Standard Life Aberdeen (SLA) has disputed Lloyds Banking Group's request to terminate asset management arrangements between the two companies, which would lead to the withdrawal of a £109bn Scottish Widows portfolio, on the grounds that SLA is not in "material competition" with Lloyds as a result of the merger between Aberdeen and Standard Life.
On 15 February, Lloyds Banking Group announced plans to withdraw £109bn of assets currently managed by SLA for Scottish Widows as the bank had been reviewing its Scottish Widows Wealth business including the legacy assets run by Aberdeen entities, and as a result, it has given SLA a 12-month notice period for the termination of current arrangements.
Lloyds said the assets were now being run by "a material competitor" following the merger of Standard Life and Aberdeen last year.
The withdrawal would have led to a reduction in total AUM run by SLA of 17% and affect 5% of total revenue for the 207 financial year - SLA shares fell 10% following the announcement.
However, in a stock exchange announcement this morning, SLA said it was disputing the request as Lloyds did not have the "right" to terminate the agreement.
The statement said: "On 15 February 2018, Standard Life Aberdeen (SLA) announced that Lloyds Banking Group (LBG) and Scottish Widows had sent SLA a notice on 14 February purporting to terminate the long-term asset management arrangements between them (IMAs) covering, in aggregate, around £109bn of assets under management at the end of a 12 month notice period. The annual revenue associated with the AUM (c.£129m) represents around 4.4% of SLA's FY 2017 pro forma revenue.
"SLA has informed LBG that it does not agree that, following the merger of Aberdeen Asset Management and Standard Life, SLA was in material competition in the UK with LBG and that, therefore, SLA does not consider that LBG, Scottish Widows or their respective affiliates has the right to terminate the IMAs. The parties are engaging with each other within the framework of the dispute resolution process envisaged in the IMAs.
"SLA will provide a further update at the appropriate time."
Commenting on the announcement, a Scottish Widows and Lloyds Banking Group spokesperson said: "We note and are disappointed by the comments made by Standard Life Aberdeen, particularly in the light of our position as a major customer.
"Standard Life Aberdeen is a clear and material competitor of Scottish Widows and Lloyds Banking Group in the UK and to suggest otherwise is not credible. As a result, Scottish Widows and Lloyds Banking Group had the right to terminate the contracts with Standard Life Aberdeen and we acted accordingly by serving notice on February 14."
The spokesperson added: "We are confident of our legal position and that our actions are in the best interests of our customers, and we are therefore surprised at the course of action pursued by Standard Life Aberdeen."
Scottish Widows entered into the partnership with Aberdeen following the sale of Scottish Widows Investment Partnership in 2014. This included the long-term contracts for the management by Aberdeen of over £100bn of assets on behalf of Scottish Widows and Wealth.
However, these contracts enabled Scottish Widows to terminate the contracts in the event that Aberdeen was "subject to a change of control with a material competitor", according to a statement from Scottish Widows.
At the time of its merger with Standard Life on 14 August 2017, Scottish Widows agreed to delay a decision regarding the exercise of their termination rights for a period of six months "during which period the parties agreed to discuss in good faith ways to build a successful relationship and address the competition issue".
A few weeks after the announcement, The Sunday Times and Sky News reported Lloyds CEO Antonio Horta-Osorio felt he had no choice but to cancel the £109bn investment contract with (SLA) after talks to merge Lloyds' Scottish Widows subsidiary with SLA's pensions and assurance business broke down late last year.
The publications' sources said at the heart of the row was the breakdown of talks between the Edinburgh-based rivals concerning a £6bn mega-merger of their life insurance arms.
It is understood that the majority of assets Aberdeen Standard Investments manages for Scottish Widows are invested in strategies like passive equity and 'buy and hold' UK fixed income, and high-profile retail managers such as Devan Kaloo (emerging markets), Hugh Young (Asia Pacific), Harry Nimmo (UK smaller companies), Mike Brooks (Diversified Growth), Brett Diment (EMD) and Guy Stern (absolute return) will not be impacted.
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