Can you explain the internal restructuring that has just occurred at Deutsche Bank following the sale of the global securities services business?
Harrold: Domestic custody used to fall under our Global Securities Services banner. It's now being re-aligned with our Corporate Trust and Agency business under the new heading of Trust and Securities Services. The new division is to be headed by Dinkar Jetley and I will report to him on the domestic custody front.
Has the loss of the global custody business had a negative impact on your operations?
These two pieces of business were always very separate in terms of business profile, client base and focus. Deutsche Bank's decision to leave the global custody game isn't necessarily linked to its decision to stay in domestic custody. The latter was always more closely aligned with our transactional banking offering and Deutsche is still a major player in this field.
So what does the domestic custody business look like today?
We operate in a total of 23 markets. We have a large franchise in Europe where we cover nine markets – Germany being the biggest of these. In South America we are present in two countries and in Asia we cover 12 markets which means that this area is critical to our future strategy. The business fits in well with the bank's wider product offering on the transactional banking front. We have a large cash management business and a large corporate trust and agency business. Domestic custody complements these core competencies.
If domestic custody is so strategic to Deutsche Bank, why did it sell its US and UK operations to State Street?
Firstly, the UK and the US markets were driven by our global book of business, so by the time you stripped out global custody there wasn't much left. Secondly, these two markets are extremely competitive and Deutsche did not have an obvious advantage over anyone else. We always had a problem selling our domestic custody services to large banks in the US and UK because they thought we were competing with them on the global custody side. Now we don't pose a threat.
Do you think this same situation will apply to Asia? Will you be able to pick up more global custody clients now that you are not competing with them?
The sensitivity to competition is less in Asia because there are fewer big asset gatherers for the global custodians to be chasing after. In the UK and US there is extreme concentration of the large players.
What percentage of the old Deutsche Bank business did global custody represent?
The global book generated significant revenues from global custody, global fund services, securities lending and performance measurement. This represented about four-fifths of the securities services revenue.
You were running both global custody and domestic custody for Deutsche in Asia. How has your role changed and will you continue to be based in Singapore?
I have been here since 1994 and was responsible for building the franchise from the beginning, along with Thomas Sasse. I probably split my time evenly between the global business and domestic custody. There is now some talk about me taking a larger role in running all 23 domestic custody markets which would mean spending time in both Europe and Asia.
(Editor's Note: Sasse has now transferred back to Europe with State Street.)
What will be the secret of your success in 2003?
Because most of the 23 markets that we operate in are emerging markets we have been able to build a product which is internationally recognised. We will continue to work with our clients to add value and develop the services that they need.
Which client groups will you be targeting?
We want to position the bank as both a cross-border and a domestic market service provider. At the moment our business is still predominantly cross-border except in Indonesia. In Korea we are building our domestic client base, and it now represents about 20% of our business in that country. In India 10% of our business is local and 90% is foreign inflows. Our biggest markets going forward will be India, Korea and Indonesia. In Indonesia we enjoy a 65% market share in fund administration and custody based on the number of funds launched.
What are your plans for China?
We have applied for a custody licence through our Shanghai branch which Deutsche Bank has had established for many years. In this way we can take advantage of the existing infrastructure. We will support our China operations out of Hong Kong, Taiwan, Singapore and Malaysia. We want to be in China from day one and build a strong franchise.
But you missed the first round of licence approvals from the People's Bank of China?
Yes, we realise this. We were in the midst of the sale to State Street when this happened and we were therefore not in a position to apply. But we have spoken to the regulators and they have indicated that we will not have to wait for the second batch of approvals before they review our application. You have to remember too that the first round of applicants still need approval from two other regulatory bodies – the CSRC and SAFE.
There has been some consolidation of domestic custody providers in India following an improvement in the efficiency of the settlement process. Have you been a benefactor of this consolidation?
We have a leadership position in India and we are maintaining it. It is one of our biggest markets in the region. Recently we have gained a lot of ground in the provision of fund accounting services. We have maintained our relationships in India and, in some cases, become the sole provider to our clients.
Now for the multi-million-dollar question: can you be guaranteed of securing domestic custody mandates from State Street?
We are not looking for guarantees from them. Deutsche Bank has become a large client of State Street's through the 10-year deal that requires our asset management division to use State Street for its global custody needs. But State Street is also a very important client of ours on the domestic custody side. We appreciate that they have to go through their due diligence process in choosing a domestic custodian. We are not building our business around the presence of them as a client but if they conclude that we offer a good service in certain markets then we will do our best to meet their expectations.
Lastly, what has happened with your fund administration alliance with A-Brain in Korea?
We have wound it up. It was a two-year deal with an option to extend and we decided not to extend. Korean regulations currently demand that foreign banks work with a local partner if they want to perform fund administration services but this stops them from taking full control of the operation. We decided that the risk of working with a local partner was not worth it and that we would rather seek alternative routes. We think it won't be long before foreign banks are able to offer these services on their own.