Masters are the wary assets in funds galaxy

By Giles Parkinson

Sydney view

They call them the Masters of the Universe, and for the past three months their business has been up for sale to the highest bidder.

But the deadline for the sale of Bankers Trust Australia passed on Friday without a deal being done. The reason why is a story of a botched sale process and a group of people who really do think they are the Masters of the Universe.

BT Australia was put on the market in March after Deutsche Bank, the German finance group that had agreed to buy Bankers Trust New York to create the world's biggest financial institution, had put the merger of its Australian funds management and investment bank operations with those of BT Australia in the too-hard basket.

The idea of buying the biggest and most successful funds management group in Australia should have been irrestistable to all of the big four Australian banks, who have been struggling to develop successful and sizeable funds managements businesses of their own.

And the idea was irresistable. National Australia Bank, Westpac Banking Corp, Commonwealth Bank and ANZ all coveted the BT business, realising it was a once-in-a-lifetime opportunity to leap-frog their rivals and create Australia's first big all-finanz giant.

There was competition too, from overseas groups such as US funds management company Principal, and the and 25 others signed up to do due diligence and ready to talk turkey with Deutsche Bank and its advisers, Goldman Sachs Australia.

Most of the bidders got knocked out straight away on price.

Deutsche Bank would have been expecting at least $A2 billion from the sale and was said to have hoped for $A2.5 billion.

When the bidding was reduced to two - the deep-pocketed NAB and Westpac, now led by the ambitious David Morgan, a top-priced sale appeared to be a mere formality.

But there was a problem, a very big one. There is a saying that the most valuable asset of a funds management business walks out the lift every evening: NAB and Westpac, it seemed, baulked at the deal because they couldn't be sure these assets would be walking back in on Monday if the sale went through.

When NAB, Australia's biggest bank but the one in most need of a big boost to its funds management operation, made it to the last round and launched a capital raising programme, most people thought it was a mere formality that they would complete the deal. The Deutsche Bank executives in charge of the sale must have thought the same, and were reportedly stunned when NAB pulled out a week before the deadline, citing "a lack of guarantees and warranties."

Their fears became properly enunciated after the dramatic 11th-hour withdrawal of Westpac late on Thursday.

The BT hierarchy was to due to collect tens millions of dollars (one estimate put in at $A150 million) after the golden handcuffs were removed by the completion of the sale of the parent company to Deutsche. Westpac was aware of this and is believed to have offered up to $A75 million to entice the executives to stay, apparently to no avail.

Westpac's Morgan met with the senior BT staff this week came away with deep concerns about the willingness of BT's senior management to work within the structure proposed by Westpac. Morgan decided that a $A40 billion boost to the bank's funds under management would not be worth it if he could not gain the cost savings demanded by a $A2 billion price tag.

The future of BT is now unclear. There have been suggestions that Deutsche Bank has threatened legal action over the abortive sale process. But without the support of the Masters of the Universe, its chances of getting value for money appear very remote indeed.

* Giles Parkinson is deputy editor of the Australian Financial Review.