November 2012

FRANCE: Gains and losses

LocksFunds Europe travelled to Paris and asked the big three French asset servicers to explain their success or failure at increasing assets under custody. George Mitton reports. France is home to three of the five largest European custodians: BNP Paribas Securities Services, Caceis and Societe Generale Securities Services. Their fortunes in the past year have been mixed. Assets under custody at BNP Paribas Securities Services increased by €184 billion in the year ending June 30, according to Funds Europe’s annual custody survey (published in September). But at Caceis they fell €4 billion and at Societe Generale Securities Servicing (SGSS) they fell €102 billion. In relative terms, these are not dramatic changes. Each company looks after trillions of euros for its clients. But the direction of change, upward or downward, may be revealing about the fortunes of these companies and the way they are seen by potential clients. “Globally, it’s a difficult time for asset servicing,” says Bruno Prigent, global head of securities services at Societe Generale. “It’s more difficult than five years ago.” Falls in equity markets have affected the value of assets under custody. SGSS, which does significant business in Italy and Spain, was particularly sensitive to the effects of the eurozone crisis. Decline
However, the decline in assets under custody at SGSS, roughly 3%, was less severe than what some competitors have faced, says Prigent. Also, Etienne Deniau, SGSS’s head of business development, says the company has not seen a slowdown in new clients. Prigent is right to state that SGSS has had less of a decline than other firms. Citigroup, for instance, revealed a 6% decline in assets under custody in its second-quarter statement. Caceis, meanwhile, revealed a decline of €4 billion in custody assets, not a significant change. François Marion, chief executive, says that in the current environment, merely staying stable is an achievement. “Before the crisis, we were used to having the market work for us,” he says. “Those times are over. You have to fight.” Caceis has compensated for losses because of market movements by bringing on new clients, though it has also lost at least one major client – the bank Fortis, which was acquired by BNP Paribas. Caceis has the least custody assets of the French big three, some €2.4 trillion, but Marion points out that different firms may calculate custody figures in different ways. Marion prefers to focus less on assets under custody and more on profits and revenues. After all, having a large asset base is only desirable if these are profitable. Caceis is on course for good profits this year, he says, though 2013 might not be so good. Revenues have been on a downward trend because of client pressure on fees. “Our clients want savings, so they go to their provider and say ‘cut your costs’,” he says. Caceis has responded to the difficult environment by providing clients with products that offer new revenue streams, such as securities lending, back and middle office outsourcing and collateral management. BNP Paribas SS was the only custodian of the three that increased its custody assets, by €184 billion. The migration of Fortis assets was a big help, as were a number of other mandate wins, says Jean-Marc Pasquet, head of BNP Paribas SS in France. Outsourcing
These mandate wins have continued this year with Caisse des Dépôts, a French public finance institution. The gain of roughly €300 billion under custody will be reflected in next year’s custody figures. “We are gaining market share,” says Pasquet. “We have not lost any significant clients.” Of course, BNP Paribas SS has also faced the downward pressure on fees that has affected the industry. Like its competitors, the firm aims to do more activities with its clients that it can charge for, such as providing dealing services, outsourcing execution and derivatives clearing. The trend on the buy-side to do more outsourcing has helped the company, and Pasquet expects there will be more outsourcing deals in future. “It can be extremely costly to have depositary bank functions in-house, and there are fewer and fewer exceptions,” he says. Some wonder if there is more asset servicers could do to hit back against the downward pressure on fees. Executives are broadly cautious but say there is some hope clients could be persuaded to pay more for certain services. The increasing demands of regulation, which place more strain on asset servicers, may present an opportunity to re-evaluate fees. The increased liability for alternative assets that custodians are expected to bear under the Alternative Investment Fund Managers Directive could be a touch point. “Within the jungle of regulations, we may need to reconsider in some cases the way we charge,” says Pasquet. “It’s premature to announce dramatic change, unrealistic even, but it’s something we discuss. If we are to take more risk we have to receive more remuneration.” Regulation
SGSS says it has had some success in negotiating new fee schedules. Deniau says the company conducts a profitability review during which it visits its least profitable customers – often, these are clients on which SGSS is actually losing money – to try to renegotiate terms that are more favourable for the provider. Often, the firm succeeds. Deniau says SGSS has only lost a handful of customers. But not everyone is so optimistic. Marion at Caceis takes a more pessimistic view on the possibility of raising fees. “Prices should increase, but with the competitive situation, the contrary is happening,” he says. “I don’t see any player who will dare to do it. It is difficult, but what can I do? Asset servicing is at the end of the value chain.” The terrain is uncertain, particularly regarding legal changes, where there are still many questions of interpretation to resolve. Some say the increased demands of regulation offer a chance for asset servicers to move into a more consultative, advisory role, which could perhaps be more lucrative. If regulation proves to be more of a burden than an opportunity, companies may have to focus their attention to selling more products and services to stay profitable, as many firms have already done. In either case, the French players are likely to play a leading role in Europe. ©2012 funds europe

Executive Interviews

INTERVIEW: Put your money where your mouth is

Jun 10, 2016

At Kempen Capital Management, they believe portfolio managers should invest in their own funds. David Stevenson talks to Lars Dijkstra, CIO of the €42 billion manager.

EXECUTIVE INTERVIEW: ‘Volatility is the name of the game’

May 13, 2016

Axa Investment Managers chief executive officer, Andrea Rossi, talks to David Stevenson about bringing all his firm’s subsidiaries under one name and the opportunities that a difficult market...


ROUNDTABLE: Beyond the hype

Oct 13, 2016

The use of smart beta investing continues to grow. Our panel, made up of both providers and users, discusses what the strategy actually means, how it should be used and the kind of pitfalls that may arise when using this innovative investment technique.

MIFID II ROUNDTABLE: Following the direction of travel

Sep 07, 2016

Fund management firms Aberdeen and HSBC Global meet with specialist providers to speak about how the industry is evolving towards MiFID II.