This special report on global custody was prepared by the editors of Pensions & Investments and Buttonwood International Group, New York.
The report reviews the issues facing the investor in leading markets and emerging countries. Findings of the survey are based on comments from global custodial executives on the risks, difficulties and peculiarities encountered in many countries. The countries they regard as the most troublesome also are discussed.
The full report, The 1996 Global Custody Yearbook, presents detailed profiles of leading global custodians, including key information on assets, performance, cash management, derivatives, offshore funds, client workstation technology and more. This year's survey, the second published by P&I, was improved in a number of ways:
The number of participating global custodians increased to 15 from 13 last year.
The increase in participating banks from outside the United States brings a more balanced picture of the issues facing both the investor and global custodian.
The content was expanded to include a discussion of additional service areas including cash management, offshore funds and derivatives.
A new technology evolution - the Internet - is receiving attention by many companies in the financial services industry. The use of Internet for global custody business is addressed by this year's survey. Indeed, the 'Net was used in two instances to send and receive information for this survey.
The 1996 Global Custody Yearbook, including this article, is available on the Internet World Wide Web to provide for global distribution of information. (The Web location is http: www.ios.com/bwgroup.)
The contributing banks are: The Bank of Bermuda Ltd.; The Bank of New York; Bankers Trust Co.; Barclays Bank PLC; Chase Manhattan Bank N.A.; Chemical Bank Geoserve U.K.; Fiduciary Trust Co. International; Investors Bank and Trust Co.; Lloyds Bank Securities Services; Midland Securities Services; Morgan Stanley Global Securities Services; The Northern Trust Co.; Royal Bank of Scotland; Royal Trust; and State Street Bank and Trust.
Five banks from last year's survey were unable to participate this year. Their 1994 information on services offered is included in the new yearbook's profiles section. The five are Bank of Boston, Boston Safe Deposit & Trust/Mellon Bank, Citibank, Continental Bank and J.P. Morgan.
The number of major players in the global securities business continues to drop as the larger custodians acquire the custody assets of competitors. The recent merger of Chase Manhattan and Chemical results in a global custody business in excess of $3 trillion in custody assets, placing the combined bank at the top. The Bank of New York estimated custody assets of $3 trillion after the conversion of Bank of America and J.P. Morgan custody business purchases.
This year's survey focused particular attention on the emerging markets countries that represent the greatest operational challenge for custodians providing services to the global investor. Investors may want to equate the term operational challenge as a euphemism for operational risk - a great deal of responsibility may rest with the investor as opposed to the global custodian.
The survey's goal was to develop a consensus about the nature of these emerging market hot spots and the precautions the investor should undertake, as well as new service developments by global custodians. The global custodians provided candid comments about the practicality of investing in the emerging markets.
In addition, two important opportunities are available to the investor for maximizing returns in the emerging markets - securities lending and cash management. The survey emphasized these areas to gain a sense of market performance and new services.
This year's survey continues to cover familiar ground - shifts in assets at major global custodians with a total of $10 trillion in worldwide assets. Also, network management trends are explored with emphasis on emerging market countries receiving newfound attention. Finally, an ever-challenging issue -securities pricing nuances - is explored.
John J. Giudice, president of Buttonwood, wrote the report. Buttonwood International is a management consulting firm serving the international needs of the financial services industry.