Following the information highway
If information and knowledge provision are now the essence of financial services, MeesPierson, the securities services arm of the huge Dutch financial group Fortis, believes it is ahead of the curve in the services it provides under its ‘Information Bank’ label.
With E350bn under custody, MeesPierson knows well it is not a major league global player, nor does it want to be seen as a provider on the treadmill of custody services, with the prospects of ever diminishing returns in the current competitive conditions.
“So what is the difference between a global custodian and an information bank?”. The question is rhetorical, in that Maurice Baum, who recently joined the bank in Brussels from State Street, as director of marketing is ready with the reply: “The information bank concept is based on the standard services offered by every custodian.” So while the building blocks of information banking are the same, it aims to offer considerably more by seeing how these can be tailored to clients’ needs, he says.
“In global custody, for example, we buy data from our sub-custodians, process the data and deliver information to the client, like Reuters and Bloomberg do. Interestingly, they are also electronic brokers and exchanges,” he explains. The real custodian in his view is the central securities depository (CSD), acessed through the sub-custodian. “The market is looking for information decisions. We are an information provider and want to be perceived as such he says.”
“While the large custodians regard securities lending, fund administration, performance measurement and so on as ‘value added services’, but we consider these to be our core business,”says Baum. Custody is just one piece of a total solution assembled for the client.
This is done by giving an “intellectual spin” to these services and offering them to clients on a tailor-made or “a-la-carte” basis. “So we provide risk management tools, compliance monitoring and so on, matched to clients’ requirements.” Part of the process is to open up the bank’s IT consultancy specialists and to bring their skills to bear as to how services can be packaged to meet these demands. The key core services are there are there, of course, global custody, clearing , settlement, securities lending and its major fund administration business, which absorbs some 400 of the 1,000 engaged in the five business areas coming under the information bank umbrella.
One particular area, where it believes it has stolen a competitive march on other securities services providers is in the derivatives clearing arena. “Though this service is offered by the major investment banks of this world, it is not offered by any other of the big global custodians,” claims Baum.
MeesPierson reckons it clears around 12% of the trades on Liffe, while in Frankfurt its operations are proportionately higher, with a 40% share of the volumes there. “We have 120 people in London alone doing derivative clearing.” The sheer volumes can be staggering with perhaps over three million Liffe trades a month being cleared in the City.
A clear demonstration of the bank’s proactive approach to clients was the way it grasped and moulded an opportunity that came its way, when Liffe received its set back last year with the move to screen-based trading and the bund contract shifting to Eurex.
As Wim den Hartog managing director of the international clearing and settlement side in London explains: “This was a development we anticipated”. The bank made available the top floor of its building in the City to those affected by the Liffe change. “We created a trading environment and it now has around 80 independent traders sitting behind trading terminals, who used to be in the trading pit.” So in something like a modern stock exchange, these traders have all the information they need delivered to them from Reuters, Bloombergs and so on, and they can trade Liffe, Eurex, OMLX, LSE, Tradepoint and so on. This has proved very successful and has meant that MeesPierson has very adroitly retained business it would have lost otherwise.
But since the bank does not do any proprietary trading and is acting a in a purely “informational” capacity, it makes for satisfactory relationships with these clients. “We do not have any positions of our own, and we are not trying to take over any of the traders for our own books, so they are treated as clients. So if they make money they will remain as clients,” says den Hartog. With this independent position on both sides, the traders are able to use whichever brokers they want. “They may not want to show their entire positions to any one broker and may use two or three with all the trades being given to us as clearer . Nor are we any threat to the brokers, since we are not doing any broking. It all fits together nicely,” he points out.
“When we saw the threat coming to Liffe, which made up the majority of our clearing business in the UK, we decided to broaden our concentration to focus on other markets, such as the International Petroleum Exchange and OMLX.” The move to broaden the customer base to include corporates, pension funds and other institutions, started promisingly,
But this is not the only way the bank wants to link up with clients. “We are also developing order routing systems, where clients can use the direct link to the exchanges where we are a general clearing member.” Another possibility is to make access available through customers own Reuters terminals and place their orders that way.
Another service, where MeesPierson reckons it has moved ahead of its peers is the Primebanking service for alternative investment funds, another of the “tailored services”, as Baum likes to put it. “ This has similarities to prime broking with the difference that we are neutral as to where the execution of the transaction. Generally, the fund manager has his own network of executing brokers. We will look after the financing custody, clearing and securities borrowing. With our administration services offshore, we can do this in various locations.”
Head of this division, Clayton Heijman points to the enormous growth there has been in alternative investment, particularly in Europe . He says the group is the only bank packaging the administrative and financial services in this way separated from the broking aspects. “We can process transactions in 73 countries,” he points out. “As a result of the clearing, a significant amount of borrowing is done for these clients.” The hedge fund industry continues to develop very strongly, as investors seek out alternative strategies offering absolute returns.
Baum adds: “This is a very sophisticated area. We may not be that big in MeesPierson compared with others, but you do not have to be big to be good.”