Standard Life Aberdeen was today dealt a blow after being stripped of £109bn of assets it manages on behalf of life insurer Scottish Widows.
The newly merged fund management behemoth said it would lose up to five per cent of annual revenues and take a £40m impairment charge after Scottish Widows’ owner Lloyds Bank pulled the trigger on a “material competitor” clause.
Standard Life Aberdeen shares fell over seven per cent in trading today.
A review was kicked off six months ago by Scottish Widows and Lloyds Bank following the merger of Standard Life and Aberdeen Asset Management.
Scottish Widows chief executive Antonio Lorenzo said: "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.
“Therefore, we will begin an in-depth assessment f the market to identify a long-term strategic partner, or partners, to manage the current £109bn of assets.”
The co-heads of Standard Life Aberdeen Keith Skeoch and Martin Gilbert said they were "disappointed" by Scottish Widows' decision.
"We will be discussing the implications of this with Lloyds Banking Group and Scottish Widows," they said in a statement.
Scottish Widows said it would welcome Standard Life Aberdeen to re-tender for the mandate if it was “able to resolve the competition issue”.
It is understood the duo are at odds over whether Standard Life’s merger with Aberdeen Asset Management has created a “material competitor”.
Sources at Standard Life Aberdeen were confident some kind of “middle ground” could be found, allowing the FTSE 100 firm to recapture at least some of the assets relinquished.
"Negotiations had been ongoing during the six-month transition period to broker a new agreement between the two companies, with Lloyds intent upon seeing a reduction in fees on their investment or a transferral of a chunk of SLA’s pension bulk annuities business,” said Accendo Markets analyst Henry Croft.
"However, just a day after the expiry of the agreement, Lloyds has jumped at the opportunity to remove a significant chunk of the all-Scottish asset manager’s assets under management, with the newly-merged company losing its largest client half a year into its post-merger life."
Hargreaves Lansdown senior analyst Laith Khalaf said the move was a blow for Standard Life Aberdeen but had “been on the cards ever since the merger”.
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. It’s also worth noting the sort of funds involved are not run by the star managers of the stable, rather they are the sort of strategies that feature in older pension contracts sold under the Scottish Widows banner.