Standard Life Outflows Persist as It Fails to Quell Concerns

(Bloomberg) --

Standard Life Aberdeen Plc has failed to staunch the bleeding of assets from the firm that have persisted since it was created through a merger in 2017.

Clients yanked 15.9 billion pounds ($19.3 billion) in the first six months of 2019, adding to the 24.3 billion pounds in net outflows in the previous six months, according to a company statement on Wednesday. That's more than the average 13.4 billion pounds of outflows forecast by analysts. Standard Life fell as much as 6.9% in London trading.

The combination of Aberdeen Asset Management and Standard Life was intended to create a heavyweight capable of competing with low-fee passive money managers that have seized an increasing share of the market in recent years. As standalone companies the two struggled, but the combination hasn't been an easy fix. Standard Life Aberdeen saw 32.9 billion pounds of outflows in 2017 and 40.9 billion pounds in 2018.

These are the first earning results since Keith Skeoch took over as sole chief executive officer in March, when the company abandoned its dual-leadership structure and bumped Martin Gilbert down to vice chairman. The scrapping of the dual-CEO structure was intended to streamline reporting lines and facilitate the next stages of the merger of the two companies, which Standard Life said at the time was 75% complete.

“The industry is tough out there; there's a lot of change and there's a lot change in client demands,” Skeoch said in a Bloomberg Television interview on Wednesday. “Flows are definitely hard to come by.”

Profit Falls

Assets under management and administration at the firm rose to 577.5 billion pounds from 568.9 billion pounds at the end of March because of market gains, according to the statement. This was above the 568.1-billion pound company-compiled average of 11 analysts' estimates.

Adjusted profit before tax from continuing operations decreased to 280 million pounds from 311 million pounds the same prior year period. This was below the analysts' consensus forecast of 288 million pounds.

The merger, however, scuppered one of its biggest institutional contracts. Standard Life will lose the majority of its 104 billion-pound contract with Lloyds Banking Group Plc, in what was one of the most high-profile disputes in the U.K. fund management industry's history.

Lloyds Deal

Lloyds has agreed to pay Standard Life 140 million pounds in cash as compensation and leave 35 billion pounds of the total under their management until April 2022, according to a statement on July 24. Schroders Plc will be the biggest beneficiary of the contract loss.

The arrangement between the two companies was a legacy of Aberdeen's acquisition of Scottish Widows Investment Partnership from Lloyds in 2014. The lender, which said the Standard Life merger created a competitor to its own insurance unit that breached the contract, announced last year that it was ending the arrangement and looking for alternative managers.

As part of efforts to cut costs in the face of the outflows, the firm has slashed compensation and spun off assets. Standard Life got an offer for its stake in its Indian life insurance company HDFC Life, and also sold its U.K. and European insurance operations.

Skeoch's total compensation for 2018 was cut by 62% to just under 1.1 million pounds and Gilbert saw the maximum bonus payable to him more than halved. The incentive compensation for U.K.-based employees dropped by 45% on average, according to the firm's annual report.

--With assistance from Anna Edwards and Matthew Miller.

To contact the reporters on this story: Suzy Waite in London at swaite8@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Ambereen Choudhury

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