Church of England to Hold RBS Branches for the Long Term

(September 30, 2013) — The Church Commissioners for England’s involvement in buying bank branches from the Royal Bank of Scotland (RBS) last week is part of a long-term strategic investment, aiCIO can reveal.

CIO Tom Joy told aiCIO the investment—which saw the Church Commissioners join Corsair Capital and Centerbridge Partners in a consortium to buy 314 RBS branches—would “likely be held for a long time”.

Even at the point where the new bank formed by the branch network—Williams & Glyn’s—reaches the stage where it will float an initial public offering (IPO), the Church Commissioners was likely to retain its shares, Joy added.

The £600 million pre-IPO investment draws a line under RBS’s challenging task of selling off 314 branches—a requirement of it receiving state funding in 2008.

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An initial sale to rival retail bank Santander hit the buffers in February this year, leading to a public tender for investors.

Following completion of the operational and legal separation of Williams & Glyn’s into a standalone bank, RBS will pursue an IPO.

Williams & Glyn’s came into being in 1969 following RBS’s merger with National Commercial Bank. It was used as the brand name for the lenders’ 326 branches across England and Wales.

It was formed of two separate banks: London private bank Williams Deacon & Co, which was founded in 1771 which became part of RBS in 1930, and Glyn, Mills & Co also a London private bank from the early 1750s, which was bought in 1939 by RBS.

By the 1980s the bank was well-established across the UK and had opened 66 new branches, but only 15 years after being brought back to life, the Williams & Glyn’s names were lost once again when RBS decided in 1985 to merge the business with its English subsidiary to form the new Royal Bank of Scotland Plc.

The £600m deal announced last week takes the form of a bond to be issued by RBS, which will be exchangeable for a “significant minority interest in Williams & Glyn’s” at the time of its IPO.

The deal, led by private equity groups Corsair Capital and Centerbridge Partners, is the first time the Church Commissioners have entered into such an arrangement.

Joy confirmed there were no more similar deals in the pipeline, but said when interesting opportunities arose, his team was “flexible enough to take advantage”.

The Church Commissioners fund is a hybrid pension/endowment that receives no income from the Church. The fund is the second largest of its type in the UK—after the Wellcome Trust—and is in the top 10 in the global rankings.

A third of its assets are earmarked to provide pensions to Church of England staff, and the rest is to support the church’s work in the community.

(September 30, 2013) — Small and boutique asset managers are facing increasingly large regulatory hurdles that could force many of them out of the game, research has found.

More than half the respondents to a survey by Tabb Group and Sungard said encroaching “institutionalisation” was the greatest barrier to entry in the fund management industry. The 51% agreement on this issue dislodged last year’s highest-cited obstacle of cost, which attracted just 44% of the top votes as the main problem faced by this group.

“Growing operational and regulatory minimum requirements such as AIFMD, Dodd-Frank, and UCITS IV/V are leaving many boutique asset management firms unable to take part in the mandate process,” said Adam Sussman, partner and director of research at TABB Group. “Scale is the feature that boutiques believe they lack, and technology and better operational efficiency is the key to achieving increased scalability.”

That these firms feel unable to compete due to heightened regulatory hurdles is somewhat ironic, according to Ed Lopez, executive vice president at SunGard’s asset management business.

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“The Catch-22 here is that boutiques pose less systemic risk than large institutional managers, yet due to the high cost of compliance and a proliferation of regulation they are the ones under greatest threat,” said Lopez. “So while the ‘too big to fail’ firms continue to raise assets, boutiques run the risk of being ‘too small to succeed’. They need to be more focused and self-aware as they navigate their way through this regulatory uncertainty.”

Perhaps unsurprisingly, the SunGard executive added that these smaller firms should invest in technology, improve their operational efficiency, and look seriously at outsourcing any function that does not relate to their core competency of investing – especially those related to compliance and reporting.

In December last year, SunGard reported that the majority of asset managers saw their industry splitting into two camps: massive, full-service firms and specialized boutique shops. Some 70% of 126 surveyed managers believe in the “Big Squeeze” phenomenon—middle-tier players losing ground while the major firms grow and niche boutiques proliferate.