All the leading collateral management houses – Bank of New York, Clearstream, Euroclear and JP Morgan Chase – are pitching for the collateral management outsourcing contracts on offer from CCPs, cash and derivatives exchanges and central and supranational banks. Bank of New York, for example, has already secured contracts with CME and CBOT in Chicago, as those markets are increasingly willing to accept securities as well as cash as collateral.
So the market was surprised by today’s news that the European Investment Bank (EIB) has chosen ABN AMRO as its provider of outsourced collateral management services. ABN AMRO will act as the EIB’s collateral agent and take on responsibility for marking collateral to market, margin calls, returns and substitutions, as well as related settlement services. ABN AMRO Mellon has also been appointed to act as global custodian to all the bonds deployed as collateral.
In fact, the mandate covers the exchange-traded derivatives activities of the EIB only, and derivatives clearing is a field in which the Dutch bank has expertise, both on its own account and for third party clients. Interestingly, valuation of derivatives transactions will remain in-house in order to preserve the confidentiality of the EIB’s counterparties.
ABN-AMRO says it was chosen by the EIB because it can combine collateral management services with global custody, allowing full outsourcing of the activities related to the maintenance of a large collateral portfolio necessary for its derivatives trading business. Yet Bank of New York and JP Morgan Chase, if not the two ICSDs, could make the same claim. The appointment is a reminder of how politicised such contracts have become.
“The outsourcing of the collateral management is important for improving the management of the counterparty risk of the Bank’s substantial derivatives portfolio by moving to daily mark-to-market and margin calls of the collateral,” says Anneli Peshkoff, Director of EIB’s Treasury Department. “The decision to out-source is based on an analysis of the incremental resources required internally versus the cost and flexibility of outsourcing.”
Samuel Zavatti, Global Head of Financial Institutions at ABN AMRO, highlights the fact that the mandate gives ABN Amro credibility in the central banking arena. “This significant mandate further underlines ABN AMRO and ABN AMRO Mellon’s inroads into the central bank and supranational organisations for which a dedicated integrated approach has been developed,” he says. “We are very pleased that the EIB is willing to engage us on this important mandate, one of their first outsourcing activities.”
Nadine Chakar, CEO of ABN AMRO Mellon, agrees. “We are delighted to be supporting the European Investment Bank with a service that can truly be called unique within the financial industry,” she says. “Our work with financial institutions such as the EIB is an important part of our development strategy, and this mandate expands our capabilities for this client segment.”
Graham Bird, Global Head of Rates Markets at ABN AMRO added: “ABN AMRO makes extensive use of collateral in support of its own trading activities and has developed a sophisticated program which we are now pleased to make available to clients. We are delighted that the EIB has selected ABN AMRO and will now be able to take advantage of this platform to reduce their counterparty risk.”