Has the recent spate of mergers in the global custody industry changed anything for custody clients? Ross Whitehill, chief operating officer at Thomas Murray, a London-based custody and capital market infrastructure ratings company, says yes. Clients have less choice each time there is M&A activity, he says, although it is not all bad news.
“There has been a great deal of focus on consolidation of securities services providers during the past few years, but there also has been expansion,” he says. “There are more suppliers in the market now than there were five years ago.”
These suppliers include HSBC Securities Services, KAS Bank, RBC Dexia, Société Générale Securities Services and Caceis, all of which have been putting effort into building up their global custody capabilities.
Having been the subject of much speculation recently, global custody market consolidation cranked up during the summer.
The Bank of New York and Mellon Financial Corporation completed their merger to form The Bank of New York Mellon Corporation, and the fate of ABN Amro Mellon Securities Services was decided, too. State Street and BNP Paribas Securities Services also added acquisitions.
The new BNY Mellon entity has more than $1trn (€720bn) in AUM and $1trn in assets under custody. Combined annual revenues are more than $13bn and there are total balance sheet assets of $140bn.
Shortly after the completion of the merger, Mellon Bank agreed to purchase ABN Amro’s 50% share in ABN Amro Mellon Global Securities Services, a joint venture company established by the shareholders in 2003 to provide global custody and related services to institutions outside North America. The transaction is expected to close later this year, at which point ABN Amro Mellon will become part of BNY Mellon Corporation.
Under the arrangement, Nadine Chakar will retain her responsibilities as CEO of ABN Amro Mellon in tandem with her new role within BNY Mellon, where she will be head of EMEA for the BNY Mellon Asset Servicing group. “From the outset the joint venture was structured to avoid disruption in the event of any change of ownership,” she said. “Relationships with existing clients will not change, with client-facing staff retaining their current roles supporting the same clients.”
At about the same time, State Street completed its acquisition of Investors Financial Services for $4.2bn. The acquisition adds $2.3trn in assets to State Street, bringing the total to $14.1trn under custody.
BNP Paribas added to the general frenzy of activity in July by signing a memorandum of agreement for the acquisition of a 33.4% stake in SLIB - a wholly-owned subsidiary of Natixis. SLIB specialises in securities services and offers negotiation, clearing, settlement and custody activities in France and elsewhere.
Alain Pochet, head of banking operations for the securities services division of BNP Paribas, said co-operation with SLIB would enable BNP to expand its service range, particularly in the fields of back-office outsourcing to financial intermediaries and clearing risk management. “This agreement also falls within the framework of the MiFid implementation and as such will adhere to the surrounding regulatory and operational challenges,” he says.
In June, BNP Paribas Securities Services signed an agreement to purchase Exelbank, a specialist custody and depository banking firm which was owned by Banco Sabadell in Spain. Well established in the Spanish market, Exelbank has €18bn in assets under custody, and serves more than 150 funds managed by about 25 investment management firms.
Caceis, a joint venture between Crédit Agricole and Natixis, also hit the acquisition trail in July, announcing that at the end of the year it will take over the securities and custodial services business of Germany’s HypoVereinsbank (HVB). The two banks had been conducting extensive negotiations since March this year.
Matthias Sohler, management board member and chief operating officer of HVB, says: “In Caceis, we have found a strong strategic partner which has excellent knowledge of the international custodial business. We can thus ensure that the quality and service provided in this important segment of securities and custodial activities continue to be maintained at a high standard. Through the sale of these activities, we are at the same time realising tangible and sustainable cost savings in the operative area and can focus more strongly on our core competencies.”
François Marion, management board chairman of Caceis, says: “This operation is an excellent opportunity for us, since HVB represents a solid actor in the German securities business, with a significant market share. For Caceis it is a major step in the international expansion of our business and a first step in providing a comprehensive asset servicing in Germany.”