F&C terminates Mellon partnership
London-based F&C Asset Management has discontinued its project to outsource the former ISIS Asset Management operational functions to Mellon Financial Services. This followed a failure to agree “satisfactory contractual terms”.
Since the agreement reached in November last year, F&C and Mellon have been conducting due diligence and, more recently, contractual negotiations. F&C is a pan-European business managing £129.4bn (€190bn) for a diverse range of institutional, insurance and retail clients.
Alain Grisay, F&C chief executive officer designate, says: “Our business is about delivering performance and high standards across our client services. We were only ever prepared to proceed with this outsourcing project on the basis that we would be completely satisfied that the terms would be firmly in the interests of all of our stakeholders: staff, clients and shareholders.
“We were unable to reach such a position,” he adds. “We are now undertaking an orderly professional disengagement from this project. For F&C is it now business as usual.”
Commenting on F&C’s statement, Jack Klinck, Mellon vice-chairman and president, investment manager solutions, says: “At Mellon we have been working diligently to conclude the final contractual terms since the heads of agreement were signed and are disappointed that we could not mutually reach agreement on the scope of services, price and risk.”
He adds that Mellon retains a strong existing business relationship with F&C with the existing 2003 agreement to service £52bn of assets. This relationship continues to grow in other areas, he says.
“We will focus on other opportunities in what we believe continues to be a growing market. Mellon remains fully committed to the outsourcing marketplace which is still core to our future growth.”
Grisay emphasises that there would be no impact on clients as F&C already centralised operational staff from Edinburgh to London.
“Our existing IT platform for client administration is efficient and up and running,” he says. “We will enhance our overall capabilities and service by building a data warehouse to consolidate data from our various outsource providers.”
He points out that F&C would no longer incur the costs associated with the transfer to Mellon, which included an estimated £60m integration cost, a figure which had been revised upwards from the original forecast of £50m.
“Now that we have terminated our project with Mellon, the estimated integration costs are once again £50m, which includes the cost of building the data warehouse.”
The decision not to proceed will be beneficial to F&C’s cash flow and there will be no impact on reported earnings, Grisay notes.
“This does not change the annual cost savings target we communicated in our interims, which is £30m by 30 June 2006 and £33m by 2008.”
The earlier pre-ISIS business of F&C, which had been outsourced to Mellon is unaffected by this
latest move, a F&C spokesperson confirms.