Research houses put BT in holding pattern

Three of Australia’s most influential investment research houses -van Eyk,AssirtandLonsdale Securities(Lonsec) - have placed a blanket hold on BT Financial Group funds in the wake of theWestpac Bank’sacquisition of the funds management group yesterday.

The move by Westpac, which has agreed to pay $900 million to buy BT from the US based Principal Financial Group, makes the bank the fourth largest retail funds manager in the country with more than $30 billion of funds under management.

But research groups signalled yesterday the bank would face significant hurdles to integrate BT, as well as its other recent funds management acquisition,Sagitta Rothschild Wealth Management.

The van Eyk research group says the key issue for BT clients in the short term will be the impact of staff departures on the management of BT funds.

BT’s chief executive Ian Martin, chief investment officer Gary Symons and chief operating officer Graeme Fowler, have already confirmed they will leave the funds management group.

According to van Eyk, BT’s head of equities, Marcus Fanning, and head of domestic fixed interest, David Fraser, are yet to decide whether they will continue with the group.

“To date the banks have not been able to create and develop a dynamic funds management culture. This will be crucial to the retention of quality investment individuals in the future,” the van Eyk group says.

The Assirt research group says there is also a doubt over the future of a whole host of BT’s key domestic funds management team.

At this stage, it appears to be Westpac’s intention to integrate BT’s Australian equity team with Sagitta’s. The move would create a combined Australian equity team of 25 people, a size analysts consider excessive given that Westpac has flagged cost savings as one of the key drivers of its acquisition of BT.

“There is some significant duplication [between Sagitta and BT] in domestic investment management, whose integration will disrupt and potentially affect the investment capability of both Sagitta and BT,” Assirt says.

Lonsec says the uncertainty will also apply to BT’s international equities team.

BT has indicated that its international equity portfolio managers will be retained until the sale to Westpac is completed in late October, but says its offshore funds management capabilities will then be outsourced to an as yet unnamed global investment manager.

The US based Putnam group, which manages international equites on behalf of Sagitta Rothschild, has not been ruled out as a contender to take on a similar role with BT’s international funds.

Lonsec also announced yesterday that it had placed all Sagitta funds on hold while it assessed the implications for the group of Westpac’s purchase of BT.

Westpac announced yesterday that Peter Martin, the chief executive of Sagitta, would not continue with the group following the bank’s acquisition of BT.

“It is too early to say what the specific impacts are on the BT and Sagitta Rothschild businesses of the Westpac acquisition. In a general sense, however, we do expect that it will have a damaging effect on the morale on both BT and Sagitta Rothschild personnel. We expect Westpac to be a long term owner, but in the short term this move is destabilising,” Lonsec says.