Battle for the top spots following spare of acquisitions
Jockeying for the top spots in the global securities services world continues following the merger between Bank of New York and Mellon Corporation late last year.
That deal (if approved in the summer) will propel the resultant Bank of New York Mellon Corporation to the top of the securities services and asset management league, with $16.6trn (€12.6trn) in assets under custody.
Number two spot goes to State Street Corp, by virtue of February's acquisition of a smaller rival, Boston-based Investors Financial Corp in a stock deal worth $4.5bn. The acquisition will bring State Street's total assets under custody to $14trn, Investors Financial Services contributing $2.2m to that sum.
More importantly, State Street says the acquisition will strengthen its position in mutual fund, offshore and hedge fund servicing. Mutual fund assets under administration will total $3.5trn after the merger.
A 17-year-old company, Investors Financial Services has been growing at a compound annual rate of 18% over the past three years, fee revenue up 24% over the same period. Like State Street, it focuses exclusively on institutional investors and in addition to the fund servicing offers custody, securities finance, cash management, foreign exchange and transition management. Ronald Logue, chairman and chief executive at State Street said the two companies shared a similar focus, service model and customer type which would make for a "seamless and swift consolidation".
A month before the Investors Financial acquisition, State Street made another, albeit less pricey, acquisition. In January it acquired Currenex, an independently owned online foreign exchange trading platform for the active trading segment of the FX market, for $564m in cash. The electronic service is used by banks, corporations, hedge funds and other active trading firms.
The acquisition would expand State Street's trading customer base beyond traditional asset managers to include active currency managers and hedge funds, said Joseph Hooley, vice-chairman and global head of investment servicing and investment research and trading at State Street.
Electronic FX trading continues to take a larger share of the $2.3trn a day FX market. Research firm ClientKnowledge estimates that while the global FX market will grow to more than $3trn per day by 2010, the electronic component of that trading will double in volume over this period to more than $2trn per day.
Currenex offers executable streaming prices, requests for streams,
benchmark trading, algorithmic trading, and prime brokerage functionality. It connects more than 70 global banks via its electronic trading network. State Street already operates FX Connect, an institutional electronic FX trading platform that in December 2006 exceeded $108bn in a single day's trading volume. Launched in 1996, the service enables users to access liquidity from 55 providers and execute spot, forward and swap transactions. It connects directly to users' in-house accounting, portfolio management and custody systems.
The bank will integrate Currenex's technology with Global Link, its multi-asset class trading platform. Cliff Lewis, chairman and chief executive of Currenex said the acquisition would enable Currenex to "continue providing sophisticated customers with the market-leading tools they need to maintain their competitive edge in an increasingly complex and dynamic global environment".
State Street says the two FX platforms are complementary and do not significantly overlap in terms of features.
The acquisition activity of the past couple of months has not been the only news coming out of State Street. In January, it announced that the NM Rothschild and Sons Pension Fund had appointed it to provide a range of investment services that will include custody, investment accounting and securities lending.
A corporate, investment and private banking group with offices in more than 30 countries and 2,000 employees, the Rothschild Banking group's pension fund is worth $650m. The group operates a number of pension and other post-retirement benefit schemes, both funded and unfunded, and of the defined benefit and
defined contribution types.
The new mandate will be supported from State Street's service centre in Edinburgh and builds upon an existing relationship the fund has with WM Performance Services, the European performance measurement division of State Street. Watson Wyatt advised the fund in its search for an investment services provider.
"State Street's service solution allows us to maximise the operational efficiency of our fund across a wide spectrum of custody-related services," said Catherine Palmer, the fund's pensions manager. "We are very confident that our existing performance measurement services can be combined within a broader relationship that will serve the fund well for a long time to come."
Alastair Reid, head of State Street's asset owner group in the UK, says the mandate win was the result of the bank's ability to offer an integrated package of investment services and its depth of experience.