Investment giant Standard Life Aberdeen may pursue Lloyds for £300m

SLA has been managing the assets as a consequence of Aberdeen Asset Management’s acquisition in 2014 of Scottish Widows Investment Partnership, the asset management arm of Scottish Widows. That deal pre-dated the £11 billion merger of Standard Life and Aberdeen Asset Management in 2017, which according to Scottish Widows had resulted in its assets being managed by a “material competitor” in SLA in the pensions market.

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Scottish Widows moved to pull the plug on the deal and served SLA with a 12-month notice period on February 15, 2018. But the decision was disputed by SLA, which argued that it was not in material competition with the bank. The matter then moved into a process of arbitration.

That process ended yesterday with an outcome in favour of SLA, which is now mulling its next course of action. The investment house could seek compensation from Lloyds or continue managing the assets until March 2022, when the original mandate was due to expire.

Analysts have signalled the compensation could be worth around £300m, with that figure based on the annual management revenue from managing the assets for the next three years. SLA reported fee-based revenue of £1.9bn for 2018 last week.

One analyst, Edward Firth of KBW, was quoted by Reuters as saying: “We could expect Lloyds to have to pay compensation. This is likely to be in the order of around £300m.”

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Bank of America Merrill Lynch described the ruling as an “unexpected positive outcome” for SLA and also believes a compensation claim could be on the cards.

It said: “SLA stated it is now “carefully considering the terms of the decision and appropriate next steps.” In the meantime, SLA will continue to manage the assets.

“We believe the asset transfer away from SLA could still take place, but SLA would likely be compensated in our view.”

SLA said in a statement that the arbitral tribunal ruled that Lloyds was not entitled to give notice to terminate the investment management agreements in respect of assets managed by members of the Standard Life Aberdeen group. It said it will continue to manage the assets on behalf of Lloyds’s customers, noting that the assets were valued at around £100bn on December 31, with no material amount of assets withdrawn since.

Chief executive Keith Skeoch said: “Now that the arbitration panel has ruled in our favour, we will carefully consider our next steps, working constructively with LBG to bring the matter to resolution.”

The ruling does not give Lloyds the right to appeal. The bank’s Scottish Widows business began a revamp of its asset management operations after it moved to terminate the SLA mandate.

It announced in October that it had awarded investment giant BlackRock a mandate to manage £30bn of assets, noting at the time that the deal would begin when the SLA arbitration ended or when the existing contract expired.

Later that month Lloyds unveiled a joint venture under which it will merge its wealth management operations with Schroders. Under the deal, Schroders was appointed manager of around £80bn of Scottish Widows and Lloyds insurance and wealth-related assets. It was also noted that the management of £67bn of Scottish Widows’ assets would begin when the SLA arbitration ended, or when the contract expired in March 2022.

A spokeswoman for Scottish Widows said: “We are disappointed with the decision of the arbitration tribunal, and will look to discuss its outcome with Standard Life Aberdeen. Our strategy remains unchanged, which is to do the right thing for customers. We will discuss starting the process of an orderly transfer of assets to our new partners BlackRock and Schroders. We will continue to work closely with Standard Life Aberdeen to ensure there is no disruption to performance or service.”