“We have concluded amongst ourselves that we are too modest,” quips Patrick Colle, chief executive of BNP Paribas Securities Services. The custody division of Paris-based bank BNP Paribas is trying to change that. So far this year it’s enjoyed a high-profile win in Europe by snagging the Kingdom of Spain as a client. It’s also found success in Asia, becoming the largest third-party clearing participant on the Hong Kong Stock Exchange and launching clearing and custody services in India. Named CEO in May 2010, Colle believes Asia holds the key to his organization’s growth. The 51-year-old has traveled extensively in the region; back in 1984 his first job was training sales staff for a retail company in Malaysia. By focusing on Asia, he plans to double his unit’s revenues within five years, competing head-on with the biggest custodian banks.
“Five years from now the big difference will be a bigger chunk of our revenue will come from Asia,” says Colle, who joined BNP in 2006 after two decades with JPMorgan Chase & Co. “For the first time, BNP Paribas Securities Services will be a truly global organization.”
With €4.8 trillion ($6.8 trillion) in assets under custody as of March 31, BNP ranks fifth among custodian banks, behind Bank of New York Mellon Corp., State Street Corp., JPMorgan and Citigroup. Closing the gap will be harder than fifth place suggests: Top-ranked BNY Mellon has $25.5 trillion (including assets under administration), while fourth-place Citi has $13 trillion.
Marty Mosby, a Memphis-based banking analyst at Guggenheim Securities, says bigger is better in the servicing business. Mosby contends that BNP’s competitors are building cutting-edge technologies that make them tough to compete with globally; in 2009, for instance, J.P. Morgan Worldwide Securities Services began marketing an over-the-counter derivatives clearing platform called DerivClear. Given these developments, there’s speculation that BNP will sell its custody unit.
Colle dismisses the idea, noting that the division more than carries its weight. Although it accounted for less than 10 percent of BNP’s pretax income last year, BNP Paribas Securities Services posted a 57 percent return on equity, the highest of all the bank’s entities.
Brian Bedell, a New York–based trust banks and online brokers analyst with broker-dealer International Strategy & Investment, thinks BNP has “a fighting chance.” Bedell likens it to Chicago-based Northern Trust Corp., which has $4.4 trillion under custody. “Its clients are not looking to compete on price but want someone who works well with their special needs,” he says of Northern Trust.
Colle has a similar relationship in mind. He wants to win business from European funds launching in Asia and help Asia-based funds grow regionally. Several things work in his favor. BNP is the No. 1 fund administrator in Luxembourg, Europe’s biggest fund center. The bank also has a presence in 13 Asian countries; its Kolkata and Shanghai offices opened in 1860.
And BNP Paribas Securities Services has experience in bridging East and West. In 2007, for example, London-based Aberdeen Asset Management hired it to move the operations of funds owned by Asian investors out of Europe and into Asia. “There really was no one else who could meet our needs for the region,” says Low Hon-Yu, COO of AAM Asia Pacific.
BNP hopes its well-established third-party clearing capabilities in Europe will translate to Asia. Earlier this year, on the strength of those services, it worked with Hong Kong regulators to change the rules for brokerages’ capital requirements. Risk capital on the Hong Kong exchange is now based on “netted” positions that account for offsetting exposures, such as an open long position and a short position on the same contract. As a result, BNP’s clearing business is booming.
For the next phase of their Asian expansion, Colle and his team plan to launch a third-party OTC derivatives clearing service by year’s end. Whether BNP can win over the region with this offering and others is the trillion-dollar question.
