The 2011 World’s Largest Global Custodians: A Global Trek For New Assets

The custody industry makes money when the financial services industry is flush and economic growth is robust. However, sustainable growth has been hard to find lately in developed economies. So who’s been coping best with the difficult times?


The Bank of New York Mellon Corp. headquarters building stands in New York, U.S., on Wednesday, May 6, 2009. BNY Mellon is one of the 19 U.S. banks being put through a stress test by regulators, the results of which are expected to be released tomorrow. Photographer: Jonathan Fickies/Bloomberg News


The custody industry makes money when the financial services industry is flush and economic growth is robust. However, sustainable growth has been hard to find lately in developed economies. Real gross domestic product growth in the U.S., for example, rose by a paltry 2.8 percent in 2010 and at annual rates of only 0.4 percent in the first quarter and 1 percent in the second quarter of this year, according to the Department of Commerce. Those anemic rates prompted the Federal Open Market Committee in early August to forecast “a somewhat slower pace of recovery over coming quarters” than originally anticipated because “downside risks to the economic outlook have increased.” Sluggish economic expansion constrains new investing and exerts a downward pull on the prices of assets already held. However, global custodial banks — most of which are headquartered in Europe or the U.S. — have not allowed the tepid pace of recovery in their home markets to slow the growth of their custodied assets. Many firms have been setting up operations in new markets to capture what growth and opportunities there are in the world at the moment. For these banks, which make money in part by automating paper-based processes and offering additional services to clients — including asset managers, pension funds, insurance companies and mutual funds — the world is just more rich outside developed markets.

“Everything is global,” observes Nadine Chakar, New York–based head of global financial institutions at BNY Mellon Asset Servicing. “We sink or swim together.”

Chakar’s firm is clearly in no danger of sinking: Bank of New York Mellon Corp. tops Institutional Investor’s roster of the World’s Largest Global Custodians , for a fourth consecutive year, having increased its assets under custody and administration by 20.6 percent, to $26.3 trillion, in the 12 months through June. That didn’t stop BNY Mellon’s board from throwing overboard Robert Kelly, its CEO since the 2007 merger. At the end of August, the board asked Kelly to leave the bank, which has been sued by several states alleging that the bank improperly charged their pension funds for foreign exchange transactions, replacing him with BNY Mellon president Gerald Hassell.

Although much smaller, 11th-place Brown Brothers Harriman & Co. saw its custodied assets surge by a stunning 31.4 percent, to $3.1 trillion. BBH and BNY Mellon share the top spot when banks are ranked according to the number of countries in which they provide services: Each has a presence in 95 markets as a custodian, subcustodian or both. “The Markets” table on page 146 lists the top five global custodial banks by the number of markets they serve; the full list, plus deeper data on these banks’ cross-border and subcustodial holdings, can be found on our web site,

In August, BNY Mellon marked the one-year anniversary of a key acquisition in its custody business: Germany’s BHF Asset Servicing and its affiliate Frankfurter Service Kapitalanlage-Gesellschaft. “You can’t be a main player in Europe if you’re not big in Germany,” Chakar says. The acquisition boosted BNY Mellon’s assets under custody and administration by €457 billion ($661 billion). BNY Mellon is now the No. 1 provider of custody services in Germany.

Chakar says that being in place in so many markets is not about having just boots on the ground but also global platforms and systems that allow clients to quickly understand their vulnerability and positions. Last month, after Standard & Poor’s downgraded the U.S.’s sovereign-debt credit rating, rumors swirled that France would be the next target on the rating agencies’ lists. BNY Mellon had customers around the world calling about their exposure — to French companies, to multinationals with French subsidiaries and to French debt, Chakar adds. The firm has made its client-reporting systems available via iPad, to allow users round-the-clock access to information from anywhere in the world.


Brown Brothers Harriman, which is headquartered in New York, uses subcustodians in the foreign markets it serves — even those in which it has offices, such as Beijing, Hong Kong and Tokyo. William Tyree, partner in charge of global investor services, says his firm teams up with different banks in different locations, because “no one bank has solved the mystery of all markets.”

In April, Newport Beach, California–based Pacific Investment Management Co. selected BBH to provide accounting, administration and custodial services for a series of fixed-income exchange-traded funds in Europe, the region’s first such actively managed fixed-income ETFs. The Pimco funds will be domiciled in Ireland, which has become a hub for cross-border fund administration.

