FMX | Connect – www.fmxconnect.com - (Reported 7/28/2010)
Asset Gatherers Jun.19 – Jul.23 Highlights
Asset managers were down -1.4%, discount brokers -3.4% and Swiss private bankers up +6.5% over the past four weeks. YTD asset managers are underperforming the S&P 500 by -11.6%; discount brokers by -14.8%; while Swiss private bankers are outperforming the index by +2.9%.
Asset Managers:
The SEC proposed new rules for 12(b)-1 fees which:1) cap the cumulative sales load at the up-front load level (and at 8.5% for no-load funds) and limits marketing fees to 25bps; 2) calls for more transparency and disclosure of fees, eliminating the term 12(b)-1 and replacing it with “Ongoing sales charge” and “Marketing and service fee” which will have to be disclosed in trade confirmations; and 3) encourages price competition on sales charges among brokers. Managers that do not convert A shares (point of sale –front end-) to class B (contingent deferred sales charge –back end-) and distribute funds through third party brokerage distribution platforms would be hardest hit. BEN and WDR would be hardest hit as significant flows come from broker platforms and have a significant portion of A class shares (59% and 63% of assets respectively). SCHW, one of the largest distributors of mutual funds in the US does not collect 12(b)-1 fees (it charges up to 40 bps from the company and only on 40% of total assets) so it wouldn’t be affected directly, but managers might curtail payments to advisors and distributors to offset the revenue loss or change their share conversion practices.
Consolidation in the asset management space as M&A activity in the sector continues to pick-up, and the largest players continue to attract a larger portion of funds and achieve better returns. A Boston Consulting Group report found that it now takes $1.5 trillion in AUM to become a top five asset manager, up from $1 trillion in 2005, with the top five firms growing by over 11% vs a 5% growth rate for the other firms. The top 20 companies also captured 88% of net sales in 2009.
Discount Brokers:
July DARTs are tracking lower M/M, as US equities volumes are down -11% sequentially month to date.
Competition with high frequency traders continues to erode options market makers’ profits and hurting IBKR’s bottom line (see page 13).
Swiss Private Bankers:
The Basel Committee on Banking Supervision said last Monday that 26 out of 27 members approved the new rules (Basel III) which limits banks definition of Tier 1 capital which is used to absorb losses. Germany is being singled out as the probable hold-out. During the fall, the committee will determine the minimum required Tier 1 capital to risk weighted assets. The new rules will prevent banks from using of-balance sheet vehicles and risk-weighting methods to measure their balance sheet items and will require banks to hold a Tier 1 capital equal to three percent of unweighted assets and will be in test phase until the end of 2017. Banks will also be allowed to count government and high quality corporate bonds in their Tier 1 capital calculation.
BAER reported better than expected results and a grow in net new money of +4.2% annualized.
The head of the Swiss Radical Party and chairman of Banca dello Stato del Canton Ticino proposed that Switzerland should tax assets in the nation’s banks owned by foreigners at the same rate they would pay in their home countries. Under the plan, banks would be required to accept only funds from clients previously disclosed to tax authorities, as MF reported. Such initiatives would trigger significant outflows.
Source: ERDesk
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