Jacques-Philippe Marson defies the Americans
The massive and on-going changes that have occurred in the custody and securities services industry have received exstensive media attention in recent times. Perhaps the most significant of these changes has been the emergence of a handful of large, powerful and predominantly US-based global custodians and their arrival in Europe. This has led to speculation concerning the ability of European custodian banks to remain in the business. This speculation continues to gather pace as a number of European providers continue to exit the business.
As a leading pan-European custodian, speculation has inevitably
centred on Paribas.
Here I would like to outline why the demise of the European custodian, either the regional or niche provider, is far from complete or far from
certain. To the contrary, the ever-increasing size of the US global custodians may work against them achieving their European ambitions; their very size can lead to an inflexibility in their approach and reduces their
ability to meet client’s specific needs. This limitation affords an opportunity for other nimble and flexible custodians to prosper.
Before I discuss this however, it is perhaps important to understand why these custodians have come to Europe and what it is they hope to achieve here.
In essence, the maturing of the US market, the evolution of their multinational service capabilities through an ongoing technology investment, and the expanding European marketing opportunities has accelerated their moves. Also serving to quicken their arrival, and indeed fuel their European growth, have been the underlying shifts in the demographics of the European community, the introduction of the euro, the creation of the Euro-zone and low interest rates.
Now that these custodians are entrenched in the European financial landscape, do regional custodians and niche providers maintain any hope of successfully competing with them, or indeed surviving in the foreseeable future?
At BNP Paribas Global Securities Services, we believe that we will not only survive this onslaught, but will be able to take advantage of their arrival and capture even greater market shares across Europe.
As a pan-European custodian, the service solutions offered to our institutional investor clients have successfully leveraged the ‘on the ground’ network of Paribas’ multi-direct clearing and custody (MDCC) business, originally purchased from JPMorgan in mid-1995.
As with other regional custodians, a strong local market presence, direct market access, and recognised market expertise has enabled us to maintain an unmatched knowledge of European markets and local market infrastructures.
As a regional custodian, we are organised increasingly to leverage this local on-the-ground approach for our institutional clients’ investment business across Europe. Recently, a number of major European institutions have chosen our regional service offering rather than the services of
US-based global custodians because of the local value-added solutions we have been able to provide in a number of major European markets;
Notably, all of the tailored local-solutions offered by regional or niche custodians comply with local market conditions and contrast sharply with the more uniform services offered by the larger US custodian banks. That said, a regional custodian such as ourselves must also be able to ‘custodise’ domestic assets elsewhere - in North America, Japan, Asia Pacific and in most of the emerging markets. As a regional custodian, we see this as being able to offer our clients the best of both worlds.
The more diverse range of products that a pan-European and/or niche custodian is able to offer institutional clients has resulted from the European origins of these providers. Importantly, the US institutions’ products are borne from the needs of clients in the US, and to a lesser extent the UK, so that their service offerings are often better suited to the needs of US and UK institutional asset managers.
We believe that this strategy of a localised approach - flexibility to adapt to market, regulatory and changes in tax legislation - enables regional custodians’ institutional clients to enjoy a number of key advantages in implementing their European investment strategies. Notably, these advantages are often most important in continental European markets, say Italy and Spain, where language and familiarity with local business practices etc. are more important than in the more mature markets such as the US and the UK. Additionally, market experience suggests that the large US groups are less prepared to innovate in these newer and evolving markets. If the large US custodian banks are not prepared to adapt to the needs of the individual markets within Europe, a number may not realise their growth expectations in the region.
That said, a number of the US players are ahead in terms of product development, but what has been done in the US has been for a single market. As such, when these large US providers arrive in Europe they need to realise that to offer a complete range of value-added services to European clients, they need to account for the market peculiarities that remain in the post-euro environment. Importantly, these same custodians also need to realise that this lack of market homogeneity will continue for a number of years to come and differences in local business practices and cultures will continue for an even longer time.
With core custody, fund administration and securities services becoming increasingly commoditised, the need for custodian banks to move up the value-chain and offer regional and specialist product solutions that will satisfy the more sophisticated demands of clients, continues to grow.
So, what is the role of our new group and what route will we be taking in the new Europe?
For the securities services businesses of both banking groups, the merger represents a unique opportunity to continue uninterrupted with our growth plans. The new group will also realise a number of synergies and an escalation in size. We join the one trillion euro club, we will process more than 10m transactions per annum and our direct network will increase by a substantial multiple.
The merger of the two groups will serve to further consolidate our leading position in the French market and will serve to expand our capital base to meet the risks associated with the custodian banking industry and the increasing complexity of the value-added services on offer.
Four major developments will continue to underpin our growth strategy:
q The continued expansion of our service offering to pan-European institutional investors.
q Growing the range of value-added services offered across Europe.
q Uniting key client groups via our integrated range of liquidity management products and services.
q Expanding market coverage.
In the new Europe, we believe that the more nimble of the larger regional players - such as those able to assemble the alliances of securities services providers to meet client demands and gain competitive edge over other providers - will survive to compete with the larger US global custodians.
Partnering will allow us to present a unique and flexible product in a particular marketplace(s), combining a global operating platform and technological expertise with the partnering banks’ local knowledge. Together, we will continue to identify and implement the investor services and value-added product and service solutions that our clients are demanding in order to facilitate their investment activities across Europe.
Jaques-Philippe Marson is head of BNP Paribas Global Securities Services