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Keeping in with the locals

By Nick Fitzpatrick May 2012
Building their business among domestic investors is a priority for some international custodian banks, finds Nick Fitzpatrick.

HSBC is widely recognised as the largest custody bank in the Middle East. It started offering sub-custody in the region in the mid-1990s, mainly for international investors coming into Middle Eastern markets.

There was not a huge amount of money flowing in at that time, says Arindam Das, regional head of HSBC Securities Services. "However, markets started booming in 2007 and 2008 and we benefited because we had already established a comprehensive custody footprint in the region."

Based in Dubai, the bank has teams in ten countries in the region, which include all states in the Gulf Cooperation Council (GCC), and the Levant.

The majority of its income is from clients targeting the Middle East with investments.

"In the last few years we have concentrated on keeping our market share of this inflow business, but we have also started looking at local investors who want to tap regional and international markets," Das says, pointing out that the bank acts as a sub-custodian to many Middle East and North Africa markets. However, for Morocco and Tunisia sub-custody is offered through other banks.

Citi and Deutsche Bank are other global banks with custody businesses that compete with HSBC. Though it covers fewer markets, like HSBC, Deutsche Bank began to expand its business in recent years by looking for local clients.

Mike Cowley, Deutsche Bank's head of direct securities services in the region, says the bank saw the opportunity in 2008 to expand by providing sub-custody to existing international clients and also to target local names. "The United Arab Emirates [UAE] was the obvious place to start because we had a remote connection to Nasdaq Dubai and provided administration and transfer agency for some local managers," he says. The bank covers all three UAE stock markets.

In June 2010, Deutsche launched a custody business in Saudi Arabia and is hoping to launch a Qatar franchise in 2012. Cowley says once this happens Deutsche will have 80% of the GCC covered by market capitalisation and more than 90% of daily turnover by volume in the three countries it would be present in.

With the launch of its Middle East Global Window in June last year, Citi began "creating a custody experience for regional investors", says Richard Street, head of Citi's securities and fund services in the Middle East. Primarily designed for inter-regional investors, Global Window covers the whole region through Citi's own branches or through third-parties.

Street says Citi recently implemented the first middle- and back-office solution for a regional asset management company and now acts as the manager's book of records and handles settlement of all its trades with their underlying custodians. Citi also provides investment accounting and administrative services.

Citi's Middle East securities and funds services' headquarters is Dubai, but from a delivery point of view, it has operations in each of the local markets it services. These link up with its UAE and Bahrain hubs which act as back-up centres for each other.

A drawback for Citi is Saudi Arabia. The bank sold its stake in Samba, a Saudi bank, in 2004 amid political tensions between the US and Saudi Arabia.

© Funds Global 2012

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