BNY opts for ING
Given its reputation as the Lothario of the global custody world, the news that The Bank of New York (BNY) has shacked up with a continental European custody provider comes as no great surprise; the identity of the latest object of its affections may have, however. With over 30 acquisitions to its name in the past five years, BNY was tipped as the suitor most likely to whip Deutsche Bank’s bedraggled global securities services operation down the aisle in a marriage of mutual convenience. Instead, it has opted to live in sin with European custody wallflower ING Bank, leaving the German bank to get hitched to State Street.
The new commercial alliance with ING will focus on sales, marketing and servicing of global custody and related services, such as compliance monitoring, investment accounting, performance measurement and analytics, in a number of key European markets: Germany, the Benelux region and central/Eastern Europe, where ING has a network of branches spanning eight former Iron Curtain states.
At the same time, ING Investment Management has appointed BNY as global custodian for the E90bn in global assets held by its Benelux operations, although once the alliance becomes effective those services will be provided through the new partnership. Already acting, via its subsidiary BBL, as the US bank’s Belgian sub-custodian, ING also now replaces KAS Bank as BNY’s sub-custody provider in the Netherlands. KAS has double reason to be miffed – not only does it lose a significant piece of business to a rival, but it should not be forgotten that it, too, was once talked up as a prospective continental partner after BNY took a 4.9% stake in the bank. Any such possibility has now clearly evaporated.
Despite having established a global processing centre in Brussels, Tessler acknowledges the importance of truly local delivery, servicing and relationship management capabilities when it comes to building success in Europe. “We have chosen these markets because they are the ones where ING consider themselves a domestic player,” he says. “We are not looking to be all things to all men. To make alliances work, they have to be focused and, as with AIB, we are looking at offering a singular product – global custody – into key strategic markets.” And what of France, Spain and Italy? “Nothing is ruled out, nothing is ruled in.”
Tessler argues that with the ING deal, coupled with the bank’s June acquisition of the back office transaction clearance and settlement capabilities of London-based Tilney Investment Management, puts BNY in something of a unique position. “We can offer a range of outsourcing services to the buy side, both the retail and institutional fund managers, and also to the sell side retail segment via BNY Global Clearing, which is part of our execution brokerage company BNY Securities,” he says. “Now, in addition we can meet the needs of the sell side institutional sector via the ING outsourcing platform, so we now have four strings to our bow. I don’t believe at present there is another provider that can service all those sectors, and that could provide significant leverage for us.”
Looking further ahead, Tessler believes this could prove particularly advantageous as regards the continental universal banking model, where many institutions have multiple subsidiaries spanning investment management, banking and brokerage. “We’re positioning ourselves to be able to meet all the outsourcing needs of the component parts of those organisations,” he adds.
As for Deutsche Bank, Tessler admits that BNY, along with Mellon and, of course, State Street, did go through the due diligence process. “That sort of acquisition was not part of our predetermined growth strategy in Europe – but when something comes up, you go window shopping,” he says. “As has been reported we made a bid, but that bid reflected our view that there were some seriously underperforming areas within that business.”
In particular, BNY felt there existed a significant reputational risk, Tessler adds: “We were acutely aware that the Trust Bank integration had a negative effect on our reputation for service delivery, and it has taken a lot of hard work to turn that around. Significant management resource is required if large acquisitions are to be managed successfully, whereas with the alliance we will be free to focus fully on servicing those key markets.”