After a brief hiatus where State Street won the award for leading custody bank in 2002, JPMorgan has returned to the top of the tree, landing its third award in four years.
State Street, the world’s largest player by assets under custody, and Bank of New York, the custody specialist, remain fierce competitors. State Street further bolstered its presence with its $1.5 billion purchase of Deutsche Bank’s custody business, in the process leapfrogging Bank of New York to become the biggest player, with nearly $8 trillion of custody assets.
However, as marked out by Euromoney’s sister magazine, Global Investor, in its annual global custody survey, JPMorgan continues to rank highest among the big boys when the leading institutional investor clients’ opinions are given greatest weight. Its closest competition comes from the smaller boutique custody players of Investors Bank & Trust and Brown Brothers Harriman. Discounting those two, JPMorgan continues to rule the roost.
And, though not landing a deal of the size of State Street’s Deutsche purchase, or BNY’s $2 billion acquisition of Pershing from Credit Suisse, JPMorgan did make smaller deals in the shape of Plexus, the transaction cost analysis firm. It continues to be on the lookout for select deals that will fit with its existing business.
Ramy Bourgi, senior vice-president, business executive, investor services, EMEA, at JPMorgan, says that 2002 was a tough year for the operation and it realized it needed to concentrate on client relationships.
“We said we need to know our clients better. We spent time with them and it really bore fruit,” he says. “Clients come first because competitors are after our clients.”
The tough markets of recent years, on top of the challenge of open architecture and greater product competition, have put more and more pressure on fund managers and this has led to fundamental change in the way they do business. They have been consulting with the custody banks to find ways to ease pressures and this is leading to outsourcing of non-core operations such as back and middle offices.
And despite much industry criticism of its outsourcing deal with Schroders, JPMorgan says it is handling increasing numbers of enquiries about such deals. “Suddenly we went from one or two clients who wanted to outsource to a pipeline of 20,” says Bourgi.
As a further part of this transformation, decisions about outsourcing are moving further up the investment houses’ chain of command – from the chief operating officers and finance officers to the chief executives.
JPMorgan has a well-balanced business in terms of its client base, with 50% in its domestic market and 50% outside the US. The bank tapped into that client base and has used the feedback to address investor demands. “Their profit margins have been eroded and so custody cost becomes a bigger part of their business,” says Bourgi. “They are keen to see how they can become more efficient.”
Also, the changing face of the asset management industry, with fewer smaller players, should play into JPMorgan’s hands as it continues to earn the praise of the larger players. As Tom Swayne, JPMorgan’s head of global custody, told Global Investor on publication of its annual custody survey in May: “Basic economics of asset management are forcing consolidation. Bigger asset managers have more requirements, and that favours the big players, especially those who can offer a wide range of services and integrated solutions.”
