Lloyds Terminates £109 Billion Contract With Standard Life Aberdeen

Lloyds Banking Group said it will terminate an agreement with Standard Life Aberdeen to manage £109 billion ($153.3 billion) of assets on behalf of its Scottish Widows and Wealth divisions, a substantial portion of the recently merged asset manager’s funds under management.

In a statement on Thursday, Scottish Widows explained that contracts were originally drawn up with Aberdeen Asset Management in 2014, but the contracts had a clause allowing for a review of arrangements if Aberdeen were to be taken under new management.

The two Lloyds divisions viewed Standard Life as a competitor to both the Scottish Widows and Wealth businesses and began talks with the newly-combined Aberdeen Standard six months ago to try to address areas where there were concerns over competition.

The news will come as a blow to Aberdeen Standard, now the U.K.’s biggest listed fund group, as it has already endured heavy outflows since the merger. The firm managed £646 billion in assets through September of last year.

According to the company’s first trading statement as a combined entity, released in December, it suffered redemptions of £23 billion in the first nine months of 2017, driven by outflows from institutional investors. At the time, joint chief executive officers Martin Gilbert and Keith Skeoch said the outflows were “in line” with their expectations because of the asset classes affected and the fact that some outflows were from “lower margin, mature books”.

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 Antonio Lorenzo, chief executive of Scottish Widows and group director of Lloyds Banking Group’s Insurance & Wealth division, said in the Scottish Widows statement that the merger had meant that its assets were now being “managed by a material competitor” and that was cause for review.

“It is now appropriate to review our long-term asset management arrangements to ensure they remain up to date and that customers continue to receive good service and investment performance,” he said in the statement. “We will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109 billion of assets.”

The company said it is seeking to have new arrangements in place by the first half of 2019 and that it would work with its current partners to limit any disruption. It also said there was still a possibility for Standard Life Aberdeen to be a part of future plans if competition concerns could be addressed.

Standard Life Aberdeen released its own statement on Thursday, playing down the significance of the Lloyds Banking Group contracts. It said that the revenue associated with these mandates represented “less than five per cent” of Standard Life Aberdeen’s full year revenues.

In a statement to investors, Keith Skeoch and Martin Gilbert, Standard Life Aberdeen's chief executives, said they were “disappointed by this decision” given the team’s strong performance and service track record. “We will be discussing the implications of this with Lloyds Banking Group and Scottish Widows,” they added.