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Phoenix deal should revive Standard Life Aberdeen

Terry portrait with tieStandard Life Aberdeen’s decision to sell most of its insurance business marks a historic and seismic change in Scotland’s financial services sector that should not be underestimated.

Offloading the operations to Phoenix will mean a shift in focus for Standard Life Aberdeen which has long been expected to move further into wealth management.

It was already being reclassified as an asset manager on the stock exchange ahead of the merger of Standard Life and Aberdeen Asset Management last August.

As a result of the £3.2 billion sale to Phoenix, Scotland’s insurance sector suddenly finds itself with a massive new player which will have half its employees in Scotland.

Standard Life has been in Edinburgh since 1825. Phoenix can trace its history back even further, to the foundation of Phoenix Life Assurance in 1782.

The two have also developed strategic partnerships, most recently when Phoenix sold its asset management business Ignis to Standard Life in 2014, leaving SLA to manage £46bn of Phoenix’s £74bn in assets.

Phoenix will now take on the £158bn in assets in SLA’s Standard Life Assurance, one of Britain’s oldest life and pensions businesses.

SLA said it wanted to be “the asset manager of choice” for Phoenix as the latter seeks to win more of the UK market for closed, mature insurance business, worth around £300bn.

Phoenix chief executive Clive Bannister is expecting an “alignment of interests” that would help both companies, telling journalists on a conference call that “some deals make you bigger, some better. This does both.”

As for Standard Life Aberdeen, this could be the deal that kickstarts the promises made by the proponents of the merger.

For a start, the removal of the insurance element in SLA’s portfolio paves the way for talks to resume over its handling of Scottish Widows’ funds. Earlier this month Lloyds announced it was pulling £109bn of Widows assets from Standard Life Aberdeen over competition concerns.

SLA co-CEO Keith Skeoch had previously hinted at further talks and with the competition issue now lifted it makes it easier for the two to get back around the negotiating table.

The Phoenix deal is expected to lift Standard Life Aberdeen shares which have languished 16% lower since the merger.

It will free up capital which, when added to the £2.3bn cash element in the Phoenix deal, gives SLA more firepower to pursue acquisitions.

However, the switch to becoming a pure play asset manager will also be challenging. A combined £10.2bn was pulled from Standard Life and Aberdeen in the first nine months of last year, including £1.4bn from Standard Life’s flagship Global Asset Return Strategies (GARS) by December. Performance clearly has to improve.

This puts pressure on the ambitions of Mr Skeoch’s CEO partner Martin Gilbert to hit the trillion dollar club. The quickest route, of course, is to buy assets. Legg Mason was said to be an Aberdeen target ahead of the Standard Life tie-up.

Its $728bn of assets would propel SLA well beyond the target threshold and challenge Amundi’s claims to be Europe’s biggest asset manager with $1.7 trillion.

Messrs Skeoch and Gilbert know that in a consolidating market they must eat or be eaten. Expect Scotland’s dynamic duo to step up the deal activity.

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