Will 2022 prevail as the G.O.A.T. for custodians?

BNY Mellon, Citi and JP Morgan will reveal their fourth quarter and full-year earnings tomorrow in what should underscore a record year of revenues for custodian banks.

As Lionel Messi hoisted the 2022 World Cup trophy, the Argentinian seemingly cemented his status for many as the Greatest Of All Time, commonly known in sports as the G.O.A.T. 

Forgotten in that moment was all the controversy over the location of the tournament and the human rights issues which had loomed over the event like a dark shadow – the result was in, and outside of France, everyone shared in a moment of celebration. Long-term however, sentiment around the tournament will be combination of the anger and sadness surrounding the selection of Qatar, alongside that legacy-defining moment which will be forever etched into sports history. 

For the custody industry in 2022, the year will be remembered on a professional and personal level for the Russian invasion of Ukraine, political tensions around the world and the potential end of globalisation.  

But similar to the conclusion of the World Cup, the end of the year will bring results which will please many, despite the ongoing sympathy and support for Ukraine never shifting. 

For all the talk of custody being commoditised, a flat business and sector which many banks are looking to exit from or scale back in, it appears the largest providers are faring quite well. 

Three of the largest four custodians will reveal their fourth-quarter earnings tomorrow in what should point to a record year for the largest providers in the securities services world. While nobody will emerge individually as the G.O.A.T., the year itself will likely be the greatest on record from a revenue perspective. 

Citi and BNY Mellon, in particular, are having banner years with the former posting a 15% year-on-year revenue increase in Q3 to go along with a 6% rise in Q2 and a 16% uptick in Q1. BNY Mellon had a flat Q1 – largely due to the fallout of the Ukraine war – but then saw double-digit increases in both Q2 and Q3. 

JP Morgan’s fortunes have been impressive, though a bit more modest with a 2% rise in Q1, 6% in Q2 and flat performance in Q3. 

Overall, as an industry, data from Coalition Greenwich showed the top 12 custodians posted the highest revenues during the first six months of the year since it began tracking data in 2015. Third quarter results pointed to a continuation of this trend. 

The best year on-record for securities services providers was 2018, however this was followed by three years of flat of declining income for the industry as a whole. Custody revenues in particular have been stagnant, while fund services have shown more promise from a profitability standpoint. 

Next week we will have results from Northern Trust and State Street to get an even better picture of the annual performance of the industry, while the likes of BNP Paribas, HSBC and Societe Generale will likely come in February. However, unless all these major institutions post trend-bucking figures, there should be good news coming for an industry that remains somewhat bullish about the future. 

The total sum to beat for the largest dozen custodians is $37.2 billion, a record set in 2018, and while we won’t know officially for some time whether that number has been topped, the results from the big three banks tomorrow will give a strong indication as to whether 2022 really was the G.O.A.T. for the securities services world from a revenue perspective, as the industry allows itself a moment of celebration despite the year being a difficult one for many.