Jay Hooley, executive vice president and head of State Street's investor services business, agreed that consolidation would be on the minds of asset servicing executives, and he said it would be driven by global growth opportunities.
"I think some of the better, higher-growth opportunities in this business are in emerging spaces like continental Europe," he said, citing Dublin, Jersey and Luxembourg because of the amount of offshore fund business they manage. "I think people can go to a single country and provide solutions, but I think the game will be played on a multinational basis.
"Knowing that at State Street about 80% of our revenues are derived from this (asset servicing) business, it's hard for me to imagine many players are going to be able to muster the financial resources to do what it's going to take to provide integrated multinational servicing," he said.
According to Mercer Securities analyst Imran Gulamhuseinwala in London, the custody business is ripe for one more "megamerger" or out-of-sector acquisition, and consolidation among midtier custodians is also likely. In a recent report, Mr. Gulamhuseinwala also suggested that custodians are likely to consider clearing firm or niche servicing acquisitions in the clearing business, or exit the subcustody business because of low profitability.
James Palermo, vice chairman of Mellon Financial Corp., Pittsburgh, is responsible for the firm's asset servicing business. He said consolidation is likely to be in pieces, with custodians picking up a hedge fund administrator or offshore administrator.
"Amongst the largest global players, my sense is that over the next several years, that number will decline," he said. "It won't go to two or three — I don't think you're going to see that kind of consolidation — but in any industry, as long as there's excess capacity, you're likely to see some consolidation."
Bank of New York's Mr. Curtin declined to name likely targets or acquirers but said any activity is not likely to be limited to small or niche players.
"I don't necessarily mean that only the niche, tangential regional providers will exit the business," he said. "In fact, an argument could be made for the continued existence of the niche, regional specialized provider. But even among bulge-bracket custodians, there's a decent likelihood that consolidation will occur."