The Goldilocks Agent
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Challenges due to the economic crisis for agent banks/sub-custodians in Europe.

Challenges due to the economic crisis for agent banks/sub-custodians in Europe.

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The Goldilocks Agent Document Transcript

  • 1. AGENT BANKS The Goldilocks Agent Is big better or is small beautiful? Or indeed, when it comes to agent banks and regional sub-custodians, are investors actually looking for Goldilocks in a bear market? Not too big to be out of touch and not too small to handle the business but just right to get the perfect mix of market knowledge and high-end support services. SeÁN FlyNN and PeTeR McCReADy report Agent banks/sub-custodians in Europe are Trending topics The southern European markets are also undoubtedly facing new challenges in the That’s not to say this trend for using global aware of this trend, but Dimitri Vassiliou, wake of the economic crisis. custodians as agents in local markets might who is head of sales and relationship Not least among these is a trend not soon affect the central and Eastern management at Eurobank EFG and based increasingly being singled out by market European markets and Juranyi is keen to in Athens – and with an operational commentators whereby investors are qualify her position. presence in six Southern European choosing the big global custodian banks to “This trend might be in the Western countries including Turkey – sees it as a deal with their regional investments rather European market,” she says, adding that doubled-edged sword: “There are many than selecting their own local agents in a while it might refer to settlement and institutions which have adopted a strategy given territory. This emerging trend custody; “it’s not clear whether this applies of reducing and consolidating the number towards the global one-stop-shop, such as to value-added services such as corporate of agents that they use worldwide,” he says. it is, is not universally being recognised actions and local tax expertise”. “On the other hand, many institutions across Europe. Nor would it appear that this trend is have realised that the expertise of each This has a lot to do with the having any great impact on the Nordic bank and each agent in every market is not developmental and infrastructure lag markets. Ulf Noren, SEB’s global head of exactly the same, so many foreign between the developed and mature sub-custody client relations saw little institutional investors tend not to always markets; at least that’s the considered evidence on his patch. SEB was the judges’ use the same provider in each country opinion of Lilla Juranyi, global head of choice for this year’s Regional Sub- because expertise is different,” he explains. custody at ING’s Securities Services, which custodian of the year in the Nordic Region But Vassiliou adds, “This trend is won this year’s IFCA award for regional at the ICFA European Awards. definitely happening for small institutional sub-custodian in Eastern Europe. “I don’t But that could be because players in the investors who have a small volume; they think that this is the trend in Central and Nordic region have more pressing issues to don’t have the capacity to run a very Eastern Europe today,” she says. “In our consider. The tendency on sub-custody is extensive network of agents so for them it region, the legal background and local not, and will not yet for at least until the makes sense to consolidate to a small infrastructure is not yet at that developed introduction of T2S, to use global banks,” number of agents.” level.” says Noren. Certainly from the German perspective, 18 December 2009/January 2010 icfamagazine.com 018-02~1.IND 18 18/12/09 16:05:03
  • 2. AGENT BANKS The global custodians try to be active in local markets but not all of the multi-national providers are in Germany so clients use local agent banks Moritz Ostwald, BHF Asset Servicing global head of sales at BHF Asset “This is for a number of reasons,” he Servicing, Moritz Ostwald is probably explains. “In many of these countries, the better placed than most to address this client doesn’t have the same size as the issue. “We do see that trend for choosing pension funds in Western Europe for global players,” he says. As yet however, it example so individually, they don’t would still appear only to be an emerging represent a very big client win for global trend even in a mature market like custodians.” Germany’s. “The global custodians do try Ostwald is even more emphatic on local to be active in the local markets but not all knowledge a strong selling point for an of the multi-national providers are actually agent bank. “The first thing is culture,” he in Germany so clients use local agent banks says. “We’ve been in the market for 30-35 like us,” says Ostwald. years doing sub-custody and that is direct sub-custody, not through any other agents. Making alliances With that of course comes the flexibility, A clearer, more established trend however the individuality and of course the local is that of global custodians making market knowledge,” he adds. judicious alliances with established An inevitable corollary of this emerging providers. “In the past five years, we’ve trend for for using global custodians as seen more of the multi-national banks agents in local markets has been a making alliances with local providers,” significant broadening of the services being according to Ostwald. offered by agent banks and regional sub- SEB’s Noren also underlined this: “The custodians. At BHF Asset Servicing, core services trend to use regional providers have been ICFA spoke to a number of banks and all comprises OTC settlement, securities very positive for us and has been offered broad ranges of services and in safekeeping, all the different kinds of accentuated by the fact that SEB is the only some cases, the choice of unbundling corporate actions, the income services, and bank in the area that has a full blown on packages to offer a kind of ‘pay as you go’ of course SWIFT reporting. “The second the ground presence in all seven Nordic- approach to services outside their core category is complementary services where Baltic markets,” says Noren. offerings. we have the general meetings, the This, it would appear, is the key strength An agent like ING in Eastern Europe settlement of exchange trades, tax reclaims of European agent banks like BHF Asset would for example offer basic services and and sec-lending as well as all kinds of Servicing and SEB and one that will stand settlement of custody services across all its market information,” says Ostwald. “Most them in good stead going forward. operational markets. Juranyi emphasises of our clients use all the complementary “Clients are aware of the strengths