Within the French custody market, there is clearly an identifiable move to outsourcing bythe smaller institutions and players but the large domestic banks continue to dominate.
While the demand for add-on services is increasing in the domestic market, it is international asset managers who require the greatest level of sophistication.
The majority of custody business for most French banks is for domestic clients, although with Paribas as the notable exception with foreign clients comprising 58% of clearing business. Patrick Lemuet, vice president securities services at Crédit Agricole Indosuez says: The little and medium sized banks have given their custody services to the main banks."
Paribas head of securities services in France, Jean-Luc Delassus says: "With segmentation of the different businesses, with asset management separated, the next step is to outsource the custody side but the market share of the banks is huge. The real market is with the international asset management companies. There is no case of a significant bank trying to outsource its custody as yet."
Looking at his own market position, Lemuet adds: "Crédit Agricole Group manages FFr1,500bn with FFr600bn in Indosuez, so we are the largest custodian in France with about 14% of the market, similar to CDC." Crédit Agricole Indosuez is the subsidiary offering custody to resident and non-resident financial institutions, while Crédit Agricole provides custody for the retail side.
Régine Besnier-Docet, the head of marketing and sales for Crédit Agricole Indosuez says: "We are currently developing a lot of products for fund managers. Our largest deals are for asset management."
There was also an increase in the volume of transactions last year while all clients whether insurance companies, mutual funds or pension funds have been looking for improved communications.
"We have to reduce the timing of what we do and what we can deliver to the end investor," she says.
Lemuet adds: "We are seeing a trend to specialisation in asset management, custody and the net asset value. Clients are developing proposals for separate functions.
"This is also a strategic decision for the institutions themselves, to focus on a business and to outsource other parts, to invest on specific business lines."
He adds however that within the group's different subsidiaries, they can offer a full package.
Frédéric Jolly, who heads Frank Russell in Paris, says: "People are outsourcing more and more be-cause they need critical size to make the custody business profitable in its own right."
Paribas, reflecting its traditionally international outlook, covers custody and clearing for France, Belgium, Germany, Greece, Italy, Luxembourg and Spain with a cooperative agreement with Ottoman Bank in Turkey and plans to develop new markets in Eastern Europe. Delassus says: "We have wide European coverage as well as good local expertise and this will be an advantage with the arrival of the euro as clients diversify their services across Europe."
He says that the demand from insurance companies is usually for plain custody involving, on the whole, domestic assets, though there are some added services like the management of pledge ac-counts, regulatory reporting and accounting specific to French in-surance companies.
For fund managers, the demand is more sophisticated, coming mainly from international managers. For the rest of the market each bank uses its own securities services, and they all have their own back offices."