Giant UK insurance group Royal & Sun Alliance (RSA) is switching £6bn ($10bn) worth of custody business to Midland Securities Services (MSS) - £2bn-3bn from its Sun Alliance portfolio and £3bn from its Royal portfolio, as part of its restructuring.

The £2bn-3bn was a gilts portfolio with Morgan Stanley, while £3bn is in equities with Chase.

Royal & Sun Alliance was a client of Barclays Global Securities Services (BGSS), recently purchased by Morgan Stanley.

RSA director John Maunder says: We went from a sure footing with Barclays to an unknown factor with Morgan Stanley and we didn't like the uncertainty. Our contract was with BGSS and we were told to look to them first and foremost, but two people we dealt with at BGSS disappeared, whilst other BGSS people switched to Morgan Stanley. The BGSS stock lending team doesn't seem to be with Morgan Stanley any longer and Morgan Stanley appears to be starting out again with stock lending, so we decided to go with Midland."

Another client to defect from Morgan Stanley recently is Winterthur International Insurance, the UK operation of the major Swiss insurance group, which has switched to Lloyds Securities Services.

Winterthur investment manager Craig Hallier says: "Our decision was prompted by the sale of BGSS to Morgan Stanley."

A third BGSS client, a pension fund, is rumoured to be talking to other custodians.

Commenting on the defections, Morgan Stanley's managing director of custody, Mike Grass, who previously ran BGSS, says: "Yes, both these clients have chosen other players, but RSA wanted a gilt player not a global custody player, and I don't want to comment on Winterthur."

At MSS, head of UK institutional sales John Stubbs points out: "Gilts need to be custodied somewhere and we are stock-lending those gilts to the market. This is excellent custody business."

RSA is to shift another £6bn worth of UK equities from Bank of New York to global custodian Chase. Ultimately it wants to rationalise its arrangements and have just two banks in future: Chase for the global markets and MSS for the domestic market. Bob Crew"

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