Custodians weather the storm as assets inch up despite crisis

Custodians overall increased their assets under administration and custody over the past six months as markets rebounded somewhat and clients continued to direct money towards the safest houses. Most of the custodian banks, which were the beneficiaries of government support during the crisis of the previous 12 months, weathered the storm relatively comfortably compared with funds managers and other financial institutions. They benefited from the move to cash by many clients and sometimes by the gyrations in currency.

Total assets under custody for Australian investors increased from $1.632 trillion to $1.687 trillion in the six months to June, according to the half-yearly survey by the 15-member Australian Custodial Services Association (ACSA). The biggest winners during the period were Northern Trust, whose largest client in the region is the Future Fund, and Bank of New York Mellon. The biggest loser was ANZ Custody (down from a total of $64 billion to $28 billion), which lost the domestic custody component of the Future Fund to HSBC.

NAB remains the largest custodian overall, JP Morgan the largest custodian of Australian-sourced offshore assets and HSBC the largest of offshoresourced domestic assets. State Street is the largest administrator of funds in Australia. Most of the custodians represented in the survey had staff cuts of various extremes during the past 12 months, including some offshoring, so profitability for the group was probably fairly sound despite the global crisis. Bryan Gray, the ACSA chair, said most custodians had diversified their revenue streams over the past few years, providing clients with additional services, such as cash, FX and administration.

This meant that there was less exposure to market movements than otherwise would have been the case. The figures showed a big drop in settlement activity, however, which may have reflected a move to passive management by some funds. Settlements were down 17 per cent compared with the previous six months. ACSA revamped its market share statistics last year and has improved the timing of the release of its figures.