It was a non-event that started the year eventfully for the securities services industries in Europe and further afield. The enormous preparations for the millennium, thankfully, turned out for many in the industry to be a false alarm, much to the relief of all concerned. A fraction of the predictions would have been sufficient to wreak havoc on the financial system. So the industry was left, with the rest of the world, wondering if it had been ‘had’ by the millennium bug scaremongers, or whether the diligent preparation had in fact paid off handsomely as bug free systems saw in the new year without a glitch.
But since the anti climax other events have emerged and are now preoccupying custodians- not least the dramatic changes occurring in the securities market with the merger between London and Frankfurt exchanges following hard on the tie up of the Paris, Brussels and Amsterdam that produced Euronext. The question everyone is asking is whether the mergers are will lead to the ultimate consolidation, a single European exchange.
The hope is that economies of scale will reduce transaction costs, and that the industry will enjoy a surge in cross border business, a trend that is already appearing. On the clearing and settlement front there is the feeling of unfinished business on the Euroclear and Clearstream bank merger. There were insistent voices from outside, notably that of bank of New York’s Thomas Perna who told the Europeans in no uncertain terms to get on with consolidation.
For the securities services business the overall climate was benign in terms of business flows, but we are seeing the continued changes in the industry, with a number of those in our tables of last year, no longer figuring in this year’s table.
All of which is relevant to those institutions who answered this year’s securities services survey. The questionnaire is marginally different from last year’s, as are many of the responses. This year the assets under management are broken down into assets in Europe, North America, the Far East and the rest of the world.
We have also attempted to wean out the allocation of European custody assets between pension funds, investment companies, investment funds, corporate clients and investment managers.
Finally, we have expanded the list of services offered by custodians to include, eg, risk management and measurement, repo services, full backoffice outsourcing, investment fund administration and performance attribution and measurement.
Inevitably, the American institutions come out on top, with regards to assets under management. The Bank of New York manages the most with $6.6trn in assets, although it doesn’t give a regional breakdown. State Street with $6.2trn is not that far behind. Chase Manhattan manages $5.6trn followed by Citibank, tied with Deutsche, on a total of £3.9trn. Where specified, the allocation of funds is largely related to the nationality of the institution. Of the $2.25trn asset under custody at the joint venture ABN Amro Mellon, $1.9trn, or 84.5% are North American. At Chase, just over 70% are North American and at Kas, 92% are European. Both Citibank and HSBC are the exceptions with two thirds and 96.5% of their assets respectively in Europe.
Interestingly, it is some of the institutions with less under management offering the most comprehensive custody services. Pictet, Fortis Bank and Banca Commerciale Italiana, all of whom custody less than $350bn in assets, each provide all the services listed on the table. Of the institutions with over a trillion under management, ABN Amro-Mellon, BNP Paribas, Citibank and Deutsche Bank provide the works. Five of the institutions do not provide index funds management or futures clearing. The newly introduced collateral management is also a more specific service.
The allocation of European custody assets makes interesting reading as well. 41% of the assets in ABN Amro Mellon’s custody belong to investment managers, BCI has the next highest proportion with 15%. Two fifths of the assets in CBI’s custody belong to investment funds and Kas-Associatie has just over half of its assets in custody belonging to pension funds. At Chase Manhattan and Fortis, their breakdowns are similar with roughly a quarter belonging to pension funds, investment companies and investment funds – the rest is split between corporate clients and investment managers.
With a year-on-year basis, those banks that responded to the questionnaire on both occasions have unanimously increased assets under management.
Most dramatic is the change at Deutsche Bank whose increase to $3.9trn in the last year, more than doubles its total this time last year. Bank of New York is up 27% to a total of $6.6trn, Northern Trust has increased its asset base 23% to $1.6trn and Pictet and ABN Amro-Mellon are up 19% and 16% respectively.

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