Lloyds loses right to terminate investments with Standard Life Aberdeen

Lloyds Banking Group (LBG) has lost its dispute with Standard Life Aberdeen (SLA) over the termination of its own and its subsidiary's (Scottish Widows),£100bn plus investments with the group.

LBG gave notice of termination of its investment management arrangements that it had made with the former Aberdeen Asset Management in February 2018, following the merger of Standard life and Aberdeen. These were originally due to run until 2022.

This was based on the contract, which the LBG and Aberdeen signed after the sale of Scottish Widows Investment Partnership in 2014, held a clause which allows the Lloyds’ businesses to terminate the contract “in the event that Aberdeen was subject to a change of control with a material competitor”.

However, today, 19 March, and arbitral tribunal has ruled in favour of SLA. In a statement, SLA said: “The company is carefully considering the terms of the decision and appropriate next steps. In the meantime, the company will continue to manage the assets in the best interests of LBG's customers.

As at 31 December 2018, the value of the assets under management in respect of these arrangements was c£100bn, and no material amount of assets has since been withdrawn.

SLA chief executive Keith Skeoch said: "Now that the arbitration panel has ruled in our favour, we will carefully consider our next steps, working constructively with LBG to bring the matter to resolution."

Commenting, Hargreaves Lansdown senior analyst, Laith Khalaf, said: “This is a big victory for Standard Life Aberdeen, and a serious setback for Lloyds’ new foray into wealth management. While this is relatively low margin business for Standard Life Aberdeen, it’s clearly a large sum of money, and against a backdrop of fund outflows, will be particularly well-received. A big part of the rationale for the merger between Standard Life and Aberdeen was built on scale, which £100 billion of assets clearly speaks to.

“Lloyds has already ear-marked the lion’s share of these assets to form the basis of its new joint venture with Schroders, and has also hired Blackrock to manage some passive strategies. Negotiations will now begin between Standard Life and Lloyds to find some sort of resolution. This could involve Standard Life Aberdeen remaining as manager of the assets until 2022, or Lloyds stumping up some cash for breaking the agreement early.”

He believes that Lloyds may end up releasing some assets to get into its joint venture with Schroders, while leaving some funds with Standard Life Aberdeen.

A spokesperson for Scottish Widows said: “We are disappointed with the decision of the arbitration tribunal, and will look to discuss its outcome with Standard Life Aberdeen. Our strategy remains unchanged, which is to do the right thing for customers. We will discuss starting the process of an orderly transfer of assets to our new partners BlackRock and Schroders. We will continue to work closely with Standard Life Aberdeen to ensure there is no disruption to performance or service.”

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