But it could also herald a further round of consolidation and outsourcing in Europe’s securities services landscape if banks seek further efficiencies.
Alain Closier, global head of SGSS, told FT Mandate: “For the first time a player in an important European country has sold its custody and fund administration activities. Our strategy is to become a European player with a pan-European offering and we wanted to grow in the area of custody and fund administration. To become a leader in Europe we need to reinforce our presence in Italy, Ireland and Luxembourg.
“We are seeking to open up the Italian market, which is essentially a captive market held among Italian banks. It is as an already profitable market given the lack of strong competition.”
Depending on the market in question, the migration time frame is different. Mr Closier said in Italy it will take nearly two years or more to migrate tools used by Unicredit onto SG’s new platform. The objective is to ensure “continuity of service in the short term and to increase the level of service as well as decreasing the cost of service on a longer term basis.”
In Luxembourg it will be several months to two years to deal with the custody, fund administration and transfer agency businesses. SGSS will take business from an existing provider (Pioneer) and add new staff.
Mr Closier maintained the deal would trigger a further wave of cross-border consolidation in Europe. He said: “This deal means the consolidation process is completely normal in Europe and it will continue. The acquisition serves as an example for other players who are not entirely committed to this business in Europe.”
Germany’s HVB could be an entity that decides to effectively outsource its custody and related businesses, as might leading banks in the Netherlands and Spain, Mr Closier thinks.
The business acquired by SGSS, which includes custody, clearing and settlement, depositary bank, fund administration and transfer agency for clients in Italy, Luxembourg and Dublin, challenges BNP Paribas Securities Services (BP2S), the number one global player in Europe with assets under custody now exceeding €3000bn. But some regard the price as having been a step “beyond reason” with substantial goodwill attached.
SGSS’s strategy will be “to propose” the Italian market to non-resident clients, with cross-selling opportunities being a natural extension. While the split between external and Unicredit Group clients has not as this point been disclosed, Mr Closier revealed that they are “mainly Italian and internal clients”. Industry sources suggest external clients amount to 5 per cent.
Mr Closier contended: “The relationship between price and assets under custody is always somewhat complex as it is difficult to consider custody assets as ‘a wall’ since you have different businesses and different countries to consider. What is interesting here is that we have the Italian and Luxembourg market - where we had no presence before.”
The original RFP process, which initially attracted 10 interested parties, did not include Société Générale. “True, but it’s better to be late and win. After all the market decided the price,” said Mr Closier. Politics may have also played a hand in the turn of events. Philippe Citerne, CEO of Société Générale, is also on the Unicredit board and was presumably aware of matters.
BP2S certainly did not hide its interest to bring Unicredit into its European banking project, and having had discussions over at least four years it would have had a good idea of the business. Unlike SGSS, it was a fully-fledged global custodian in Italy and Luxembourg.
In some ways the Sociétié Générale win can be seen as a sign also that European players can play a key role in European consolidation. This ignores the greater buying power (at least twice compared to Europeans) of US institutions due to access to their multiples and ability to amortise goodwill on acquisitions over a 30-year period (10 for European companies).
Although Société Générale acquired €455bn in assets under custody for the price of €548m, BP2S grew in 2005 largely through organic growth (new clients, business wins in new markets) by €585bn in custody assets. Société Générale claimed it will now have €380bn in assets under administration, whereas BP2S increased assets under administration in 2005 to €520bn from €290bn. BP2S grew in 2005 by more than SGSS will grow through acquisition.
RA
