Citi Australia has finalised its agreement with RBC over its securities services business. It has already received letters of intent from almost half the RBC custody client base, with several other fund manager clients, which are primarily among the larger ones, conducting a formal review process. The total business transfers will take between 12 and 24 months to implement.
The agreement was announced last November, as RBC decided to close its Australian securities services operation. RBC is the only major custodian to specialise in funds manager clients, rather than both super funds and managers. Citi has undertaken to employ as many of the RBC staff as possible. Both firms are headquartered in Sydney.
Martin Carpenter, Citi’s head of securities services in Australia and New Zealand, said he was hopeful the majority of clients would transition to Citi. “Citi provides clients with in-depth local market expertise, advanced processing technologies and value-added services, like data management, in-house unit registry and ETF servicing,” he said.
“In addition to working with new clients, we look forward to welcoming a large number of new employees to Citi, and the added operational scale will be of great benefit to our new and existing clients.”
Citi would significantly grow its market share and cement its position as a leading custodian in the local market, Carpenter said. The transaction also enabled Citi Securities Services to build out its Sydney footprint, while bolstering its Kuala Lumpur regional operations site, with a number of RBC’s Kuala Lumpur-based employees expected to join Citi. This adds to a strong existing presence in Melbourne.
Citi is the fourth-largest custodian in the world, with about US$22.3 trillion in assets under custody. In Australia, according to the latest figures from the Australian Custodial Services Association, Citi is ranked fourth – after J.P. Morgan, NAB Asset Servicing and Northern Trust – with A$575 billion.
Julie Kerr, Citi’s regional head of custody and fund services, said: “This transaction reflects Citi’s ongoing investment and commitment to the Securities Services business both globally and locally. Australia is a targeted growth markets for Citi’s Custody and Fund Services business.”
Meanwhile, Andrew Allen, RBC general manager, said: “We are proud of the business we have established in Australia, however, after careful consideration, we have concluded that the complex and dynamic nature of the market in Australia meant it was difficult for us to grow the business to the size and scale required to deliver meaningful value for our shareholders and clients. We consider that it is in the long-term interest of our clients and employees to seek a transfer of our business to an organization with a client focus and strong offering in the market.”
On its dealings with RBC clients, Martin Carpenter said: “We recognize that our product needs to stack up extremely well and the Citi / RBC partnership is crucial in getting these clients over the line. Accordingly, the many hours of detailed due diligence we have undertaken with the RBC team has enabled us to demonstrate to clients that we understand their requirements and furthermore we can show how they will be delivered in the Citi environment with various operational efficiency and product uplifts as part of the conversion.
“It is also interesting that client continue to ask about your commitment (despite the obvious evidence of this transaction) and I think it highlights an underlying concern about providers ability to deliver on new products and initiatives in such a price competitive environment, with ongoing pressure on revenues and margins. Recent market conditions will only heighten this sensitivity.”
Carpenter believes that the deal is not only good for RBC’s clients but also for Citi’s. The hiring of a lot of RBC staff should give comfort to both cohorts, with the first wave of eight senior product and relationship people starting within the next week. Citi technology, particularly with unit registry and ETF administration, is another benefit for the RBC clients.
He said: “This is good for our existing clients and our outlook in Australia – it bolsters our scale in fund administration that was previously the only hurdle in winning the larger mandates where size and scale becomes a key decision-making component. We will continue to look for growth in all segments: funds management, super, and wealth management, whilst also maintaining the core custody business with a large book of global brokers and custodians, which adds depth and scale to our domestic custody operation that all clients benefit from. This transaction completely removes any question mark about our long-term commitment and ability to move into a top number ‘1-2 market position’ over time.”
Greg Bright is publisher of Investor Strategy News (Australia)