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ITALY - State Street has opened an office in Milan with an eye to servicing Italy’s 500 billion euro investment funds industry, as part of its Deutsche Bank securities services deal.

But it is also preparing for the day when pensions assets come on stream.

Last year’s 1.5 billion-dollar acquisition of Deutsche’s Global Securities Services arm gives State Street a local edge in Italy, for both the depositary for local banks and asset managers and the correspondent bank type business for international groups providing funds into the Italian market, says Jean-Marc Crepin, director-general of the Milan office.

“Our strategy is to approach all possible clients in banks, asset mangers, insurance companies, pension funds and other. But asset mangers in particular are seen as a target, as they can now outsource their back office, and not just the net asset value (NAV) calculation to either a third party provider or a depositary.”

He sees a growing demand for banks to outsource the asset management back office functions, as the costs of keeping systems up to date with tax and other changes is very high. They will want to leverage off third party providers, he says.

“Pensions have always been a hot topic in Italy, but little has materialized by way of assets in new schemes,” Crepin points out. “Old schemes are worth 30 billion euros, but have complex structures, often with high real estate content, it is difficult to outsource the servicing part.”

But he believes that “the market may now be ripe”. “The pensions reform is not as ‘hardcore’ as the market providers would wish.” He is optimistic that the Trattamento di fine lavoro, or TFR, which people get at the end of their careers, will end up in the pension funds, even though it will not be compulsory. “The reforms will have their effect in three to five years.”

Professional providers will position themselves for the day when assets become larger, he adds. “The fees for third party administration which have been very low, will go up in time.”

The operation has been set up as a branch of the German bank, with a depositary licence. “Our staff is now stands at 31, having in creased by five in the last month.”

Deutsche’s global securities business in Italy is centred around the business areas of depositary bank, being a ‘banca corespondente’, custody both direct and global, and securities lending. “The local custody business stays with Deutsche, under the terms of our agreement,” says Crepin.

Bob Ash, who heads up State Street’s securities lending operations in Europe, says there will be growth in this area within the Italian market.

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