The venture, ING/BoNY Securities Services, announced last October and launched on Monday, seeks to capitalize on BoNY’s status as the world’s number two securities custodian with $6.8 trillion in assets and ING’s local European experience, according to a Reuters report. BoNY recently lost its global top ranking in custody services to State Street Corp.
Continental Europe has around €5 trillion of assets, but the new business focuses on the Benelux region, Germany and East/Central Europe, areas deemed to have the biggest potential. The venture, targeting pension funds, insurers and other clients with a minimum of €100 million , aims to steal clients from smaller competitors squeezed in a cutthroat sector of tighter margins and demands for heavy investment.
Clients are demanding split-second updates and sophisticated analysis from custodians of their investments, which requires huge spending on technology. For example, Bank of New York spent $644 million on tech investment last year and plans to increase that to nearly $700 million in 2003, BoNY President Gerald Hassel said.
It is BoNY versus State Street in Germany
In Germany, BoNY is going head-to-head with its biggest rival after State Street acquired the majority of Deutsche Bank’s custody services business for $1.5 billion last year. That deal vaulted State Street into being the world’s biggest provider of custody services, but BoNY is seeking to steal Deutsche clients during the transition period, Hassel said. BoNY considered buying the Deutsche business, but decided that some of the operations would be a big burden.
As part of the deal, BoNY is shifting existing assets to ING as sub-custodian in Germany and other regions covered by the venture. BONY will also use ING as preferred broker on Euronext and Deutsche bourses and as exclusive clearer on Euronext. The venture will boost revenues for ING and allow it to avoid heavy investments in the custody area, Michel Tilmant, ING’s vice chairman said, declining to give any figures.
A raft of custody rivals have given up and spun off their custody businesses in recent years, leaving only a handful of major global players, which includes Chase Manhattan, a unit of J.P. Morgan Chase & Company.