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EXECUTIVE INTERVIEW: Eyes on the bigger picture

Jose-PlacidoIt is just over five years since RBC Dexia Investor Services was formed and although the business is outside the major league in terms of assets, its capability is as good as any other provider, and it is growing, Jose Placido, CEO, tells Nick Fitzpatrick.

When you are not the world’s biggest custodian by assets, or even within the top five, you have got to have something else to speak about if it is not to do with how large your business is. Size and scale are, after all, what many in the asset servicing industry – of which custody is the backbone – constantly emphasise.

RBC Dexia Investor Services (RBC Dexia IS) is not in the top five, so what can they say?

To be fair, the custodian is only five and a half years old, having been formed by Royal Bank of Canada and Franco-Belgian Dexia in 2006.

But according to José Placido, chief executive officer from the start of the venture, the firm is building towards becoming a one-stop shop for asset servicing needs, and it is as capable as any other at administrating large mandates.

“We have won mandates of various sizes and of various complexities and we are recognised as having a large footprint and broad capability spectrum,” he tells Funds Europe. “We compete with both European and US players depending on what a client wants.”

He adds: “For example, Swiss & Global is a client and we service them in multiple geographies for a sizeable mandate. We have staff in Switzerland and Luxembourg working on their funds. We carry out aggregated reporting and assist with global distribution. Our TA [transfer agency] is global.”

The big bang
Placido says RBC Dexia has grown “tremendously” since the joint venture’s creation. Prior to the formation, he was executive vice president of RBC Global Services and responsible for institutional investors. As of 31 March, RBC Dexia IS assets have reached $2.9trn (€2.06trn).

Last year, in the Funds Europe 2010 custody survey, assets stood at €2trn at 30 June, placing the business eleventh in the survey. BNP Paribas, a close rival, held €4.33trn and was in fifth place behind the four largest US players.

If RBC Dexia IS lacks anything in assets, it makes up for it in popularity with clients. In the 2011 R&M Consultants benchmark rankings, it gained the title of number one global custodian in the world, and number one with asset managers in four categories.

Client relationship managers must be hoping this can be maintained through an impending period of new activity as the business “refreshes” all its capabilities. Within custody, this means that from 2012 and until 2014 all clients will be put on to a new custodial platform, although Placido says distinct platforms will stay in certain geographies for some clients.

“Another key strategic initiative for us is to move clients onto our new global OTC [over-the-counter] derivatives platform. It will give clients a ‘follow the sun’ approach to their derivatives needs, incorporating not just processing and valuations, but also middle-office activities such as collateral management. It has the scalability to handle large volumes and is another part of our strategy to become a one-stop shop for global funds, regardless of their servicing needs.”

The crisis years
Custodians, many of whom are owned by broader commercial banks, have been able to ease any client fears through the credit crunch by explaining that the segregated nature of funds held in custody gave them protection.

But there was an unpleasant bump in the road when RBC Dexia IS’s French business was forced to return assets to certain hedge funds that it acted as a depository for, even though those assets were in sub-custody with Lehman Brothers International at the time of

Lehman’s collapse. It had wanted to wait until the Lehman estate had been settled.

Placido says: “The case related to arrangements with three particular clients and the legal interpretation related only to them and only in France. To that extent it did not reverberate around the whole business. We amended contracts with them as a result and so we do not have that kind of arrangement any more.”

An aspect of the case had been the sub-custody arrangements and Placido says he will not accept clients dictating which sub-custodian to use. “We select the names through an agent network and the large majority of our clients expect us to pick these agents anyway.”

RBC Dexia IS, whose Dexia parent had to take bailout money during the financial crisis, is independently capitalised from its parents, each of which has a 50% stake and provides credit lines.

Through 2008 and 2009, it continued to win mandates and increase funds under administration. The business said in its 2008 Year in Review that its financial integrity and careful approach to risk “helped us avoid the difficulties faced by a number of competitor custodian banks – particularly cash collateral arrangements related to securities-lending programmes”.

The road ahead
On its road to become a one-stop-shop, where the business has not had a capability, it has bought it. This was seen with the purchase of Italian UBI Banca’s depository business. But growth for the most part is organic, says Placido.

“Our model relies on organic growth. In Switzerland, which has been very dynamic over the last five years, we have won business because of our ability to leverage onshore and offshore capability. But if an opportunity to make a good acquisition comes to market, we will look at it.”

He says that following a deep analysis of several markets, Italy, Spain, India, Australia and Asia are seen as key growth markets.

RBC Dexia IS has offices in 15 countries around the world and a global custody network covering 88 markets. It does not have offices in the Brics (Brazil, Russia, China, India) markets, although China and Brazil are strategically important.

“We leverage the RBC representative office in China and there is one in Brazil, too,” says Placido, who adds that he met with the top 10 banking and asset management relationships in Brazil recently.

“We are looking at strategy there, but our first priority is to capture outflows.”

Brics clients include sovereign wealth funds, central banks and large asset managers. Some are serviced out of Canada, Dublin and other jurisdictions, while other emerging market clients have been serviced out of Hong Kong and Singapore.

Elsewhere in emerging markets, and on the operations side, the firm is still growing its Malaysian processing hub, which opened five years ago. Placido says this will grow significantly in the coming years and that it is part of a scaling-up of business in Asia Pacific, where RBC Dexia IS has 1,300 people.

Placido says the firm has always had a strategy to leverage its main scale hubs – Canada and Luxembourg. This benefited RBC Dexia IS as investment flowed into Canada in recent years where the business is a lead sub-custody and investor services provider.
Spanning these locations could benefit the firm again as, says Placido, large Canadian asset managers now plan to go global.

“However, I think we’ll still see Europe in the next three to five years continue to be a large dynamic environment where our position fares well, and on the horizon for us is Latin America.”

He adds: “Five years into this company, we are at a crossroads into the future. We will focus on the top 200 to 250 biggest names and make sure that we can service all or some of their capabilities.”

©2011 funds europe