UPDATE 1-StanChart in talks to buy Morgan Stanley's India unit-sources

Wed Feb 27, 2013 10:45am EST

By Sumeet Chatterjee

MUMBAI Feb 27 (Reuters) - Standard Chartered Plc is in talks to buy Morgan Stanley's Indian private wealth management unit, which manages about $1 billion including loans, two sources with direct knowledge of the situation said on Wednesday.

A couple of Indian financial services companies have also shown interest in buying the wealth management business, and a formal bidding process is expected to start soon, one of the sources told Reuters. The source did not name the companies.

Both the sources declined to be named as they are not authorised to speak to the media.

Asia-focused Standard Chartered, which is also listed in India, and Morgan Stanley declined to comment, when contacted by Reuters.

Morgan Stanley launched the sale of its Indian private wealth management unit in November last year, after entering the highly fragmented and competitive market about four years ago.

The sale of the unit underscores a growing trend of consolidation in Asia's wealth management industry as private banks struggle to earn profits in the face of rising regulatory costs and wafer-thin advisory fees.

Standard Chartered, which has a strong presence in corporate and retail banking in India, is also one of the biggest private wealth managers in Asia's third-largest economy based on assets under management.

In India, the London-based bank competes with global banks including Royal Bank of Scotland, Barclays and Citigroup as well as a host of domestic financial firms in the wealth management business.

The top private banks in India have between $1 billion and $2 billion of assets under management each, industry sources say. Standard Chartered had launched its wealth management unit in India in 2007.

India's L&T Finance Holdings, a unit of leading construction and engineering group Larsen & Toubro, was in talks to buy Morgan Stanley's Indian wealth management business, the local media had reported last month.

It was not immediately clear what the price tag might be, but one of the sources said wealth management units in India get bids at 1.5 percent to 2 percent of the assets under management.

This can go up or down depending on the quality of the book, the source said.

India is a difficult market for wealth managers. Cut-throat competition, high staff costs and weak markets are squeezing revenue, while growth opportunities are limited by regulations that restrict product offerings.

Many foreign players had scrambled to open up shop in India a few years back and aggressively ramped up operations to take advantage of robust economic growth, only to find themselves struggling.

The number of millionaires in India shrank 18 percent to 125,500 in 2011, according to Capgemini and RBC Wealth Management's world wealth report, marking the first decline since 2008.

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