Standard Life Aberdeen lose deal with Lloyds Scottish Widows

Standard Life and Aberdeen Asset Management merged just six months ago in an £11bn deal and joint chief executives Martin Gilbert and Keith Skeoch said they were “disappointed” by the decision, which will see the company take a £40bn hit.

SLA said that despite the size of the contract, it represented less than five per cent of its revenues last year.

However, SLA shares dropped ten per cent after the announcement, before recovering to around five per cent lower.

Aberdeen started managing assets for Lloyds’ Scottish Widows three years ago, when it bought Scottish Life Investment Partnership from the bank, but Lloyds retained the right to axe the agreement should Aberdeen join forces with a competitor.

It did so with Standard Life last August, creating Europe’s second-biggest fund manager.

Scottish Widows chief executive Antonio Lorenzo said it meant the assets were “being managed by a material competitor”, adding that it was “now appropriate to review our long-term asset management arrangements”.

The investment management deal will end after a 12-month notice period, but Lorenzo said the group had started assessing the market to find an alternative.

Gilbert said a year ago: “We have a very close relationship with Lloyds and they welcome this deal wholeheartedly, I think.”

He told an analyst: “Let me be clear. Lloyds welcome this deal and they have publicly stated that they think this is an excellent deal for Aberdeen.

“I think that what we now do is sit down and work out what strategic advantages there might be in working... more closely with Lloyds or whatever it might be.”

Gilbert said yesterday: “I suspect it’s disappointing to both sides - neither of us probably wanted this to happen. We both tried very hard to see if there was some sort of win-win situation for both of us.”

He said the company would pitch again for some of the mandate if it were invited, but he said it did not weaken the rationale for the merger.

“The assets under management (AUM) headline is far worse than the revenue and profit aspect of it,” he said.

“The merger’s going really well. It was signalled in the prospectus that [this] would be a possibility.”

However, some analysts pointed out the merger was intended to slash costs at the company to fend off pressure from cheaper, passive funds.

Laith Khalaf, from Hargreaves Lansdown, said: “Standard Life and Scottish Widows are long-standing rivals, and the prospect of one group managing the fund range of the other was never going to sit entirely comfortably in the corridors of power in Edinburgh.

“Losing this book of business would strike a sour note for the Standard Life Aberdeen merger, and undermines some of the rationale for joining forces, which was built on scale.”

“However, while almost a fifth of Standard Life Aberdeen’s assets look like they might be walking out the door, this only equates to five per cent of revenues, as these investment services are relatively low margin.”

More than £1 trillion of investment funds are managed out of Edinburgh, and up to two thirds of that has been at SAL, which managed £648m last September.