Standard Life Aberdeen stays awkward

About that £200m

Standard Life Aberdeen’s merger last year didn’t just give it an awkward name. Thursday’s confirmation that Lloyds Banking Group will pull £109bn of asset management business reveals the cost of awkward structural problems created by Standard Life and Aberdeen’s tie-up last year. SLA said Lloyds accounted for less than 5% of 2017 revenues. The group could unveil turnover of £19.34bn, when it reports annual results next week. But the future hit should also include a £40m impairment charge. That means the eventual impact on SLA revenues could approach £140m. If so, more than half of the £200m annual cost savings the group projected from their merger would be erased.

Unprepared

The group isn’t entirely to blame for arriving at this untidy situation apparently unprepared. SLA ended up owning a contentious asset after a complex string of deals over years. SLA-owned Scottish Widows Investment Partnership (SWIP) used to be part of Lloyds, which still controls insurance group Scottish Widows. But SWIP is the entity that manages the assets in the agreement with Lloyds. When rival insurer, Standard Life, joined the party, a clause allowed Lloyds to review the agreement on the grounds of ‘material competition’. Admittedly, at that point, SLA could have warned the market more directly.

Timing

The timing of Thursday’s news was also awkward. Including a 7% slide at the time of writing, the stock was 16% lower since the merger completed last August. Many clients also voted with their feet. Morningstar said a combined £10.2bn was pulled from Standard Life and Aberdeen in the first 9 months of 2017. Other clients were taking a wait-and-see attitude, judging by reports. With £1.4bn in outflows from Standard Life’s flagship Global Asset Return Strategies (GARS) by December, some of those clients may since have made up their minds. Continued client attrition could therefore eventually hurt revenues and profits. The Lloyds business was low-margin and probably replaceable. But losing it keeps awkward questions about the rationale for Standard Life and Aberdeen’s merger going.

Thoughts on Standard Life Aberdeen’s technical chart

With Thursday’s fall, the stock has collapsed back beneath the 380.5p support that it struggled under in the first few months of last year. That suggests absent an almost immediate rebound above that the price the shares could be becalmed on the wrong side for a further spell. Upward trend support is possible from a line from August 2016, though it’s been validated only once. For a more reliable support we look to 336.5p, where price bounced in November, January and close to another slightly higher test in April.

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