Concern about the current condition of the securities services division at JP Morgan has increased following both the Schroders outsourcing debacle and senior management changes.
It will now increase further following news that Royal London Asset Management (RLAM), a flagship investment management outsourcing client of the bank, is in discussions with HSBC Securities Services over switching some of its business to the bank rather than expanding its existing relationship with JP Morgan.
HSBC has not previously acted for RLAM in any capacity at all. But if negotiations conclude successfully, RLAM is expected to begin the transition of certain activities to HSBC in May this year.
Quite what roles HSBC will fulfill remain unclear at this stage, and RLAM has yet to issue a formal statement, but market sources indicate it is a done deal. It is understood that the existing contracts between RLAM and JP Morgan are not affected, and that HSBC is taking on some “middle office” functions only.
RLAM appointed JP Morgan as its custodian for $20 billion of assets in April 2001. It added the custody and trusteeship of its mutual funds in February 2002, and fund accounting for them in April 2004. Under the last agreement, a number of RLAM employees in Edinburgh joined the giant American bank. This business will remain with Morgan.
If the RLAM move is confirmed, it will be fillip not only for HSBC, but also for the battered investment management outsourcing market in the UK, where scepticism about the viability of deals has mounted since Schroders called off its transition to JP Morgan after the project fell years behind schedule. By contrast, a move by RLAM will indicate that the market is mature enough to sustain the use by fund managers of multiple providers.