A sketch of an initial agreement between Lloyds and Standard Life Aberdeen (SLA) has been described as a victory for the disgruntled fund group, but has also opened up questions over the fate of a £30bn passives mandate that was supposed to go to Blackrock.
Sky News reported on Monday that the FTSE 100 high street bank was on the verge of ending its legal battle with SLA over a contract worth more than £100bn.
Sources told the news outlet that an outline of a settlement had been drawn up which would see Lloyds pay £140m in cash, less than had been anticipated, and allow SLA to continue managing about £30bn of assets for three years.
However, they said the agreement was not set in stone and remains subject to change.
Question mark over Blackrock passives mandate
The third of the mandate SLA will retain control over is said to be made up of passives funds, according to insiders. A further review of the stewardship of the funds would take place in 2022.
Lloyds had announced it would be handing over the passive assets to Blackrock, while gifting the remaining £80bn to Schroders as part of its joint venture with the fund group with the aim of creating one of the top financial planning businesses in the UK.
Lloyds declined to comment for this story. Portfolio Adviser contacted Blackrock but did not hear back.
Victory for SLA
Hargreaves Lansdown senior analyst Laith Khalaf said the initial terms of the outlined agreement should be seen as a victory for SLA which could have easily walked out the door with less.
“I’m sure there’s been a lot of negotiation over the figure and given that process I would expect an equitable resolution for both parties,” he said. “However, at one point it looked like the funds were going to walk out of SLA’s door without any recompense, and so in that wider context being able to claw back some revenue is a victory for Standard Life.”
“This is definitely a victory for SLA but in line with the contract that was in place,” Willis Owen head of personal investing Adrian Lowcock said.
“The question going forward is, is this the right thing for the investors and are they getting value for money?”
Positive for both businesses
Tilney managing director Jason Hollands noted that while the settlement is not yet finalised, news that the arbitration process is drawing to a close is a positive for both businesses.
“What settlement will mean is that each party can move on from this protracted commercial dispute and instead focus on their respective growth plans, so this is something which should be regarded as a satisfactory outcome for both sides,” Hollands said.
But SLA investors may have been banking on a higher payout from Lloyds given the ruling from an arbitration panel four months ago that the high street bank was not entitled to terminate the contract with SLA two years before it was due to expire in 2020.
In Lloyds’ Q2 update it set aside a one-off £339m charge for “adverse movements in banking volatility and an estimated charge for exiting the Standard Life Aberdeen investment management agreement”.
The bitter dispute between the two parties began 18 months ago when Lloyds prematurely yanked a £109bn Scottish Widows mandate that had initially been inked with Aberdeen Asset Management because it believed the fund group had become a material competitor following its merger with Standard Life.
Losing the contract was a huge blow for SLA which has been struggling to curb outflows in recent years. In its last set of full-year results it said assets under administration had shrivelled from £608bn to £551.5bn.