CIBC Mellon Wins TD Mandate, Increases Market Share

When CIBC Mellon acquired TD Bank Financial Group's custody business last week, many observers wondered what exactly CIBC Mellon was buying. "Increased market share," says a CIBC Mellon spokeswoman. "The opportunity arose and we recognized it to be an excellent

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When CIBC Mellon acquired TD Bank Financial Group’s custody business last week, many observers wondered what exactly CIBC Mellon was buying. “Increased market share,” says a CIBC Mellon spokeswoman. “The opportunity arose and we recognized it to be an excellent way to increase our business and market share. This transaction strengthens our position in Canada and brings our total assets under administration to $560 billion. Furthermore, it demonstrates our commitment to become a stronger player in an increasingly competitive industry. We have a history of building our business by acquiring other businesses and are therefore very experienced at introducing new clients to our services. Ensuring their accounts are transitioned smoothly to our systems is our primary goal.”

While TD’s C$75 billion custody business tops up CIBC Mellon’s assets under administration, both parties have refrained from publicising the value of the transaction.

“The parties have agreed to keep the details of the transaction confidential,” explains the spokeswoman. “Of course, price was only one issue – a more important element of this deal for TD was to find a provider to best service the needs of their third party investment fund clients, their own internal custody, offer a smooth transition and offer employment to their employees. The transaction was beneficial to all parties and we believe will benefit the clients.”

CIBC Mellon says it will now be providing custody for approximately 12 new third party investment fund clients as well as providing custody services to TD Bank. But how will this change of custodian effect TD custody clients and how will they benefit from this initiative? CIBC Mellon confidently promises a smooth transition.

“CIBC Mellon will be approaching TD’s third party investment fund custody clients to discuss our services and to work with them to bring them onto our systems,” continues the spokeswoman. “These new clients will benefit from our strong client focus and best-in-class technology.

They will also benefit from our extensive experience in converting large numbers of clients onto our system as they can expect to receive high quality service and a smooth transition. While CIBC Mellon will be providing custody services for TD and their third party investment fund clients, TD will continue to service the custody needs for TD Waterhouse, their treasury book of business and their high net worth clients.”

The CIBC Mellon/TD deal was signed on January 31 and, since regulatory approval was not required, the transaction is considered effective immediately. The next step is the actual transfer of assets, and here CIBC Mellon reckons it can close the deal inside six months. “Technically, conversions can be done quickly,” says the spokeswoman. “However, there are a number of factors that can affect the timing, such as the amount of time it takes to transfer custody of assets in offshore markets. Our goal is to ensure clients experience a smooth transition and, while it is scheduled as a twelve-month process, we estimate it will be completed within six months.”

But if CIBC Mellon has a clear agenda, how confident is it that all of the TD clients will choose to stay on? That does not seem to worry CIBC Mellon at all. “We believe that our service and systems are the best available in Canada and look forward to the opportunity to demonstrate our capabilities to our new clients,” explains the spokeswoman. ” We will, along with TD and AGF, actively work with these clients to demonstrate the merits of this transaction, as we genuinely believe it to be in the best interest of all parties involved. Our goal is to ensure these clients continue to receive high-quality service throughout the transition and beyond.”

Just in case, however, CIBC Mellon is promising its new clients no increase in fees and no restrictions on which of its services they can access: domestic and global custody, multi-currency investment accounting, performance measurement, investment analytics, domestic and international securities lending, cash management and foreign exchange. Many of these services will be delivered to clients through the Internet-based Workbench tool. “Furthermore, the services we provide to TD for the custody of their own assets will include securities lending,” adds the spokeswoman. ” With passing of legislation in May 2001 to allow mutual funds to participate in lending programs, this has opened an exciting opportunity for us to lend their assets in order for them to earn incremental revenue.”

What about jobs? CIBC Mellon currently employs approximately 1,200 individuals of which about 765 are dedicated to custody services. The employment of CIBC Mellon’s current staff will not be affected by this transaction and there will not be any layoffs at TD either. CIBC Mellon will offer employment to all of TD employees associated with the institutional custody business that it has bought. “With CIBC Mellon’s business growing, we do not intend to layoff any staff,” says the spokeswoman. ” In fact, we need experienced and talented people and we are looking forward to welcoming TD’s custody employees to our operation. Their experience servicing this book of business will be of tremendous value to us and therefore we do not foresee any layoffs.”

It is known that TD did talk to other potential purchasers, including RBC and AGF. But it was CIBC Mellon’s willingness to make a joint bid with AGF to spin off the fund accounting and record-keeping tasks that seems to have clinched it. “Both AGF and CIBC Mellon were bidding on this business and AGF approached us to support them on their bid,” says the spokeswoman. “Forming a joint bid was what we deemed to be in the best interest of everyone involved. AGF’s wholly owned subsidiary, AdminSource, has agreed to purchase the fund valuation and record-keeping piece of TD’s third party business. AGF is one of Canada’s premier mutual fund and wealth management companies and AdminSource provides administrative services to mutual fund and insurance companies. AGF will offer employment to all of TD’s of record keeping and fund accounting staff”.

Clients will now have to deal with two providers rather than one, but CIBC Mellon claims experience proves it can make partnerships of this kind work. “We have worked with AGF in the past and have very good processes with them. As part of this transaction we will continue to refine and improve those processes and have great confidence that these new clients will be well served by both AGF and us. Clients will benefit from our talented professionals, superior technology and excellent service capabilities.”