Britain's Schroders gains on potential Lloyds wealth deal

By Simon Jessop and Noor Zainab Hussain

(Reuters) - A wealth management tie-up between Schroders and Lloyds would give the asset manager access to the distribution network of Britain's biggest bank, which would gain investment skills and greater diversification, analysts said.

Schroders' shares rose by 1.4 percent on Monday after confirming talks to work with Lloyds in the wealth sector, although both firms declined to give details.

"A relationship with Lloyds could be an important source of new assets in Schroders' home market. This points to management's flexibility in the way it goes to market and to its savvy around building distribution relationships," Bernstein analyst Edward Houghton said in a note to investors.

Already at the top in terms of market share in its core retail banking markets, Lloyds has been trying to ramp up its presence in insurance and wealth for several years, making it a key pillar of its most recent three-year strategy in February.

Sky News reported on Sunday that the companies were discussing a deal that would involve Lloyds merging its 13 billion pound ($17 billion) wealth management arm into a new joint venture with Schroders, with Lloyds owning 50.1 percent‎ and Schroders the rest.

Talk of a deal comes as consolidation in the broader investment industry hots up. Earlier this year, Rathbone Brothers bought Scotland's largest independent rival, Speirs & Jeffrey for 104 million pounds.

John Cronin, financials analyst at Goodbody, said the potential tie-up was significant for Lloyds plans to sell insurance alongside its banking products.

Part of Lloyds' plans involve leveraging its position as Britain's biggest high street bank to be able to offer insurance and wealth services under the same roof via its insurance subsidiary Scottish Widows.

"Something like this I think will be transformative from the perspective of the growth of that business," Cronin told Reuters.

Sky News reported that Lloyds would take a minority stake in Schroders' Cazenove Capital arm, which caters to high net worth clients, and also take on a 109 billion pound investment management contract.

Wealth management contributed 273.3 million pounds to Schroders' group net income of 1.76 billion pounds in 2017 and has been an area of focus for future growth.

($1 = 0.7634 pounds)

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Amrutha Gayathri/Gopakumar Warrier/Alexander Smith)