For sale, at a price

When NAB last year indicated it was looking to sell its custody business, NAB Asset Servicing, it sent a flutter through the market but, a year later, the suitors have departed and the business continues to dominate the local market, Damon Taylor finds.
 
It has been nearly a year since the National Australia Bank (NAB) used an otherwise fairly innocuous announcement to the Australian Securities Exchange (ASX) to declare that it was examining the future of its custody business – NAB Asset Servicing.

The announcement, lodged with the ASX in early July last year caused a considerable flutter to run through an Australian custody industry in which NAB Asset Servicing was the only locally-owned and domiciled player still in the market.

As a result of the announcement, there was much conjecture about who might move to acquire the NAB business with speculation centring around larger US players such as State Street and BNY Mellon but, ultimately, and without much fanfare, the bank ceased pursuing the sales objective.

On the available evidence, that decision was based in large measure on the limited number of possible buyers for a custody business and the reluctance of those buyers to pay a price which would have satisfied the NAB board and its shareholders.

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BNY Mellon has had a custody relationship with NAB since the mid-1990s and in 2010-11 looked to pick up a stake in the Australian custodian, so it was unsurprising that amid the speculation which swirled around last year's ASX announcement BNY Mellon was front and centre as a likely buyer.

However, as was the case in 2010-11, price was the issue for BNY Mellon, just as it appeared to be for the other likely suitors. Indeed, Super Review understands that BNY Mellon's view of the value of the NAB business was lower in 2014 than it was around four years' earlier.

Thus, all bets seemed to off by November last year when NAB Asset Servicing announced it had decided to maintain its pre-existing relationship with BNY Mellon at the same time as announcing key technology investments.

The fact that NAB Asset Servicing was regarded as being on the market last year allowed some of its competitors an edge in the always competitive market for custody mandates, particularly from the larger superannuation funds.

However, according to the latest review published by the Australian Custodial Services Association, NAB Asset Servicing continues to hold the largest share of the Australian custody market.

The ACSA analysis suggested that the company held a total of $692 billion as at 31 December, last year, followed by JP Morgan with $478.58 billion, BNP Paribas with $352.92 billion, Citigroup with $270.98 billion and State Street with $211.71 billion.