Northern Trust, the global custodian for the Future Fund, has delivered a body blow to ANZ Custodian Services by switching its sub-custody contract for Australian assets to an offshore-based provider, a decision which ANZ partially blames on negative publicity surrounding its equity finance business.

Within the last fortnight, Australian asset managers for the Future Fund have been informed by Northern Trust that they must now settle trades with HSBC Securities Services, which has enjoyed a long sub-custody relationship with the Chicago-based bank in Australia since its days under Westpac ownership prior to 2006.

The managing director of Northern Trust’s Australian business, Paul Cutts, confirmed that HSBC was now the sole sub-custodian for Australian-domiciled assets, extending the relationship Northern already has with HSBC in other Asian territories.

“HSBC are a tried and tested provider, they are the best overall fit for us in terms of service levels,” Cutts said.

Asked specifically whether recent bad publicity for ANZ Custodian Services – whose equity finance division was an enabler for the collapsed Opes Prime marging lending business –  had contributed to ANZ’s sacking, Cutts said “there were a number of things we took into consideration”.

An executive source at ANZ said “the media profile of the bank over the past year would have been a negative [for Northern Trust]”.

However the source said the bank had since closed the equity finance division, re-invested heavily into the custody business and was ready to compete for new contracts in sub-custody and master custody.

Winning the Future Fund’s domestic custody (the vast bulk of Northern Trust’s Australian assets under custody) further cements HSBC’s dominance in the Australian sub-custody market. As at December 31 last year, HSBC had $255 billion under sub-custody in Australia, followed by JPMorgan with $124.9 billion and ANZ with $51.5 billion.

It is unclear how much Northern Trust’s decision changes this dynamic, although at least $4.8 billion of Australian equities plus the $6.8 billion Telstra holding will switch to HSBC sub-custodianship.

 

 

 

 

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