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Skip Navigation LinksHome :: Back Issues :: Global Custody 2000: Who rules in Europe?

May 2000

Global Custody 2000: Who rules in Europe?


Deutsche Bank has the biggest market share in Europe, and nearly took Dresdner Bank’s slice too. But the frontier of the custody market is a moving target, and so is the associated risk.




Global custodians got excited when Deutsche and Dresdner Bank in Germany announced a merger on March 7. Why? Because the deal included selling two Deutsche units - asset manager DWS and life-insurer Deutsche Herold - to Allianz insurance.

The lion's share of those two units' custody business could no longer be assumed to go to Deutsche Bank. "Suddenly, bidding for that business went to the top of the priority list," recalls one global custodian.

Jürgen Marziniak, recently hired to return to Deutsche as head of global securities services was also salivating: "The merger would have put us surely in a better position," he says. "We would have jumped ahead as far as Europe is concerned."

But it wasn't to be. Within a month the merger was called off and that moment of excitement, even in the rather mechanical world of global custody, was over.

Marziniak doubts whether Deutsche would have lost the relationship with DWS. Deutsche's strength in this business has traditionally been with its domestic sphere of influence: DWS, Herold, Daimler/Chrysler, and as the biggest Depotbank (depositary) for retail bond and shareholdings.

But that is history. Now Deutsche is up against the big boys, having more-or-less digested the global transaction business of Bankers Trust. It lost a few stars on the way. Marziniak himself went off for a two-year stint at Cedel (now merging with Deutsche Börse Clearing to become Clearstream). This was prior to the BT acquisition at a time when Marziniak allegedly felt that Deutsche had lost direction in the custody business. Roger Booth, in charge of global custody, left last year, and most recently Mary Cirillo, the head of global investor services brought in from BT, took her leave. Now Marziniak has to rebuild the team.

Europe is the focus
"Europe will have higher growth in this business than the rest of the world," he says. And Europe is the focus not just for Deutsche Bank. The big boys, such as Chase, Citibank, Bank of New York, State Street, are also concentrating on the growth of pension funds and mutual funds in euroland. Marziniak is preparing to defend his turf: "We want to be the leading player in Europe," he says, noting that Deutsche already has a 10% market share, with e2 trillion of custody assets. It has another $2 trillion in the US, thanks largely to BT, and an improvable $80 billion in Asia.

Global custody services - who provides what
  ABN Amro BBH Chase Citibank Crédit Lyonnais Daiwa Europe Deutsche KAS Mees Pierson Northern Trust Paribas
Contractual income ? ? ? ? ? ? ? ?   ? ?
Tax relief at source ? ? ? ? ? ? ? ?   ? ?
Contractual tax reclaims               ? ? ?  
FX: execution ? ? ? ? ? ? ? ?   ? ?
FX: advisory   ? ? ?   ?   ?   ?  
Interest on idle balances ? ? ? ? ? ? ? ?   ? ?
Cash management ?   ? ? ? ? ? ? ? ? ?
Securities lending ? ? ? ? ?   ? ? ? ? ?
Derivatives ? ? ? ?     ? ? ? ? ?
Online access to proxy voting     ?       ?       ?
Multi-currency reporting ?   ? ? ? ? ? ?   ? ?
Master custody ? ? ? ?   ? ? ? ? ?  
Compliance monitoring ?   ? ?   ? ? ? ? ? ?
Performance measurement&attribution ? ? ? ?   ? ? ?   ? ?
Fund establishment     ?     ? ?     ? ?
Fund accounting ? ? ? ?   ? ? ? ? ? ?
Trustee services ? ? ? ?   ? ?     ? ?
Shareholder record-keeping&reporting ?   ?     ? ? ?   ? ?
Sub-custodian: own branch/ subsidiary ? ? ? ? ?   ? ?   ? ?
Sub-custodian: third party ? ? ? ?   ? ? ?   ?  
Indemnity for own loss ?   ? ?     ? ?   ?  
Indemnity for sub-custodian loss     ? ?     ? ?   ? ?
Electronic access ?   ? ? ?   ? ? ? ? ?
Clearing for brokers/ others ? ? ? ?     ? ? ? ? ?
Straight-through processing ? ? ? ? ?   ? ? ? ? ?
Unbundled pricing ? ? ? ?   ? ? ?   ? ?
Investment management ? ? ? ?   ? ?   ? ?  
Contractual settlement ? ? ? ? ? ? ? ? ? ? ?
on-contractual tax reclaims ? ? ? ? ? ? ? ? ? ? ?
Proxy voting ? ? ? ? ? ? ? ? ? ? ?
Number of the above services offered 25 21 29 26 13 20 28 26 14 29 24
 
Source: The Business Development Group International Ltd


Deutsche is the only European bank vying with the four global players, says a US custodian, and in the past it hasn't shown total commitment. "Potentially it could be quite powerful." Other European contenders are more specialized: they include ABN Amro, HSBC, Pictet and MeesPierson. The US also has specialists or niche players: Brown Brothers Harriman, Royal Trust, Northern Trust.

Swiss private bank Pictet&Cie may not have global reach but it manages to come top of customer surveys. It does so by using a network of sub-custodians and presumably by satisfying its customers better than the others.

Shifting ground
However, there is a question, what are these banks competing for, and are there others in the race? Clearing houses will tell you that they are also custodians, although they tend to use banks as sub-custodians outside their own jurisdiction. The global custodians are going for the more lucrative business at the "top of the value-chain" - such as portfolio performance measurement, tax reclamation, middle-office management - while the clearing houses are nibbling at the bottom - securities settlement and safe-keeping. On the fixed-income side, Euroclear and Clearstream are serious contenders as "bargain-basement" custodians.

But they can't overstep the mark, since some of the big custodian banks are shareholders of these clearing houses and sit on their boards. "The client of a custodian won't be accepted as a member of Euroclear," says Denis Peters at Euroclear. Although Euroclear does have some of the bigger asset managers as members.

RM Consulting - global custody survey 2000
Position Bank Score 1999 Change
1 Pictet & Cie (2) 5.74 5.44 0.3
2 Royal Trust (1) 5.53 5.62 -0.09
3 Brown Brothers Harriman (-) 5.51 na na
4 Northern Trust (3) 5.28 5.13 0.15
5 Chase Manhattan (4) 4.89 5 -0.11
6 Deutsche Bank 9*) 4.83 4.67 0.16
7 Bank of New York (5**) 4.79 4.83 -0.04
8 HSBC (6) 4.74 4.74 0
9 State Street (8) 4.72 4.68 0.04
10 Citibank (7) 4.09 4.7 -0.61
11 Mellon Trust (12) 4 4.23 -0.23
 
(Previous year's position in brackets)
*Indicates Bankers Trust's ranking for 1999
** The ranking for Bank of New York, not RBS Trust Bank which ranked 11
Source: R&M Consultants

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