BBH is not the only global custodian to expand its presence in Ireland this year. Ninth-ranked Northern Trust Corp., with $4.4 trillion in assets under custody and administration as of June 30 — a gain of 24.3 percent over the same period one year earlier — completed its €60 million purchase of Bank of Ireland Securities Services from Bank of Ireland Group in June. The deal gives the Chicago-based outfit capabilities to process European ETFs. Dublin-based BoISS is Ireland’s largest asset-administration provider and has been a key player in the European ETF market for more than ten years.

Peter Cherecwich, chief operating officer of Northern Trust’s asset-servicing business and head of global fund services, says the ETF business in the U.S. has been a bright spot in the asset management world, but it’s also a back-office market that a handful of custodians quickly have come to dominate. The BoISS acquisition gives Northern Trust an opportunity to test the waters in Europe, then decide if it makes sense to plunge into the ETF market in the U.S. “We felt we had more opportunity for growth in Europe,” Cherecwich says.

Northern Trust has also made moves to bolster its presence in the fast-growing Asia-Pacific region. In July the bank completed its purchase of Omnium from hedge fund firm Citadel. Omnium provides administration services to hedge fund clients, some of which are located in Asia. The acquisition boosts Northern Trust’s hedge fund assets under administration by some €70 billion.

Not all of Northern Trust’s expansion has been through acquisition; Cherecwich is quick to point out that the bank has been growing organically as well. QIC, one of Australia’s largest institutional fund managers, with nearly $56 billion in assets, awarded a middle-office outsourcing contract to Northern Trust in March. Among the services the bank will provide are compliance monitoring, fee administration, investment accounting and risk analytics.

J.P. Morgan, which ranks second in total assets under custody ($16.9 trillion, a gain of 14.1 percent in the 12 months through June), ties with Northern Trust for fourth place in the number of markets served, reporting a presence in 92 locations. In all but seven of those markets, the firm has been relying on a third-party provider — but that’s about to change. The bank plans to set up shop in more locations, according to Nick Rudenstine, custody and clearing business executive.

“Direct custody and clearing is a very small business for us, but it will grow quite significantly,” he says.

Still, there is the issue of risk: Even though J.P. Morgan uses local experts in some markets, the firm is still responsible — and liable — should anything go wrong, Rudenstine explains. Moreover, given the scale that the bank has in equities, fixed income, derivatives, prime services and other areas, he notes, providing custodial services directly rather than relying on outsourcing makes good economic sense.

Not everyone agrees. State Street Corp., which ranks third in total custodied assets ($16.8 trillion, an increase of 19.9 percent in the year through June), maintains that unlike other banking businesses global custody can jump borders without bricks and mortar.

“We can go over boundaries easily,” insists John Klinck, State Street’s executive vice president, global head of corporate development and global relationship management.

The Boston-based firm has made its share of acquisitions in recent years, however. In April 2010, State Street bought Mourant International Finance Administration, an outfit headquartered in the Channel Islands that specializes in alternative assets. The terms of the deal were not disclosed; even so, the purchase boosted State Street’s assets under administration by more than $600 billion, and it became the world’s No. 1 provider of alternative-asset servicing, No. 1 in private-equity servicing and No. 1 in real estate asset servicing, the firm reports.

The following month, State Street bought the securities services business of Italy’s second-largest bank in terms of assets (behind UniCredit), Turin-based Intesa Sanpaolo, for €1.28 billion; the deal added €369 billion to State Street’s custodied-assets total. The group was one of Italy’s biggest providers of securities services; it also has a substantial market presence in Luxembourg. Under the terms of the agreement, State Street also will provide servicing to all of Intesa Sanpaolo’s investment management affiliates — including Eurizon Capital, which is the largest fund manager in Italy, with €169 billion in assets under management as of late July.

Klinck says debt problems in European nations and among banks will present additional acquisition opportunities, as institutions look to hive off distinct businesses such as asset management and securities services to raise capital. About 37 percent of State Street’s revenues come from outside its home country, but the bank is striving for a 50-50 allocation of revenue earned domestically and abroad. “There are a lot of opportunities emerging in markets outside the U.S.,” he observes.

As for going directly into foreign markets, Klinck says that’s just not a priority.

“We don’t aspire to setting up large brick-and-mortar operations in hundreds of countries,” he says. “We don’t have retail or private banking. We just don’t need it.”