Global Custodian’s most-read stories of the year: part three

Counting down from 10-6 of the most read news stories of the year on Global Custodian over the past 12 months, proving what a big year 2021 was for State Street and JP Morgan.

By Jonathan Watkins

Interesting fact: this is the first time in four years the most-read story hasn’t been related to BNY Mellon. Previous years’ most read have been:

2020 – BNY Mellon adds former JP Morgan product executive for top global custody role

2019 – Departing BNY Mellon CEO Scharf leaves unfinished business

2018 – State Street leapfrogs BNY Mellon as world’s largest custodian

In a year where Global Custodian’s page views hit an all-time high, there was some fierce competition at the top, and as previously mentioned, if it had more time – we believe the BlackRock ETF diversification story would have been the most read. But let’s get to it, here are the top five stories from 2021 from 5-1.

  1. JP Morgan undergoes major restructure within its securities services business

The comings and goings of the JP Morgan securities services team made for excellent reading this year. It was the story of a ‘major restructure’ that caught the most attention, however, as the bank combined its custody and fund services businesses into one unit and made changes at the top.

Tim Fitzgerald, JP Morgan’s head of global fund services, took on the leadership for the combined unit, and would go on to spearhead the custodian’s strategy and major achievements throughout the year.

Meanwhile at the time, Chris Rowland, JP Morgan’s global head of custody, decided to seek new opportunities – which turned out to be global product head for custody and regional product head for EMEA at State Street. In addition, Mike Hughes, head of global custody, left the bank, Hannah was named as the bank’s global head of custody, while Diane MacFarlane and John Miller will become regional leads for EMEA and North America, respectively.  

  1. Leaders in Custody 2021 – the digital experience

We are extremely pleased to see this page in our most-read, or should we say most-watched! In lieu of an in-person Leaders in Custody event we decided to run a five-day, digital showcase of documentaries, interviews, podcasts, voting and more to recognise the achievements of the industry over the past 12 months. Over the five days, awards recognised sub-custodians, ETF administrators, technology innovators, network managers and individuals – through Lifetime Achievement and Legends awards. The week ended with our Industry Person of the Year award where we broadcast an (almost) live interview with the winner, Caroline Butler, global head of custody at BNY Mellon, who coincidently was the subject of our most read story of 2020 when she switched organisations from JP Morgan.

  1. State Street axes Deutsche Bank as its sub-custodian in over a dozen countries

State Street has terminated its long-standing global sub-custodian relationship with Deutsche Bank at the very start of the year, dealing a major blow to the German bank’s local custody business.

The Boston-based global custodian decided to replace Deutsche Bank in over a dozen markets across Europe and Asia, and instead opted to use a combination of BNP Paribas Securities Services, Citi and HSBC.

Global Custodian understood the decision to switch local providers was based on fees and a perception that Deutsche Bank was not as committed to the sub-custody business as State Street would like them to be, according to sources familiar with the matter.

While State Street was no longer  a securities services client, it remained a user across Deutsche’s corporate and investment banking businesses.

  1. JP Morgan’s record $31 trillion AUC closes the gap with BNY and State Street

Amid all the aforementioned leadership reshuffling, JP Morgan was also enjoying some unrivalled custody success in 2020 and into the start of 2021 and it subsequently hit a new milestone for assets under custody (AUC).

JP Morgan ended the year 2020 with $31 trillion in AUC, up 15% in comparison to the previous year, following several years of improvements made to its securities services business as it closes the gap with rivals BNY Mellon and State Street.  

The milestone follows a period of increased investment by the US bank into its securities services business.  

Over the prior year, it leveraged new technologies from FinTech firms Saphyre and H4 to digitise its client onboarding and global custody contracts processes respectively, while also securing mandates with Finland’s government pension fund and Australian superannuation fund Local Government Super (LGS).  

  1. State Street to acquire Brown Brothers Harriman Investor Services in monumental $3.5 billion custody deal

The big one. The unrivalled story of the year, nay the decade. On 7 September, State Street announced it was set to acquire custodian Brown Brothers Harriman in a $3.5 billion deal marking one of the most significant and largest securities services deals of all time.

The agreement will see State Street acquire BBH’s Investor Services business, including its custody, accounting, fund administration, global markets and technology services.

The parties are targeting year-end 2021 to complete the acquisition (though we’re still awaiting confirmation as we move into the end of December) subject to regulatory approvals and customary closing conditions. 

Upon closing of the transaction, BBH Investor Services employees will move to State Street, and $5.4 trillion in assets under custody (AUC) will transition to State Street’s books, which already hold $31.9 trillion. 

As we wrote in a follow up piece: “In the sleepy world of global custody M&A, seldom do murmurings of potential tie-ups between top tier players evolve beyond their lifespan as a rumour. For almost 15 years, many have partaken in the hypothetical ‘I’ve heard custodian X is interested in buying custodian Y’ conversations without any of us landing our shot in the dark. Until now.”

Make no mistake, this is a big deal. Not just in the financials, but in the domino effect for the two players involved and the entire custody landscape itself as the move exemplifies the pressures facing asset servicers and their uncertain future.

It is no stretch to say that this transaction could spark a wave of consolidation amid squeezed margins and declining opportunities for organic growth.

This time next year, don’t be surprised if our most-read is another landmark custody deal between two major players.