UK – Financial services company Mellon Financial Corp. says it plans to launch a UK custody operation towards the end of the first quarter of 2003, ending its two-year relationship with sub-custodian Clydesdale Bank.

“This new service, provided by Mellon Global Securities Services, will administer approximately 29 billion pounds (45 billion euros) in assets held in the UK on behalf of its global custody client base,” Mellon said in a statement.

“The operation is scheduled to go live towards the end of the first quarter of 2003.”

Mellon, which has approximately 2.8 trillion dollars in assets under management, administration or custody, including 562 billion dollars under management, says the move is part of a drive to reinforce its presence in the UK and Europe and to continue to expand its global custody business.

Mellon spokesman Jan Altink declined to say how much it will spend to set up the operation.

Mellon says it will now be able to exert “direct operational control over its clients’ UK holdings”. Clydesdale Bank has supplied Mellon with UK custody services since 2000.

A Clydesdale spokesman said: "While they were very happy with the high quality support provided by Clydesdale Bank, the decision by Mellon represents a strategic need to directly own and control their entire end to end custody process.”

Mellon said its new sub-custody business will be based on its custody processing platform, using software provided by Peter Evans & Associates Ltd as the interface between Mellon and Crest.

The new Mellon operation is not part of its previously-announced custody venture with ABN Amro, Altink says. But that venture, ABN Amro Mellon Global Securities Services, will be able to sell the new unit’s UK custody services to international clients.

The new operation, to be part of Mellon’s global operations division in London, will employ 50 staff to provide full operational support for all UK securities and cash activities transacted by global custody clients of the Mellon group. The staff will be re-deployed from other areas, Altink says.

“Major financial institutions and pension funds demand that in a major centre such as London their holdings are within the direct operational control of established custodians,” said Jack Klinck, chairman of Mellon Europe and executive director of Mellon GSS International.

“These institutions will also benefit from Mellon’s proven technological expertise and innovative systems, providing improved processing times and faster query resolution.”

Clydesdale, part of the National Australia Bank, says it will focus on its trustee and depository relationships and moving into fund administration for fund managers and master custody for pension funds as they are “higher margin” businesses. It sees opportunities to evolve the technology it developed via the Mellon relationship.

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