Dutch custodian KAS Associatie’s marketing push towards small and medium-sized institutional investors and pension funds in the UK looks like paying off. The group is in the final stage of talks with a medium-sized institution and a deal appears imminent. It is also in advanced negotiations with four other potential clients and finance director Jan Voskuilan says they expect to take on some of these during the rest of the year.
Half year figures recently released by the group are healthy but show a marked slowdown in European business and demonstrate the adverse environment custodians are facing. Year of year, net profit is down 16% to E13.9m while total income came in at E62m for the first six months of the year, down a shade from a corresponding E63.4m last year.
Income from custody and settlement services suffered from uncertainty in the financial markets. KAS’s assets under custody fell to E211bn at the end of June, down from E225bn year on year and Voskuilan says new business of E20bn in the six months to June just failed to offset the fall in equity markets.
Total income from settlement and securities borrowing and lending remained much the same at E19.6bn although securities lending was up 10%, mostly from international business. Voskuilan says there is more income from the institutional clients, more income from international brokers and less from brokers with private clients. Income from securities lending is up 10%, predominantly from international business.
KAS says its European strategy and the services it provides to international banks and brokers has increased settlement volumes and this has apparently offset the drop in commission from local intermediaries and private investors. Voskuilan says it is difficult to estimate when the market and volumes will begin to pick up. Events in America last month are likely to affect the settlement rather than the custody side of the business. Investment continues nevertheless and in the year to June expenses rose 10% to E41.4m.
Elsewhere and some of the larger custodians have reported relatively good performance for the first half of the year. At Northern Trust, assets under custody rose 4% year on year to June 2000 to $1.68trn (E1.81bn) and chairman and chief executive William Osborn says new business has managed to offset the slowdown in the equity markets.
At State Street, total revenue was up $96m, or 11% in the second quarter of the year and net income stood at $167m, up from $148 year on year. Chairman and CEO David Spina said the results were satisfactory particularly given the slowdown but warned that, for the near future, the economic environment will continue to be challenging. When KAS released the results at the beginning of September, it also predicted that for the rest of the year business is unlikely to show any great improvement.