says it plans to cut 10 percent of its workforce — there’s only so much interim Chief Executive Officer David Jacob can trim without harming the firm’s recovery prospects.

As Philippe Jabre’s decision to shut up shop suggests, life isn’t getting any easier for the active fund management crowd. In the absence of either easier-to-trade markets or a brave suitor, it’s hard to see what can reverse GAM’s decline.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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