Largest Custodian Banks: A Comprehensive Guide

Custodian banks play a vital role in the financial industry by providing secure storage and management of assets for institutions and individuals. They offer a range of services, including cash management, securities lending, and foreign exchange.

One of the key characteristics of custodian banks is their ability to provide a high level of security and protection for assets. This is achieved through the use of advanced technology and strict risk management protocols.

In terms of size, custodian banks can be quite large, with some of the biggest players in the industry handling trillions of dollars in assets. For example, State Street Corporation, one of the largest custodian banks, manages over $32 trillion in assets.

These massive institutions have a significant impact on the global economy, influencing market trends and providing essential services to investors and financial institutions.

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Custodian banks are often referred to as global custodians if they safe keep assets for their clients in multiple jurisdictions around the world.

They use their own local branches or other local custodian banks, known as sub-custodian or agent banks, to hold accounts for their clients.

Assets held in this manner are typically owned by larger institutional firms, such as banks, insurance companies, mutual funds, hedge funds, and pension funds.

These firms often have a considerable number of investments, which require safekeeping in multiple locations.

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The Custody, Asset & Securities Services industry has experienced significant growth over the years. As of 2023, the market size is a staggering $230 trillion.

The industry has seen a dramatic shift in market share among the largest global custodians over the past 25 years. The US market size, on the other hand, has been steadily growing, with a revenue of $32.5 billion as of 2022.

This growth is impressive, with a year-over-year increase of 2.9% between 2017 and 2022, demonstrating a consistent upward trend in the industry.

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The Custody, Asset & Securities Services industry is a massive one, with a worldwide market size of $230 trillion as of end-2023.

This staggering figure is a testament to the industry's growth and importance in the global financial landscape.

The US market size, specifically, reached $32.5 billion in 2022, with a 2.9% year-over-year growth between 2017 and 2022.

This growth suggests a steady and consistent expansion of the industry, which is likely driven by increasing demand for custody and asset services.

The $32.5 billion US market size in 2022 is a significant chunk of the global market, and it's clear that the industry is thriving in the US.

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Industry players are a diverse group, and it's interesting to see how they're structured within their respective banks. Many investment banks and banks offer securities services, which can be grouped under different umbrellas such as Global Markets, Corporate Banking, or Transaction Banking.

BNP Paribas and BNY are notable players in the securities services space. Citi and HSBC have also restructured their divisions, combining Global Markets and Securities Services in 2019 and 2020 respectively.

Some notable players in the industry include BNP Paribas, BNY, Citi, Crédit Agricole/Santander, Deutsche Bank, HSBC, J.P. Morgan, Mizuho, MUFG, Northern Trust, Royal Bank of Canada, SMBC, Société Générale, Standard Chartered, and State Street.

Here's a list of some of the key players in the industry, grouped by the umbrella under which they operate:

The regional landscape of the industry is dominated by a few key players. JPMorgan Chase is the top custody player in the Americas.

In the Asia-Pacific region, HSBC holds the top spot. Their strong presence in this region is a testament to their ability to adapt to local market conditions.

HSBC also leads the way in the Europe, Middle East, and Africa (EMEA) region. This demonstrates their ability to navigate complex regulatory environments and build strong relationships with clients.

Here is a summary of the top custody players by region:

U.S. Bancorp made a significant acquisition in August 2003, buying the corporate trust business of State Street for $725 million.

In 2007, a major merger took place between Bank of New York and Mellon Financial Corporation, resulting in the creation of BNY Mellon, the largest custodian and asset servicer with over $18 trillion in assets under custody and administration at the time.

BNP Paribas acquired a minority stake of 33.4% in the capital of SLIB in July 2007, marking a notable acquisition in the industry.

The largest custodian banks primarily serve two types of clients: Asset Owners & Managers and Banks, Brokers & Dealers.

These two client segments have distinct needs and require tailored services from the custodian banks.

Asset Owners & Managers are typically investment companies, pension funds, or endowments that manage large portfolios of securities.

Banks, Brokers & Dealers, on the other hand, are financial institutions that buy and sell securities on behalf of their clients.

Custodian banks offer a range of products and services to these clients, including custody, accounting, and reporting.

The specific products and services offered by custodian banks can vary, but they often include custody, accounting, and reporting for securities.

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Custodian banks play a crucial role in facilitating the exercise of share ownership rights, such as processing dividends and other payments, corporate actions, and voting in the company's annual general meeting.

The definition of "shareholder" is generally upheld by corporate law rather than securities law, highlighting the importance of custodians in this process.

Global securities safekeeping practices vary substantially, with markets like the UK, Australia, and South Africa encouraging designated securities accounts to permit shareholder identification by companies.

These practices underscore the significance of custodian banks in maintaining accurate and up-to-date records of securities ownership.

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The importance of custodians lies in their role as part of the registration chain linking owners to securities, allowing for the facilitation of share ownership rights.

In the US, custodians are used due to the impracticality of registering traded securities in the name of each individual holder.

Custodians hold securities in a fiduciary arrangement for the ultimate security holders, who are still the legal owners of the securities.

