Fitch: Amundi’s Lyxor Acquisition Highlights Continued Shift to Passives

Passive managers have performed fairly well during a fairly sharp coronavirus pandemic-driven market correction in March 2020 and in the subsequent recovery in the following months. This is challenging the perceived key advantage of active managers over their passive counterparts during market dislocations. Highlighting this, a March 2021 Morningstar report concluded in 2020 that only 49% of the active US funds included in the analysis survived and outperformed their passive counterparts.

The Lyxor acquisition is expected to add EUR124 billion to Amundi’s assets under management (AUM) of EUR1,729 billion on pro-forma 2020 basis. While moderate in absolute AUM terms, importantly, the transaction will see Amundi almost double its passive franchise (to around EUR140 billion AUM) and at the same time entrench its franchise in the fast-growing European exchange-traded funds (ETF) market. Lyxor is already a well-established ETF provider and Amundi will become the second-largest ETF provider in Europe with a market share of 14%, behind BlackRock’s 44%. Additionally, the acquisition will add around EUR19 billion of alternative liquid assets, which will moderately aid strategy diversification. The transaction close is expected by February 2022 with integration to be completed within 18 months of closing.

Fitch expects the transaction to be broadly credit neutral for Amundi’s overall rating. While we expect incrementally higher operational risk resulting from the impending integration, Amundi has successfully executed similar transactions in the recent past (i.e. Pioneer acquisition in 2017 and Sabadell in 2020). Underlying profitability should be maintained with Amundi targeting cost synergies of EUR60 million and revenue synergies of EUR30 million on a pre-tax basis to be realised within three years of completion.

Amundi’s CET1 ratio will decline to around 13.3% pro-forma for the acquisition from 20% in 2020 (2019: 15.9%) due to the creation of goodwill but should remain above the management target of 10%. Given Amundi’s cash-generative business model, publicly stated and long-standing dividend policy (65% of net income) and the predictability of Amundi’s regulatory capitalisation, Fitch expects Amundi’s CET1 buffer to remain adequate and commensurate with rating.

Amundi’s ratings continue to be underpinned by a leading European franchise, improving diversification, strong distribution networks and sound financial metrics.