When Lloyds TSB decided to pull out of custody last year, it recommended State Street as the preferred provider to its clients. This did not stop Chase Manhattan from eyeing up a business opportunity. The bank took aim and cherry picked prime unit trusts fund clients from the business.
“We targeted eight names with a total of £25 billion ($37.5 billion) in assets and we won six of them with assets of £21 billion so that has added substantially to our business and given us a 33% market share of the unit trust market,” says Jeremy Jewitt, head of its global investor services division.
The Lloyds example provides a good illustration of Chase’s attitude to custody.
While other banks have pulled out of the business, Chase remains committed. It has $1.6 trillion of cross border assets under custody, out of a total of $5.7 trillion, a figure Jewitt says is a good gauge of success.
The biggest factor in the bank’s success, according to Jewitt, is that it has a clear idea of who it wants to work with. “We want to do the basics properly but we concentrate on providing a customized service to our target client base which is the larger pension funds, insurance companies, investment managers and central banks,” he says.
By identifying and concentrating upon the top end of the market as its key clients, Chase is prospering where other banks have struggled.
The very nature of those clients, being more sophisticated, keeps the custodians on their toes by continually demanding a higher level of service from them. “The bar quite rightly keeps on being raised by clients so we are not yet where we want to be but we are putting out a consistent approach to the most demanding end of the industry and it is paying off,” says Jewitt.
In the past clients demanded little from their custodians other than the basics of safekeeping and processing. Now banks offering securities services treat that as merely the starting point and look to add value through a wide array of products.
Chase is alive to the demands of its clients, as Jewitt explains: “You have to offer your product in a fully integrated way. Securities, cash, futures, securities lending, accounting and performance measurement all have to be delivered to the client in a totally integrated way.”
The service is also customized to fit individual client requirements – another example of Chase’s attention to client service.
The biggest area of business growth, both for the industry and for Chase is in mutual fund servicing and Jewitt says that plays to its strengths. “We have a platform which is better than anybody else’s in Europe for servicing that sector,” he says. “We’re seeing an explosion of international retail mutual funds in the eurozone and we’re capturing good market share of that.”
Chase has invested in Luxembourg, Germany and the UK in readiness for this surge in new business and the strategy is paying off. It now has 33% by value of the UK unit trust market.
But being the biggest it not the most important thing. “We just want to be the best,” says Jewitt.
Size in itself is not important, he adds but it does provide an indication that the business is growing and it also gives the bank scale and therefore the ability to reinvest in the business to the extent the market demands.
Without scale banks will struggle to stay in the business, warns Jewitt, who expects to see further consolidation in the industry in the next 12 months. As the number of providers shrinks further, Chase looks forward to another successful year.
