Faced with almost certain defeat in the Second World War Winston Churchill was understandably keen to espouse the benefits of establishing alliances. "If we are together nothing is impossible," he said. "If we are divided all will fail."

For custody banks the same principle is at work with - to a certain extent - similar territorial ambitions. In 2005 The Bank of New York and Nordea, a leading financial services provider in the Nordic region, entered into a strategic agreement to provide global custody and selected related services to Nordea's institutional clients in the Nordic and Baltic Sea regions. The deal saw Nordea become the leading provider of securities services across those markets.

According to Birger Gezelius, head of Nordea's financial institutions division, the deal was sealed by the firm's local presence and market expertise, which combined with BoNY's global reach meant the two companies could offer clients a consolidated service, key for many of the large custody banks.

"Alliances are an exchange of international know-how, technological tools and specialist knowledge," explains Francis Jackson, EMEA head of new business development and relationship management for JPMorgan Worldwide Securities Services. "They also represent an exchange of innovation and development ideas in which the partners help one another. It can often be a mixture of distribution and access to clients that the other normally wouldn't have.

Northern Trust entered into a relationship with Nordic trustee Svenska Handelsbanken in 2004 to provide trustee services to its Nordic mutual fund clients.

"Together," explains Anne-Lise Winge, head of asset servicing for EMEA and Asia Pacific, "we are able to provide a comprehensive solution to our clients, which is delivered in a consolidated manner through our client services team, our technology and reports."

Yet without a local trustee firm, regulatory requirements would have kept Northern Trust out of the market. Entering into a relationship with Svenska Handelsbanken was driven by expediency as much as a mutual desire to grow their respective businesses.

In 1998, when Mellon and ABN Amro set up their original marketing alliance, formalised in 2003 to create ABN Amro Mellon Global Securities Services as a 50/50 joint venture entity - non-indigenous banks were struggling to build up critical mass within the wider European marketplace.

"A joint venture or alliance was attractive because it allowed us to offer both global reach and local expertise while also hitting the ground running," admits Nadine Chakar, CEO of ABN Amro Mellon and head of EMEA, BNY Mellon Asset Servicing. "The start-up costs and associated logistics are far lower and more manageable than if you are setting up shop completely from scratch."

Expediency and cost - but what are the ancillary benefits? Market penetration and local know-how count for much when it comes to establishing a joint venture. Both parties want to benefit, but as Winge is keen to stress it is not simply a matter of economics: the cultural fit is just as important. "We want a partner who is on the same page, in terms of client services ethos, quality products and services, and technological capabilities. We are looking for the whole cultural fit.

"When we look for a partner it is for the long term. We need to know we have the right partner with whom we can grow - because we are in the business of generating more business."

Client demands have also become more complex as investors become increasingly sophisticated and their investments even more diversified, both geographically and in terms of asset class. "Scale has become more and more critical," adds Chakar. "That has only been exacerbated by the pace of regulatory change, which has significantly increased the scope and complexity of the administrative burden that our clients face, and which in turn we as custodians must be able to shoulder on their behalf."

JPMorgan's Jackson agrees: "Core custody systems require massive amounts of technological upgrades every year and the custody business has really scaled over the last 15 years," he says." Following a series of mergers and acquisitions it has become a scale play."

Questions remain, however, whether an alliance is always the best route. Not only are there issues surrounding brand dilution, but also in certain circumstances an acquisition may be more appropriate. Yet for Northern Trust's Winge acquisitions only work to broaden the product range. In 2005, Northern Trust bought Baring Asset Management's Financial Services Group. "We wanted to increase our penetration of fund administration business," she explains, "and we got a huge amount of expertise and capability in offshore fund administration. We are more of a product acquisition-led company - we are not into scale acquisitions."

However, while making an acquisition does mean there is instant cash flow, JPMorgan's Jackson warns of potential momentum loss: "You can actually go through a fairly fundamental restructuring and you can lose a lot of momentum in the short term"

Ultimately, while an alliance can strengthen a business's presence in a certain market and be mutually beneficial for both parties, it is usually designed to be at the expense of others.

While Churchill may have espoused the defensive benefits of alliances, at the other end of Europe his adversary Adolf Hitler was quick to note how the opposite can also be true. A joint venture can enable two companies to dominate the market: "Any alliance whose purpose is not the intention to wage war," he said, "is senseless and useless."

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