DEALTALK-Cleaned-up Swiss private banks seen M&A targets

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* Predators on the lookout for “clean” assets

* Low valuations, tight margins could spur M&A

* Rising costs of meeting new rules also a factor

By Martin de Sa’Pinto and Edward Taylor

ZURICH/FRANKFURT, March 30 (Reuters) – The latest clampdown
by German and U.S. authorities on tax-evading clients at banks
such as Credit Suisse (CSGN.VX: Quote, Profile, Research) could make Swiss wealth
management firms alluring takeover targets, bankers say.

That is because smaller Swiss private banks have been
intensifying their cleanup of untaxed assets in an effort to
limit the attention of foreign authorities, reducing risk for
potential acquirers.

“The predators won’t wait too long,” said one M&A investment
banker, who asked not to be named as he has an interest in these
deals. “They will take a certain risk by buying the most
attractive, cleanest banks and then take care of cleaning up any
undeclared ‘black’ money.”

Valuations of private banks have been falling. Having
fetched up to 5 percent of assets under management before the
financial crisis, they will typically command only 1 to 2
percent now.

That could present a mouthwatering opportunity for global
banks such as Barclays (BARC.L: Quote, Profile, Research), which makes no secret of its
aim to become a top five wealth manager, and Wells Fargo (WFC.N: Quote, Profile, Research)
and Morgan Stanley (MS.N: Quote, Profile, Research), whose wealth management arms have
both flagged a willingness to do deals. [ID:nN07268465].

Pierre De Weck, head of private banking at Deutsche Bank
(DBKGn.DE: Quote, Profile, Research), said the combination of dual taxation agreements and
a tax evader clampdown will pressure Swiss wealth managers clean
up their books.

De Weck declined to comment on what this could mean for
Deutsche’s expansion plans. But asked whether these factors make
Swiss wealth managers more attractive as targets, he said:
“Perhaps in the medium term, but not in the short run”.

The reason is, without clarity over the quality of the
assets, bankers worry they may be acquiring a bunch of untaxed
assets and a heap of trouble as the United States, Germany and
others are stepping up efforts to flush out tax evaders.

“In every takeover there’s the problem of undeclared assets.
Do we want to subject ourselves to that? Hardly,” Bank Sarasin
(BSAN.S: Quote, Profile, Research) Chief Executive Joachim Straehle said when the bank
reported 2010 results in February.

In July, Straehle had said Sarasin was in the market for
buys, but saw few suitable targets at the time. [ID:nLDE66S17H]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a timeline on Germany's crackdown on tax evasion click: [ID:nLDE6BG143] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

CLEANUP HITTING VALUATIONS

So which banks could be targets? Names could include those
banks which lost most ground on rivals during the financial
crisis, bankers said.

The most commonly cited names include Union Bancaire Privee,
which lost half its assets to client withdrawals and investment
losses, but has settled litigation concerning its Madoff losses;
EFG (EFGN.S: Quote, Profile, Research), which recently spun off its disappointing hedge
funds unit; and Julius Baer (BAER.VX: Quote, Profile, Research), which some see as a
choice target for a big-league player.

A key underlying concern for the sector is that political
pressure to roll back customer confidentiality is causing some
clients to flee Swiss banks and deterring many potential clients
from coming on board. This is reducing inflows and limiting the
amount of fees collected on assets, putting pressure on margins
especially at smaller banks.

In the United States officials are investigating other banks
after UBS (UBS.N: Quote, Profile, Research)(UBSN.VX: Quote, Profile, Research) paid $780 million in 2009 and agreed
to hand over nearly 5,000 account names to the U.S. government
to settle tax evasion charges. [ID:nN23169804]

An indictment by U.S. officials earlier this year charged
four bankers who worked or had worked at Credit Suisse with
encouraging Americans to dodge taxes. [ID:nN23169804]

In October Switzerland agreed to introduce a withholding tax
on deposits as part of a tax accord with Germany. Germans hold
an estimated 200 billion Swiss francs ($219 billion) in untaxed
assets in Swiss accounts. [ID:nLDE69Q23R] [ID:nLDE69P0E2]

This dual taxation deal offers a way for Germany to tap some
undeclared assets without Switzerland having to completely
abandon secrecy. A similar agreement is being hammered out with
Britain.

The rising costs of complying with new rules will add
further impetus for smaller banks to seek economies of scale as
their shrinking or stagnant asset base no longer provides an
acceptable level of profitability from management fees alone.
As the M&A specialist noted: “The main reason for
consolidation is that private banks need critical mass in terms
of assets under management to meet their various costs.”
(Editing by David Holmes)
($1 = 0.9149 Swiss franc)

DEALTALK-Cleaned-up Swiss private banks seen M&A targets