One fundamental problem for custodian banks is that many asset managers have cut Asia from their portfolios. The crisis has created a lot of unusual situations for custodians to contend with.

Paul Smith, managing director of Bermuda Trust in Hong Kong,has been so busy fighting fires, he has barely had a chance to consider product development and that is true for any custodian. Smith confirms that Bermuda Trust (Far East) is no different from anyone else. Its assets are substantially down; from peak to trough, he estimates business is off 40% on a 15-month period in dollar terms, which is substantially better than some of our clients". However, only 50% of the business is supported by size of client assets. The other half is turnover-driven and because of market volatility, that part has held up pretty well. The projections are not good though, because volatility will at some point reduce, "and then we will enter the 'doldrum' phase, as opposed to the rapid see-sawing we have seen recently," says Smith.

"This is not the pain period, from a corporate perspective anyway," he adds. "We are now dealing with the aftermath - we're in rehab - trying to cope with a new set of circumstances.

"Part of the problem for us is that in this environment there is a lot of administrative problem solving that does not generate any commercial benefit to the business. We are busy investigating counterparty risk, be it sub-custody or correspondent bank. We have had a whole range of administrative headaches to deal with. We must try to ensure clients are protected and that our standing in the market place will not be damaged."

Richard Ernesti, head of custody for Deutsche Bank in Singapore, agrees: "Our product development teams have had to spend much more time understanding regulatory changes, while for the client service side, it is a question of maintaining a flow of information and educating clients about the risks.

"It's been difficult - we have difficult markets in Japan, India, Malaysia, Indonesia and Singapore have not been that cooperative.

"What I have noticed from the client services team is the huge increase in the number of calls from clients. So for us, the biggest challenge has been the process of informing, reinforming and reinterpreting market information. Malaysia and Indonesia have proved that.

Travelling around the region, Ern-esti says, "you can really feel the sense of recession in places like Japan, India and Korea. A few countries have come through the worst, like Thailand, where investors are now committing money once again, which is a very positive sign.

"Our major problems are things like settlement in India and fixed paper verification in Indonesia. In Malaysia, we have central depositary headaches. Malaysian authorities have now required that all holdings at Malaysian Central Depositary (MCD) be held in the beneficial owner's name."

Malaysia has also imposed capital controls and Ernesti expects that once they are lifted "the money will flow right out". Pakistan has also imposed repatriation controls, forcing expats to wait in line for permission to get their money out.

On the issue of capital controls in Malaysia, the pricing of single country funds is not the real problem. It is with Asian regional funds. "I would say that any fund with more than 5% in Malaysia is a problem, because how do you value that?" asks Smith. "I don't believe there is any basis for the discount factors that are being applied to investment values in Malaysia. That only works if it applies to all funds the world over, otherwise you are playing into the hands of the arbitrageurs."

Once again, Singapore has been an island in all this. Ernesti says, "The MAS [Monetary Authority of_Singapore] has continued with its campaign to make Singapore the capital hub of Asia. It is already the derivatives and forex centre of Asia. The MAS employed McKinseys to see what they can do to get more fund management business. Singapore aims to be the fixed income hub." Richard Newell"