The custody businesses of BHF-BANK, the Frankfurt-based German bank owned by the Sal. Oppenheim private banking group, are being spun off by the parent bank as a possible prelude to what insiders are calling a “strategic partnership” with a third party custodian.
The stand-alone operation, which will initially remain a wholly owned subsidiary of BHF-BANK, is expected to be in place with its own banking licence before the end of the year. The new specialist custodian bank, which is as yet unnamed, will service all of the existing domestic institutional custody, sub-custody and domestic depotbank clients of BHF-BANK. Assets in custody, almost all of them in Germany only, currently total over 300 billion.
Any strategic partner will certainly be drawn from outside Germany, and probably have no sizeable existing interests in the domestic custody market there. Sal Oppenheim is understood to be open to the possibility of the partner acquiring some or all of the equity in the spin-off, and discussions are understood to be in hand with a number of potential partners. But continuing independence is also an option.
The spin-off, which was put in train long before recent events, owes nothing to current market conditions. So what prompted it? Insiders will says that the new specialist unit can focus exclusively on its core custody business and so be in an even better position to service clients and enhance its market share.
Outsiders will doubtless argue that the spin-off is a prelude to a sale which allows the shareholders to cut costs and realise value. At the least, joining forces with a third party would enable the new unit to reinforce its capital base, giving it greater muscle in what is still a technology-driven field.
Clients will of course expect any partner to enhance services as well as technology but they will have two immediate concerns. First, clients will want to be sure that the spin-off is properly capitalised. As a subsidiary its business will benefit from the implicit guarantee of the entire group from the outset. A strategic partner perhaps a global custodian bank, or a multi-faceted group that combines local and global custody- would provide further reassurance.
Secondly, clients will need to be convinced that the change does not signify any lessening of commitment to the business by BHF-BANK, which re-entered the German custody market as recently as 2004. However, with or without a strategic partner, BHF-BANK can claim to have lived up to the service promises it made on re-entering the business as a purely local provider 4 years ago. Since then, it has acquired an impressive reputation for service quality and flexibility, securing a top rating in each of the last three Global Custodian agent bank surveys. Industry insiders say BHF-BANK has a lengthy pipeline of new accounts.