Cad 3 will hit asset manager profits, says Mercer Oliver Wyman

“We estimate that the average asset manager not deemed to be exempt would have to hold back around 10% of profits over the next three years to build up the minimum capital requirements,” said Mercer Oliver Wyman. This means banks with asset management subsidiaries will take an implied return-on-equity hit that might make them “reassess the attractiveness of the business”, the company said.

The consultancy also believes some asset managers may try to relocate outside of the EU.

But Mercer Oliver Wyman takes a bullish view of the situation, saying non-exempt asset managers that upgrade their risk management procedures in line with the EU directive could promote their strong risk disciplines as an area of competitive advantage over their peers.

Cad 3, which largely draws on the new capital adequacy framework, Basel II, being drafted by the Basel Committee on Banking Supervision, is set for implementation by the end of 2006.