BlackRock Consolidates European ETF Offerings After Credit Suisse Deal

BlackRock (NYSE:BLK) rejigged its European exchange traded fund (ETF) portfolio earlier this week to account for the various redundancies and pricing-discrepancies that arose from its recent acquisition of an ETF portfolio from Credit Suisse (NYSE:CS) (see BlackRock Closes ETF Acquisition Deal With Credit Suisse). ^[1] BlackRock announced its decision to acquire 58 Switzerland-based ETFs managing $17.6 billion worth of assets from the Swiss banking giant this January and went ahead to close the deal in early July.

While the acquired ETF portfolio was largely complementary to BlackRock’s existing iShares offerings in the region, there was some overlap  between the two which prompted the world’s largest asset manager to close 15 equity and commodity ETFs. The low demand for ETFs in Europe is no doubt another important factor contributing towards the decision. Besides these closures, BlackRock is also revising the expense ratios for 10 similar ETFs downwards to maintain homogeneity among similar offerings.

We believe that these changes will have a negligible impact on BlackRock’s value, and stick to our $294 price estimate for the company’s stock. Please note that we recently revised our estimate for BlackRock’s shares slightly higher and updated our analysis with a more detailed forecast of its future expenses.

See our full analysis for BlackRock

BlackRock has a strong grip in the global asset management industry with the $4 trillion in assets under its management making it the undisputed leader in the industry. And a large part of the financial giant’s growth over recent years can be attributed to the increasing popularity of its iShares ETF offerings across the globe. As the world’s largest ETF provider, BlackRock manages nearly $800 billion in retail and institutional investors’ assets under iShares and continues to maintain its focus in the industry as it believes that there is still a lot of growth potential in ETFs worldwide – especially among retail investors.

The acquisition of Credit Suisse’s ETF portfolio in Europe was an important step for BlackRock towards expanding its footsteps in the region – improving its lead over Deutsche Bank (NYSE:DB) as the largest ETF provider on the other side of the Atlantic. In fact, it was the very size of the deal which got it delayed, as regulatory watchdogs took several months to complete their anti-trust investigations into the acquisition. And once BlackRock was cleared by regulators, it got to work figuring out how best to integrate the 58 newly acquired ETFs with existing ones.

After two months of due diligence, BlackRock concluded that 15 of the ETFs – eight iShares funds and seven acquired from Credit Suisse – are either redundant or have too low a demand to justify continuing them. These ETFs will be closed on October 24, and will have minimal impact on the company’s ETF portfolio (the chart below shows the size of assets managed by BlackRock’s equity-based iShares offerings). Also, to resolve the discrepancy in the combined portfolio of several similar ETFs quoting different expense ratios to investors, BlackRock has revised expenses of such ETFs downwards.

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1. BlackRock to shut 15 European ETFs, Financial Times, Sept 23 2013 [↩]