JP Morgan's purchase of Melbourne-based ANZ's custody business will round out the US bank's Australasian offering and give ANZ's clients a custody provider with global scale, say the firms' executives.
The takeover adds third-party, local sub-custody to JP Morgan's offering in Australia and New Zealand, where it already offers global custody, clearing and fund administration services.
"The acquisition is complementary to our existing offering in Australia," says Laurence Bailey, Asia-Pacific chief executive of JP Morgan's worldwide securities services unit. "Sub-custody was the missing part of our armour in the Australasian market.
"Australian clients want one provider," he adds. "The acquisition gives us a springboard to better compete locally with the largest players in the [Australian] custody business." With the purchase, Bailey estimates JP Morgan will reach 50% market share in the Australian master custody market.
Other big players in the Australian sub-custody market include HSBC and National Bank of Australia.
The deal will give JP Morgan its first significant presence in New Zealand, where it will gain 20 people in Wellington and its first presence in Melbourne, Australia's second largest city.
ANZ representative Kevin Foley says: "Increasingly, custody is a global-scale business, and ours is not of a global scale. For our customers, going to JP Morgan makes sense." He adds the sale is part of the bank's ongoing process to refocus its institutional business on "core banking priorities".
For example, in September ANZ bought ING's stake in the two institutions' insurance and wealth management joint venture for A$1.76 billion; in August it purchased select RBS assets in Asia for $550 million; and in March it stopped taking on new private equity business.
ANZ and JP Morgan announced the purchase on Friday. Neither bank would disclose the value of the transaction except to say that it includes 100 clients from Australia and New Zealand with A$99 billion ($90.5 billion) in assets under custody.
The deal does not need regulatory approval because JP Morgan already has a custody licence in Australia, says Bailey.
All 150 employees associated with ANZ's custody business will be offered employment with JP Morgan. Bailey expects the integration of the banks' systems to take nine to 12 months.
Not included in the deal is ANZ's securities-lending business, which was associated with Opes Prime Stockbroking, a Melbourne-based broker whose collapse last year resulted in over A$1 billion in losses for unsecured creditors. The Australian Securities and Investment Commission stipulated remediation of the case ended in March.
JP Morgan is already well known for its global custody capabilities in Asia-Pacific, but Bailey says the acquisition does not represent a change of direction for the bank. "This is not a change in strategy," he says. "We won't build out sub-custody everywhere; we will do this where it makes sense. This was a move into a related customer segment."
The firm also offers sub-custody in India and Taiwan, due to local market practices, including aspects that are unique to India in handling cash internally and different settlement practices in Taiwan, says Bailey.
ANZ's sale of its custody business is the latest Australian institution to sell out to foreign competitors. In 2006, Sydney-based Westpac sold its sub-custody business to HSBC for A$150 million. Yet there was little discussion of the deal in Australian asset management circles Friday.
"Custody was never really core to ANZ," says one Sydney-based asset manager. "From an Australian perspective, it's not really big news, because it doesn't have a big impact on us."
"Everyone is focused on the Axa talks and ANZ's rebranding of the ING business," he explains. Two weeks ago, Axa Asia-Pacific rejected an A$11 billion joint bid from Sydney-based AMP and Axa's Paris-based parent, Axa SA, for the company. Market speculation last week was that ANZ was planning a counter-bid for Axa Asia-Pacific. A combined AMP-Axa Asia-Pacific would create a more significant competitor to ANZ's asset and wealth management business.
ANZ declined to comment on the speculation.
Globally, JP Morgan has $14.9 trillion in assets under custody and $5.1 trillion in funds under administration.