Europe business plan eludes BNP Paribas

Mr Solway and the rest of the BNPPSS management team are starting to draw breath after a string of corporate developments dating back to 1999, when Paribas acquired the clearing and sub-custody operations of JP Morgan.

Since then a lot of water has passed under the bridge. Soon after the acquisition, Paribas and Société Générale announced plans to merge. BNP then sensationally launched a hostile takeover bid for both companies. The bid was successful and the BNP Paribas brand was born.

Cogent acquisition

In September 2002 BNP Paribas bought in further securities services capabilities in the form of Cogent, acquired from the Australian financial giant AMP.

The idea was that while BNP Paribas had funds services and custodian banking, Cogent would complete the suite of products, adding the ability to handle investment operations outsourcing, as well as bringing a bigger client base.

Now that the integration of Cogent is officially complete, the conundrum the newly beefed-up BNPPSS faces is how best to respond to the rise of the wealth management industry.

Few third party providers have a bullet-proof solution for the European market. But Mr Solway – backed by colleague Anthony Wolfe, who runs the firm’s global and strategic market development for international investor services – is one of the few prepared to admit that a definite masterplan does not yet exist.

Alongside a current focus on fund managers and institutional investors, Mr Solway has a watching brief over private banks and is considering making a move to service this market segment.

Profitability will be the key. BNP Paribas already receives “lots of approaches” from private banks. But so far these have been turned down, as they have not fitted into the three main European business lines of global custody, retail investor services and fund accounting/middle office operations.

Wait and see

Mr Wolfe elaborates on the “wait and see” policy that overlays the business plan: “Funds distribution is changing. People got very excited about open architecture and then it receded a bit. But the fact that UBS has set up multi-manager arrangements is very significant. Also the fact that HypoVereinsbank closed down manufacturing and started practising full open architecture.

“Our position vis-ŕ-vis these developments is two-fold. We are focused on both producers and distributors. However, it is unclear at the moment what the business model will be in Europe.”

While many observers believe that Europe will go the way of the US, with the emphasis on the retail market, Mr Wolfe is less sure. As a result, BNP Paribas is positioning itself to be able to support fund distribution, whether it remains in the hands of fund manufacturers or not.

“I would like to make an investment in providing a private client administration service,” confides Mr Solway. “But the question is where should we be investing? The industry is changing. People are trying internet models and different styles of client management.

“The issue for us is to decide which model will be successful and how we should respond to this change.

“The industry has to decide what it wants. At the moment it’s difficult for an outsourcer to add any value when private banks are all doing such different things. It’s very difficult to build a model you can roll out to bank A and then to bank B. Plus, a lot of people in the private client world are desperately afraid that if they use a commoditised service it won’t sit very well with the way they position themselves as offering strongly personalised services.”

New business

For the moment, BNP Paribas is hoping to expand business with existing clients more than it is looking to drum up entirely new business.

“We are going to look at how we sell because we have been very successful on a local basis, but it’s now a question of joining up things. If we are doing something for a distributor in Milan, we have to show them we can do it elsewhere,” says Mr Solway.

The firm appears to be putting this into practice, with an agreement to administer Vontobel’s funds in Luxembourg being extended to Vontobel in Madrid and Milan.

BNPPSS is also winning some brand new mandates. The latest is a deal to provide global custody services to Spain’s Banco de Finanzas e Inversiones. Known as Fibanc, the new client is a multi-channel private client bank owned by Italy’s Mediolanum Banking Group.

Existing products and services are also being souped up. BNPPSS has just launched a system that calculates fund trailer fees on a pan-European basis, thus tackling a major issue for both distributors and manufacturers of funds.

Meanwhile, Securities Services and BNP Paribas Equities have joined forces in the hope of offering banks and broker-dealers a more cost-effective way of routing trade order flows, notably from retail investors. They have created EXTrade, a system that automatically and electronically integrates all cash equity operations, from execution to settlement and custody.

E-enabled performance measurement services were also added last year from the asset management side. “Whether a client is offering multi-manager or funds of funds, we can now provide analysis of each underlying holding,” says Mr Wolfe.

In a further a commitment to the retail market, in May this year BNP acquired the German funds and online trading platform Consors and merged it with its French subsidiary fund supermarket Cortal. At the end of June the combined Cortal Consors platform managed E12bn in assets.

The next step, according to Mr Solway, is “to position ourselves as a European player with international reach”.

“We started with a local approach, buying local systems. Our goal now is to strike the right balance between the local touch and centralised structures and scale.”

Euroclear deflects ‘monopoly’ jibe

BNP Paribas Securities Services is patently unimpressed with the latest attempt by clearing house Euroclear to placate it. BNPPSS, together with fellow custody bank Citigroup, leads the Fair & Clear group, which is lobbying to have the activities of Euroclear reigned in.

The agent banks fear that Brussels-based Euroclear will put them out of business in the clearing and settlement arena by offering super-low rates. They argue that this would be made possible by the fact that Euroclear has a bank, an International Central Securities Depository (ICSD) and several domestic CSDs all under one roof.

‘We are not acting solely to protect ourselves. It’s about the principle of segregating banking and infrastructure’

Charles Cock, BNPPSS

Charles Cock, head of multi-direct clearing and custody at BNPPSS, claims that this would lead to an unhealthy monopoly. He also scorns the idea that the commercial activity of banking should be pursued at the same time as the public service of providing CSDs.

Last month Euroclear announced plans to make these entities separate sister companies under a single Euroclear holding company in an attempt to create Chinese walls between the businesses.

Mr Cock says this is still not enough. “It’s a step in the right direction, but nothing has been done about governance and they have not abandoned plans to bring everything together in a single settlement hub.” He denied Fair & Clear was acting solely to protect its clearing and settlement operations: “It’s about the principle of segregating banking and infrastructure.”

‘We are going to look at how we sell because we have been very successful on a local basis, but it’s now a question of joining up things’

Tony Solway, BNPPSS