The merger and acquisition circus is proving increasingly busy but private banks must realise that the M&A process only counts if it benefits the client in the end.

One group of financial market players has certainly been busy so far this year: merger and acquisition advisors. And the M&A circus has thrown out a few surprises: last week saw Commerzbank agree to sell Kleinwort Benson to Belgian-based RHJ International, and ING sell its Asian private banking assets to Singapore’s Oversea-Chinese Banking Corporation. The game goes on: Lloyds Banking Group confirmed last week that it is discussing selling some private client assets to Rathbone Brothers.

While we had picked up some rumours from the industry that a possible management buyout at Kleinwort Benson had fallen through, it still came as a bit of a surprise that it should be sold to a Belgian firm that is hardly a big household name in the private banking industry. This appears to be a bit of a trend. Unlikely marriages are being formed. Another trend is that Asian firms are expanding their reach, sometimes at the expense of western players. In the case of bids for ING’s assets, Julius Baer and HSBC were among the bidders but they eventually dropped out.

Kleinwort’s staff – and more importantly, its customers – must hope for a period of stability. Commerzbank has only had this prestigious bank for a short period, having acquired it when it bought parent firm Dresdner Kleinwort from Allianz just over 12 months ago.

Acquisitions and mergers are breaking out all over: at the start of this year, the deal was completed to bring together Merrill Lynch and Bank of America, now the world’s largest wealth manager. Then there was Wells Fargo and Wachovia; Aberdeen’s purchase of multi-manager assets from Credit Suisse; RBS’s disposal of Asian assets.

What appears to be driving this activity are a number of different factors. As Jeffries Putnam Lovell, the M&A specialist, pointed out in one of its regular M&A surveys in August, it is no longer just a desire to cut costs and raise cash through asset sales that is important. Some firms are keen to significantly increase their market clout and use discounted valuations of the present time as an ideal opportunity to pick up assets on the cheap. OCBC’s purchase of ING assets meant the former firm trebled its private banking business scale. BNP Paribas, the French bank, has surged up the euro zone wealth management charts due to its purchase of private wealth management activity from Fortis.

Despite the growth strategy being a driver of M&A, Jeffries Putnam Lovell has argued that divestitures will still account for the majority of assets under management changing hands in the next 12 months. That makes some sense: in the case of Commerzbank’s sale of Kleinwort Benson, for example, the German bank had to make the move to satisfy conditions of receiving bailout funds from the German taxpayer. Under EU law, Commerzbank had to shed non-domestic assets if it wanted to take such aid. (This begs an interesting question as to whether Royal Bank of Scotland, the parent of Coutts, might have to do the same thing).

Another interesting finding by JPL in August was that financial institutions trying to sell captive managers will retain minority stakes to participate in economic upside, bridge pricing gaps, and cement strategic and distribution links. It says resurgent asset inflows and the wide gap between listed and private sale [price] multiples will lead managers (and their parent companies who desire liquidity) to consider the public markets again in late 2009 and early 2010. So expect more IPOs, which would revive the currently moribund market for flotations.

PricewatershouseCoopers, meanwhile, has recently said that in Asia, regional players will exploit the financial woes of other regions’ banks to pick up assets, and thus far, the prediction is running right on track. RBS, for example, recently sold some assets to ANZ, the Australian and New Zealand banking group. Australia is in relatively good shape – its central bank even raised official interest rates recently – and this is a nation we can expect to remain on the lookout for purchases.

Another country that has benefited from the commodity boom, Canada, is also worth watching on the M&A trail. RBC Wealth Management, which has a strong presence in the UK and Channel Islands, has been recently quoted saying it is considering acquisitions – for the right price, of course.

Besides growth and a desire to raise capital is another factor in the M&A saga: regulation. Whatever one might think of whether more regulations are a good thing or not (this author takes a sceptical view), more rules are coming. And the costs of regulation weigh disproportionately heavily on smaller firms, which means they will either look increasingly to forge partnerships with financially richer firms, or sell up.

The key thing for firms at the centre of these M&A stories to remember is that clients can be easily unsettled by the merry-go-round. Business continuity is vital, and there have been far too many examples of merger and acquisition deals that have arguably wrecked shareholder value and damaged brands. One hardly needs to point out the case of ABN Amro, the Dutch bank that was acquired in 2007 by RBS, only for the latter bank to sell it on barely 12 months later. Kleinwort’s brief relationship with Commerzbank may have been less traumatic than the RBS-ABN Amro one, but still, a 12-month relationship looks more like a brief dalliance.

M&A is keeping us financial journalists busy, and enriching those who advise on these deals. However, private bankers must remember that such deals ultimately will prove a distraction unless they can be shown to add value to the people who really count: the clients.