(Reuters) – Spanish bank Santander and Italian rival UniCredit are close to a deal to combine their asset management businesses to create a European fund managing powerhouse, sources close to the matter told Reuters.
Under the proposed agreement, Santander Asset Management is expected to buy a stake of up to 50 percent in UniCredit’s asset management division Pioneer, the sources said.
The plan envisages merging the two to create a business managing a combined 328 billion euros ($421 billion) of assets, they added.
“We view this as a growth play – Pioneer and Santander (are) better and stronger together,” said one of the sources.
“Not because of synergies but because you can grow into a more global business,” this source said. “In the future we could be a platform for consolidation or list the business as a whole.”
For UniCredit, Italy’s biggest bank by assets, the sale is the latest in a string of disposals.
Like some other European lenders seeking to shore up their capital base ahead of a health check of euro zone banks whose outcome is set to be made public next month, UniCredit has been shedding assets, cutting jobs and closing branches.
Santander, the euro zone’s biggest bank, last year sold a 50 percent stake in its own asset management arm to U.S. private equity firms Warburg Pincus and General Atlantic. A tie-up with Pioneer would help it grow the lucrative unit.
“It makes sense for Santander to keep growing the asset management business in collaboration with other partners at a moment when growth rates are steadily picking up,” said Nuria Alvarez, financial analyst at Madrid-based brokerage Renta 4.
UniCredit held a board meeting on Tuesday and an announcement could be made later on picking Santander for exclusive talks, the sources said.
However, some UniCredit executives are worried that selling Santander a large stake in Pioneer, which manages assets worth 174 billion euros, would amount to “inviting a big rival in your house”, according to one of the sources. UniCredit and Santander both declined to comment.
Details of the proposed deal were still sketchy, but the tie-up would likely add around 20 basis points to UniCredit’s core capital ratio, a measure of financial strength, analysts say.
UniCredit’s best-quality capital stood at 10.4 percent of risk-weighted assets at the end of June, well below the 12.9 percent level of domestic rival Intesa Sanpaolo.
Over the past few months, UniCredit has listed a 34.5 percent stake in online bank Fineco and sold an 81 percent holding in web broker DAB. It is also in talks to sell its bad loans management unit UCCMB.
These moves allowed the bank to bolster its capital in the face of a prolonged recession in Italy and European sanctions against Russia amid rising political tensions in central and eastern Europe – a key profit generating area for UniCredit.
Santander, which managed 154 billion euros in assets as of March, has faced stiff competition for the stake from a consortium comprising private equity fund CVC Capital Partners and Singapore sovereign fund GIC, while U.S. fund Advent was also in the frame.
But last week the Spanish bank emerged as a favourite candidate because of its experience in asset managing.
“They were the last one to enter the auction and now they’re very hot on this deal. Their plan is to merge their existing asset management operations with Pioneer’s,” one of the sources said.
The bids on UniCredit’s table are for a stake of up to 50 percent in Pioneer, sources have said, with at least one of the proposals valuing the whole of Pioneer at around 2.4-2.7 billion euros, or 9-10 times earnings before interest, tax, depreciation and amortisation of 270 million euros.
UniCredit had considered the sale of Pioneer in 2011 but dropped it after failing to conclude a tie-up with Eurizon, the fund management arm of domestic rival Intesa Sanpaolo.