Merger implications see Lloyds pull £109bn from Standard Life Aberdeen

Standard Life Aberdeen shares took a battering today when they fell 6 per cent on news Lloyds is withdrawing £109 billion of assets from the Edinburgh-based asset manager.

The move stems from the result of sales and mergers which Lloyds found to have been left it in a position where it was invested in a rival.

Lloyds terminating investment management arrangements via the Scottish Widows Investment Partnership, which it had sold to Aberdeen Asset Management in 2014.

According to reports, Lloyds, which still owns Edinburgh-based life firm Scottish Widows, had been left in a position where it has found itself invested in its Capital neighbour Standard Life as a result of its rival’s merger with Aberdeen AM last summer.

Antonio Lorenzo, chief executive of Scottish Widows, said: “Given the merger of Standard Life and Aberdeen has resulted in our assets being managed by a material competitor, it is now appropriate to review our long-term asset management arrangements to ensure they remain up-to-date and that customers continue to receive good service and investment performance. Therefore, we will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109 billion of assets.”

The news represents a major blow for Standard Life Aberdeen as increasing scale was part of the rationale behind last year’s mega merger.

The funds to be withdrawn by Lloyds represent around 17 per cent of Standard Life Aberdeen’s £646 billion of total assets under management - but only 5 per cent of revenues.

Standard Life Aberdeen may still be able to retain the chunk of assets, subject to further negotiations, but Keith Skeoch and Martin Gilbert, Standard Life Aberdeen’s chief executives, expressed their disappointment on the news.

They said: “We are disappointed by this decision in the context of the strong performance and good service we have delivered for LBG, Scottish Widows and their customers. We will be discussing the implications of this with LBG and Scottish Widows.”

Lloyds will now have 12 months to reallocate the money, something that may prove to be not easy given that it represents a low margin business and finding a company that is not a rival in the workplace pensions market could further limit options.

Another route for Lloyds, which is launching its three-year strategy next week, could be to rebuild its own investment management capabilities.

On such a move, according to Hargreaves Lansdown investment analyst Laith Khalaf, “would make some sense now the bank has recovered from the financial crisis and will be looking for opportunities to grow and diversify.”

Mr Khalaf cautioned, however, that 12 months would be a very short amount of time to pull this off.