of a that coverage will inevitably vary from services as well. But if it comes down to local, flexible and specialist provider, country to country and this variation is cost, then with our unbundling, when our especially when they have large German generally connected with market clients don’t need all the services, they portfolios. Therefore, we still see quite an infrastructure and practices. But it is this don’t pay for what they don’t need.” interesting position for local sub- ability to offer the broader range of services The third category of so-called additional custodians,” says Ostwald. in a wider geographical spread that really services is where BHF Groups the Ask any European agent bank or regional adds value to a regional provider according brokerage, money market, FX and sub-custodian what it is that differentiates to Juranyi. electronic banking products. them from the bigger global players and Even within the domestic German SEB offers sub-custody services in 10 the response is a chorus in unison: local market, this move towards a wider service markets in Europe (Denmark, Estonia, knowledge. offering on the part of local agents is Finland, Germany, Latvia, Lithuania, Speaking specifically about the southern manifest. Ostwald explains: “As a sub- Norway, Russia, Sweden and Ukraine). region, Vassiliou says: “The thing is that custodian, we do the full service chain. “This service,” says Noren, “comprises clients in these countries where we operate This is divided into three different absolutely all elements within sub-custody, need to have a strong local presence from categories; core complementary and from fairly standardised settlements and safe whoever they appoint, this is crucial.” additional services.” keeping missions to state-of-the-art asset international custoDy & funD aDministration 19 018-02~1.IND 19 18/12/09 16:05:17
  • 3. AGENT BANKS Value-added service is a more essential part of the offering of a local agent bank and it should be done in a pro-active way, initiating as much support as possible to the foreign client who is considering the local agent in a remote market Lilla Juranyi, ING Wholesale Banking Securities Services this is not always efficient,” she says. “In have a strong market voice. What we mean some of the countries where we operate, by this is that we lobby on behalf of our there are already good working groups aimed clients and they expect us to have a strong at developing best market practice, where influence in the market, for example with competitors can work together in connection regard to upcoming regulations. Although with general market difficulties.” BHF Group is far smaller than say Commerzbank or Deutsche, our custody Putting into practice market voice isn’t at all,” says Ostwald. The kind of insight gleaned from these So what does the future hold for agent working groups is then put to good use. banks in Europe? The outlook was According to Juranyi, “We jointly approach generally bullish. the authorities with proposals on how to “Germany’s one of the most competitive overcome shortfalls in market markets in Europe,” says Ostwald. performance.” “Currently, there are about six major Juranyi cites Ukraine as a good example participants in the German market with servicing and reporting missions. The of this kind of practice. “There are four or regard to agent banks. Ostwald then goes service is offered to all client segments: five banks covering the whole custody on to highlight a big area of potential broker dealers, investment banks, global offering and they are working closely growth in his region. “I expect further custodians, universal banks, asset managers, together, this is something we like to consolidation will probably be seen in the ICSD’s and even a number of corporates. support and it also something we would German markets, especially when you Global custody and fund administration is like to introduce in other markets as well,” consider the growth in private pension offered on local basis in each of the markets she adds. schemes. This is an area with a lot of through a network of agent banks managed According to Noren at SEB this is potential for growth similar to that seen in and appointed by SEB.” “crucially important”. Noren notes with recent years in the UK and elsewhere. The It is no different in Southern Europe. some satisfaction “that our influencing German market therefore should still be of Vassiliou says that Eurobank EFG’s power is increasing the more we continue interest for foreign market participants and strategy is to “offer custody and clearing to grow an already massive Nordic-Baltic probably more so than other European services to any type of client, either market share”. countries.” domestic or foreign.” This new emphasis on shaping regulatory Juranyi’s philosophy for future growth is Another interesting aspect of this service policy is summed up by Ostwald: “It’s in keeping with the increasingly client-led broadening philosophy generally has been getting more important for large banks approach that is now thankfully gaining a more pro-active role on the part of agent and other custody clients to have agents currency. “Value-added service is a more banks in trying to shape the regulatory who not only take care about client and more essential part of the service policy within their spheres of operation requirements but who also lobby the offering of a local agent bank and it should and influence. market in one direction or another on be done in a pro-active way, initiating as ING in Eastern Europe attaches great behalf of clients’ interests. And this being much support as possible to the foreign relevance and importance to lobbying. “It’s Germany, the market itself carries quite a client who is considering the local agent in become increasingly important that these lot of weight. The top three players are the a remote market.” local banks show proactive proposals to the ones who do most to shape the market.” Vassiliou offers a conclusionary note of local authorities,” says Juranyi. “In some A bank like BHF is not shy about caution: “Just because it is a growing market countries, lobbying and approaching the highlighting its influence: “When we doesn’t mean anyone can step in. It’s about authorities by individual agent banks is a started to actively market sub-custody domestic connections and domestic players. normal way of market development,” she again about five years ago, our goal was to These kind of relationships are very difficult explains. She however is not sure of the offer unparalleled high-quality securities for a global custodian or a foreign bank to merits of such a partisan strategy. “Today services in the German market but also to replicate.” n 20 December 2009/January 2010 icfamagazine.com 018-02~1.IND 20 18/12/09 16:05:26