Global securities safekeeping practices vary, with some markets, like the UK and Australia, encouraging designated securities accounts for shareholder identification.

These accounts allow companies to identify shareholders, a role typically upheld by corporate law rather than securities law.

Custodians facilitate the exercise of share ownership rights, including processing dividends, corporate actions, and voting in the company's annual general meeting.

The extent of these services depends on the client agreement and relevant market rules, regulations, and laws.

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Assets have been growing at a rate of about 12 percent, but servicing fees have only grown by around 5 percent.

This trend is likely due to the industry's shift towards increasing competition, consolidation, and tech-boosted efficiency-seeking.

The MSCI World index has added 22 percent to market asset prices, which could also be contributing to the shrinking fees-to-assets ratio.

In this environment, it's becoming increasingly important for companies to find ways to maintain profitability despite the pressure on fees.

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In August 2003, U.S. Bancorp acquired the corporate trust business of State Street for $725 million.

The largest custodian and asset servicer, BNY Mellon, was created in July 2007 through the merger between Bank of New York and Mellon Financial Corporation, with over $18 trillion in assets under custody and administration at that time.

BNP Paribas acquired a minority stake of 33.4% in the capital of SLIB in July 2007, which had previously been a 100% subsidiary of Natixis.

In the world of largest custodian banks, company reports and rankings play a crucial role in determining their position.

JPMorgan Chase takes the top spot in the list of largest custodian banks, with a market share of 12.1% in 2020, as reported by Global Custodian.

Citi has a significant presence in the industry, with a market share of 9.4% in 2020, making it the second-largest custodian bank.

Bank of New York Mellon (BNY Mellon) ranks third with a market share of 8.4% in 2020, according to the same report.

State Street Corporation ranks fourth, with a market share of 7.8% in 2020, as reported by the same source.

HSBC Securities Services ranks fifth, with a market share of 6.4% in 2020, making it one of the largest custodian banks in the world.

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The largest custodian banks have a long history that dates back to the 17th century, with some institutions still operating today.

In fact, the oldest custodian bank, Coutts, was founded in 1692 in England. This bank has been providing custodial services for over 320 years, making it a true veteran in the industry.

The global custodian banking market has grown significantly over the years, with the total assets under custody reaching $33.4 trillion in 2020, according to a recent report.

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In the 21st century, State Street Bank Luxembourg was founded in 1990 and by 2018 had become the largest player in the country's fund industry by assets.

State Street received a $2 billion investment from the United States Department of the Treasury in October 2008 as part of the Troubled Asset Relief Program.

The company repaid the Treasury in July 2009, becoming the first major financial firm to do so.

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In 2016, State Street launched a cost-cutting program called Beacon, aimed at improving reporting technology and shrinking its US workforce to bolster profits.

The company acquired the asset management business of General Electric in 2016.

State Street completed its acquisition of Charles River Development in 2018, a provider of investment management software, for approximately $2.6 billion.

The acquisition led to a drop in State Street shares of nearly 10% and a suspension of share repurchases.

State Street shifted its workforce from the United States to countries like China, India, and Poland in 2019, resulting in a net gain of over 3,000 employees.

The company also operated under a hiring freeze and laid off 1,500 employees in January 2019, increasing the number to 2,300 in July.

State Street agreed to buy Brown Brothers Harriman & Co.'s investor-services business for $3.5 billion in cash in September 2021.

However, the deal was mutually agreed to be dropped in November 2022 due to continued scrutiny in receiving regulatory approvals.

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Since 2011, the global custodian business has undergone significant changes. In April 2013, Citi acquired ING Group's Custody and Securities Services Business in Central and Eastern Europe with €110 Billion in assets under custody.

Standard Chartered made a notable acquisition in the same month, purchasing Absa Bank's custody business in South Africa. This move marked a strategic expansion for the company.

Butterfield Bank made a significant purchase in February 2018, acquiring Deutsche Bank's Global Trust Solutions business in the Cayman Islands, Jersey, and Guernsey. This acquisition added new capabilities to their portfolio.

U.S. Bancorp acquired MUFG Union Bank's debt servicing and securities custody services client portfolio in January 2021, with approximately 600 client relationships and $320 billion in assets under custody and administration. This deal significantly boosted their client base.

In January 2022, Standard Chartered announced an agreement to acquire 100% ownership of RBC Investor Services Trust Hong Kong Limited from RBC Investor & Treasury Services. This acquisition expanded their custodian business to MPF and ORSO schemes trusteeship business in Hong Kong.

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State Street Corporation's financials paint a picture of steady growth over the years. Revenue has consistently increased, with a notable jump from $8.336 billion in 2007 to $10.69 billion in 2008.

The company's net income has also shown a positive trend, with a high of $2.599 billion in 2018. However, there was a notable dip in 2009, where the company reported a net loss of $1.881 billion.

Assets have continued to rise, reaching $244.6 billion in 2018. Assets under management have also grown significantly, from $420 billion in 2000 to $2.782 billion in 2016.

Here's a breakdown of State Street Corporation's key financial metrics over the years:

The company's headcount has also increased over the years, reaching 40.14 thousand employees in 2018.