Continental European institutions are starting to turn to outside custodians to provide consolidated online reporting for their multinational subsidiaries' investments.
"If you're treasurer of a major insurer and Mexico falls 30%, (you) would want to know what is (your) global exposure," said Charles Cassidy, senior vice president, State Street Bank & Trust Co., London.
Recently, for example, Cologne, Germany-based Colonia Nordstern Versicherung AG recently hired State Street to provide global custody for 2.9 billion deutsche marks ($2.1 billion) in non-German assets (Pensions & Investments, Nov. 27.)
In a major effort to control risk of Colonia's foreign subsidiaries, State Street will provide a single platform for reporting the investment exposure of 20 Colonia subsidiaries in 14 countries.
Gerhard Girner, Colonia's head of asset management, explained that Colonia needed one global system that suits the needs of portfolio managers, risk controllers and accountants on both global and local levels.
He said State Street offered the most impressive system. He added the bank's Munich operation, which is the primary servicer of the account, also was a plus.
Already, Colonia's U.S. subsidiary is on the system, with the U.K. and Irish subsidiaries set to join shortly. Canada, Switzerland and France will come on board in coming months. By the end of next year, Colonia's other foreign subsidiaries - accounting for about half of the assets involved - are expected to join.
Mr. Girner said Colonia wasn't ready to abandon German universal banks, which provide custody for the vast majority of its 35 billion deutsche marks under management. But German banking is being restructured, and change may come eventually, he hinted.
It would be "too much of a cruel step" to cut all ties at this time, he said, adding it wasn't wise to become dependent on a single provider.
While Colonia represents the cutting edge, more continental European institutions are seeking external custodians as their investments become increasingly international.
"Outside the Netherlands and Switzerland, continental European banks have a predominantly domestic client base and therefore have precious little expertise in cross-border settlement and custody," said Simon Thomas, director, Thomas Murray Ltd., a London-based consultant on custody.
For example, Topdanmark Insurance, a leading Danish life and general insurance company located in Ballerup, hired Chase Manhattan Bank, London, to provide custody for 1.1 billion kronor ($200 million) in U.S. equities and Eurobonds. Custody previously was provided by Sydbank in Aabenraa. Total insurance company assets are 8.3 billion kronor ($1.5 billion).
Other factors also are driving the move toward outsourcing. They include:
Wholesale custody. Some major custodian banks are focusing on providing wholesale services to domestic banks. This summer, Bankers Trust Co. announced it would provide international and domestic securities processing for Paris-based Credit Lyonnais S.A.
Bankers Trust will provide processing for 360 billion French francs ($72 billion), enabling loss-plagued Credit Lyonnais to save costs and offer additional services, such as performance measurement, to its clients.
Structural changes. European institutions are movingaway from having a universal bank provide a combination of investing, custody and brokerage services, said Martin Brennan, director, Europe, for Barclays Bank PLC, London.
Regulatory pressures. As European Commission officials become more aware of custodial activities, they may impose capital reserve requirements on firms providing such services, especially where custodians indemnify subcustodial risk, Mr. Brennan said.