On the acquisition trail
Banks dominate the French securities services scene and they are taking their home market expertise abroad, reports Heather McKenzie
Unlike the securities services scene in the majority of other European countries, the one in France is dominated by local banks, and they are beginning to make serious moves out into the rest of Europe and beyond. During the past year, the main acquirers of securities services businesses in Europe were the French banks.
Last November BNP Paribas acquired the third party depot bank business for fund of hedge funds from Italy’s RasBank. The deal increased the amount of assets BNP Paribas Securities Services has under administration in fund of hedge funds in Italy to €9.8bn.
At the end of the year, Caceis took over the securities and custodial services of Germany’s HypoVereinsbank (HVB). Caceis said the acquisition was part of its strategy of targeted, international acquisition growth. Further afield, it acquired Bermuda-based fund administrator Olympia Capital International. A specialist in alternative investments, Olympia has around $69bn (€45bn) in funds under administration in Bermuda, Cayman Islands, British Virgin Islands, Ireland and the US.
In February this year, Société Générale announced it was to acquire the former Capitalia securities services business from UniCredit. The business has €102bn in assets under custody and €22bn of assets under administration in Italy and a further €5bn of assets under administration in Luxembourg.
“The strength of French banks in the domestic market and also in the rest of Europe can be explained by the substantial expertise that has been built in Paris over the years in terms of creating an efficient environment to settle and safekeep securities,” says Jean-Marc Eyssautier, (pictured right) managing director of Caceis Bank in France.
“That began 25 years ago with dematerialisation, followed by the creation of a delivery versus payment system and the switch over to real time final settlement. These developments have proved to be a strength and have protected us from other players, even the large US custodians. This strength not only protected the domestic market but also made it possible for French banks to acquire businesses abroad.”
The strength of French custodians is not only due to such expertise. Gilliane Philip-Courtines, head of relationship management in Paris at BNP Paribas Securities Services, notes that French custodians have an ability to “be extremely attuned to cultural differences and able to provide local expertise.
“This is not to say that other custodians have not, but in terms of regulations and also in terms of who the end investor is, Europe is not one market yet and until we have complete convergence of fiscal and cultural differences we won’t see a single European market for asset gathering. French custodians have been very good at understanding the differences between the European markets.”
There has been plenty of activity for securities services providers in the French market during the past year. The growth of property funds - OPCIs - and the introduction of the Euroclear Settlement for Euronext Securities (Eses) platform have been the main highlights.
OPCIs are new real estate investment vehicles for real estate professionals and individuals. Their objective is to boost the non-listed paper real estate market. In servicing them, securities services providers have been establishing relationships with players in completely new fields, including property valuation.
OPCIs consist of at least 60% real estate assets (buildings, stakes in partnerships) and at least 10% deposits, liquid financial instruments and cash. Several types of OPCIs are made available, including dedicated funds, funds with streamlined operating rules and subfunds.
“We are also dealing with property managers and facilities agents,” says Sebastien Danloy, global head of sales at Société Générale.
“There has been a great deal of interest in OPCIs from different types of investors, including institutional investors that own a lot of properties and want to structure these investments in the most beneficial way, tax-wise. There’s also interest from foreign asset managers and from retail investors who have had the ability to invest in property over the past few years, but not through a fund vehicle.”.
Danloy says SocGen’s involvement in the OPCI market has led the bank to have relationships with new players such as independent fund valuation agents that have expertise in the property markets. “We are also dealing with estate agents,” he says. “This is all very new to securities services providers in the French market.”
Caceis has also established new relationships as a result of the introduction of OPCIs, says Eyssautier. “We decided very early on to work with clients to help them establish these new funds, which involved working with law firms and the French regulator, the AMF. We also launched a comprehensive guide to the OPCI structure.
“We have six asset management firms live on this business for 10 funds, which represents about 80% of the market. The cash and securities side of the OPCI business is nothing new for us, however the real estate part is where we have had to establish new relationships with the other market counterparts such as property valuation experts.”
Philip-Courtines says OPCIs are a very exciting part of the market and BNP Paribas Securities Services has made a heavy investment to support the new asset class. “OPCIs represent a cultural change as they are a marriage between the real estate world, which is a big strength of the BNP Paribas group, and also the world of UCITS funds. In developing services for OPCIs, we have met with a lot of different actors.
“We have put together a package for OPCIs that goes from depot bank and custody through to management of liabilities, shareholder services and fund administration. We have positioned ourselves as a one stop shop, which includes financing from the capital markets group of BNP Paribas.”
The introduction in November last year of Euroclear’s Eses platform was another step in Euroclear’s settlement harmonisation programme, which will result in the introduction of a single platform for custody and settlement. Later this year two other Euronext markets - Belgium and the Netherlands - will go live on Eses.
“Eses is an important step towards the consolidation of the clearing and settlement infrastructure in Europe because it is a step that will allow our colleagues in the Dutch and Belgian markets to join us by the end of the year on one unified settlement and custody platform for these three markets, instead of three separate platforms,” says Eyssautier. “As a custodian, this type of consolidation is what we are asking for.”
The switch-over to Eses went very smoothly, says Eyssautier, due to “meticulous planning by Euroclear and its French members”. He points out, however, that the forerunner to Eses, the RGV system, had many similarities, therefore the migration process was greatly simplified. Since the Eses platform was implemented, all trades on the French market are now settled on an irrevocable, real-time basis.
Danloy says once the Belgian and Dutch markets migrate to Eses, large institutions like SocGen will no longer need to use an agent or subcustodian in those two markets. “We have been on a learning curve to understand the specificities of the Dutch and Belgian markets, including the different requirements for corporate actions, income collection, dividends and tax reclamation,” he says.
“I think it will be easier for the larger institutions to leverage the direct market access that will be given to us through Eses.”
Eses will open up competition in the Euronext markets, he says and some of the large customers of custodians may well think about directly accessing the markets themselves.
The European Central Bank’s real-time gross settlement system for securities, Target2 Securities, will also help consolidation although it is further down the road than Euroclear’s single platform initiative, says Eyssautier.
“We also support T2S because it is exactly the type of solution we are looking for if we want to develop and have a very efficient and dynamic market in the securities industry for the euro-zone and Europe as a whole,” he said.