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Royal Bank of Canada (RY-T) and Credit Suisse are among suitors who have put in initial bids to buy the non-U.S. wealth management business of Bank of America (BAC-N) in a deal that could be worth about $2 billion US, sources tell Reuters.
Swiss bank Julius Baer was also keen to bid for some of BofA's units in Europe, the Middle East, Latin America and Asia excluding Japan, the sources, who had knowledge of the matter, told Reuters. It was not clear whether Switzerland's third-biggest bank had submitted an initial bid.
The deal would be the biggest in the wealth management industry since ING Group sold its private banking assets in Europe and Asia in 2010 to Julius Baer and Singapore's Oversea-Chinese Banking Corp, respectively, for a total of about $1.9 billion.
Bank of America, which the sources said has already received non-binding bids, is auctioning off the businesses, Reuters reported last month, as its non-U.S. wealth division is too small to produce meaningful profits.
The units manage about $90 billion of an estimated $2 trillion that the wealth division oversees at the second-largest U.S. bank by total assets.
Some earlier estimates put the deal value at as much as $3 billion but sources said the units up for sale could realistically fetch $1.5-$2 billion based on a multiple of about 2 percent of client assets under management. Emerging market assets could command higher multiples.
Consolidation in the wealth management industry has been a major theme in the banking sector since the 2008 financial crisis, as an increase in costs and regulation forces players to sell off the units that serve the rich.
"Bank of America is selling because it is shrinking the company. This must be its first priority," said Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida. "There are likely to be multiple buyers at a relatively low price."
Bank of America has lagged peers in recovering from the financial crisis, largely because of huge losses and lawsuits tied to its 2008 acquisition of subprime mortgage lender Countrywide Financial.
The first-round bids closed this month and Bank of America is in the process of notifying the shortlisted suitors, one of the sources said.
The sources declined to be identified because the bidding process is not public. Bank of America, Julius Baer, Credit Suisse and Royal Bank of Canada (RBC) declined to comment.
"We're in a quiet period and we wouldn't comment on rumor," said RBC spokeswoman Rina Cortese.
Canada's largest bank, which will release second-quarter results on May 24, has been growing its wealth management business and made acquisitions that included British fund manager BlueBay Asset Management for $1.5 billion about two years ago.
RBC, which has said it wants to expand its wealth operations organically and with small- and medium-sized acquisitions, is also buying some overseas units of the Coutts private banking business from Royal Bank of Scotland.
ALL IN ONE GO?
In any auction, companies generally prefer to sell the entire group in one go, as that is easier and faster to negotiate and execute, sources say.
A source with knowledge of the deal said it looks very likely that Bank of America is interested in selling the business in one chunk.
"It will definitely complicate them immensely if they have to cut it up," the source said. "My view is that they are going to sell it as a whole and therefore the number of banks that actually can do it will be more limited."
But, like so many sellers of businesses that span the globe, Bank of America may explore selling the units in geographical chunks, some sources said. That process is more complicated but could generate more money in the end by selling multiple parts at a premium instead of one.
Such a strategy could attract bids from China, South Korea and Singapore as banks in the three countries are trying to expand their wealth management services to tap Asia's growing affluence.
The sale process is not advanced and Bank of America's commission-based compensation model is proving to be a challenge for many suitors, the sources said. That is because the structure competes in a private banking world where financial advisers increasingly are being paid fees based on assets under management in a move towards curbing risk.
Integrating the two compensation models will be difficult for potential buyers, sources said. The other option is to run the two models separately.
"A lot of suitors are having a hard look at the business model," one source said.
In Singapore, the most visible interest could come from United Overseas Bank, which does not have a wealth management business as big as those run by rivals DBS Group and OCBC, banking sources said.
UOB was not immediately available to comment. The Singapore bank is among suitors who have bid for ING's Asian asset management business, sources said earlier this week.
The size of the emerging market wealth opportunity is tantalizing, outlined in several reports that show just how large the business could be in a place like Asia.
The combined wealth of the rich from Hong Kong and Singapore alone is forecast to surge nearly 70 percent to $1.3 trillion by 2015, according to a survey by Julius Baer released late last year.
At 3.3 million, the number of Asian millionaires has risen above Europe's 3.1 million and just trails the 3.4 million in North America, according to the Merrill Lynch/Capgemini Asia-Pacific wealth report issued last year.
McKinsey & Co forecast the number of rich in Asia will rise 14 percent per year through 2015 compared with 4 percent growth in Europe and 5 percent in North America.