Mr. Hogsflesh warned that Bank of New York’s poor rating for customer satisfaction could tarnish its upcoming merger with Mellon Group, Boston, if client satisfaction falls further while managers are busy putting the two firms together.
“It raises the question of how much longer clients will put up with this (level of service) when there are other banks with cross-border assets that are not that much smaller and offer a higher quality service.
“There is definitely more opportunity for Northern Trust Corp., Chicago, (ranked seventh) and Brown Brothers Harriman & Co., New York, (fifth) to make up some ground,” said Mr. Hogsflesh.
Doubled in 3 years
At the start of the year, RBC Dexia had global assets under custody of $1.4 trillion, almost double the assets of three years ago, said Rob Wright, the bank’s chief operating officer.
He said coming first in this survey was “an outstanding achievement, considering we have completed a global joint venture in the past year.” RBC Dexia was launched in January 2006 as a joint venture between Royal Bank of Canada, Toronto, and Dexia Group, Brussels.
Mellon Group, with global custody assets of $2.5 billion, was second in the survey, moving up from fifth place, and was well ranked by both “asset owners” (pension plans, endowments and other fund sponsors) and money managers. But the merger with BNY — expected to close later this year —has caused some clients to review their custody operations, said Mr. Hogsflesh.
In an e-mailed response to questions, Mellon spokesman Joseph Ailinger said client satisfaction and retention were one of the “highest” priorities of the management team that will lead the merged entity. Client retention would continue “to be as essential … as it’s ever been,” he said.
Tim Keaney, London-based executive vice president and head of Europe at Bank of New York, was not available for comment by press time.
The customer service gulf between Mellon and BNY was most marked among clients in North America, where 30% of respondents felt BNY’s “service levels had declined in the previous 12 months,” according to Mr. Hogsflesh. Mellon Group was ranked first by clients based in North America and Bank of New York slipped to ninth place, from sixth place a year earlier.
Uncertainty about the impact of the merger on service levels at Mellon and Bank of New York could give rival firms an opportunity to pick up new clients and expand their own operations, said Mr. Hogsflesh.
“The challenge for Citigroup and JPMorgan will be to take advantage of this diversion and continue to grow their businesses organically while developing the trend of improving client service levels,” he said.
UBS AG, Zurich, was third in the overall ranking, up from fourth place last year; Pictet & Co., Geneva, slipped to fourth place from second; and Brown Brothers Harriman moved into fifth from seventh.
Little consensus
Client satisfaction varied widely among groups of customers, responses from asset owners and money managers showed.
Both groups ranked RBC Dexia first, but that is where consensus ended.
Asset owners placed Mellon Group second; BNP Paribas, Paris, third; and UBS, fourth. HSBC Holdings PLC, London, and Pictet tied for fifth place.
Asset managers selected UBS second; Mellon Group, third; Pictet, fourth and Brown Brothers Harriman, fifth.
“Expert” asset managers, those using five or more custodians, ranked Brown Brothers Harriman first; Mellon Group, second; RBC Dexia, third; and Northern Trust, fourth.
This difference in opinion between owners and managers reflects the needs of each customer group and might also reflect the priorities of the custodian bank serving them, said Mr. Hogsflesh. Some banks might focus more on cost-cutting to win clients and place less emphasis on execution and meeting immediate needs of the fund managers.
“Fund managers have a more intense relationship with custodians and a day-to-day exposure to them. Fund managers are more worried about settlement of day-to-day trades and income collection. Typically, pension plans will be more interested in costs and the quality and accuracy of the month-end reporting,” said Mr. Hogsflesh.
RBC Dexia’s Mr. Wright said maintaining the technical service of a custody business was just as important as nurturing the relationships with clients.
“Some players may get too large and lose sight of their clients,” he added.
