Exclusive-JPMorgan to outsource $500 billion custody business in Hong Kong, Taiwan

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Exclusive-JPMorgan to outsource $500 billion custody business in Hong Kong, Taiwan


© Reuters. FILE PHOTO: A J.P. Morgan logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith/File Photo

By Selena Li

HONG KONG (Reuters) -JPMorgan Chase is set to outsource the operations of its local custody business in Hong Kong and Taiwan with Citigroup, HSBC and Standard Chartered (OTC:) in the race for the mandate, two sources with knowledge of the matter said.

The Wall Street bank, the world’s third-largest global custodian, is in the process of selecting another bank to take over the local custodian operations in Hong Kong and Taiwan, said the sources.

Financial details of the deal were not immediately known.

Local custody business takes care of transactions and runs the book for clients when they access certain markets. Global custody, in contrast, manages cross-border investments with a vast network and holds relationships with clients.

JPMorgan has around $520 billion worth of client assets under custody (AUC) as a local custodian in those two North Asian markets, said a third source with direct knowledge of the matter.

The bank will continue to provide global custody services in those two markets.

The bank is aiming to complete the transition in Hong Kong and Taiwan to another bank by the end of next year, the third source said.

That move would mark its exit from the local custodian business in the Asia Pacific region, said the first two sources.

JPMorgan in recent years exited lower-margin local custodian business from other markets in Asia Pacific including Australia and South Korea. Falling custodian assets had made it less lucrative, the two sources said.

All sources declined to be named as they were not authorised to speak to the media.

Spokespersons for JPMorgan, HSBC, Citi, and Standard Chartered declined to comment.

JPMorgan’s move to exit from local custody services in Hong Kong and Taiwan underscores the shift in focus for this business as macroeconomic uncertainties and geopolitical tensions reshape asset and investment flows.

Sino-U.S. tensions and a weaker Chinese economy continued to accelerate the investment outflow from China.

China and Hong Kong equities saw a combined $3.1 billion in outflows from active long-only funds in October, a third straight month of selling exceeding $3 billion, according to a Morgan Stanley report, citing data from fund flow tracker EPFR.

Asset custodians hold investors’ securities for safekeeping to prevent them from being lost. They also manage transactions, and settlements to ensure client accounts’ compliance with tax and other regulations.

Local custodian service is considered a lower-margin business compared with global custody operations.

JPMorgan currently provides both global and local custodian services for clients in Hong Kong and Taiwan but has decided to withdraw from the local level as the cost-income ratio has gone up amid a decline in assets, according to the two sources.

The bank in 2020 ceased to offer local custody services for external clients in Australia while maintaining one of the largest global custodian operations in the market. That move left Hong Kong and Taiwan as two markets where it offered local custody services.

With $29.7 trillion worth of client custody assets around the world, JPMorgan posted a 9% year-on-year revenue increase in securities services, which includes its custody operations, in the third quarter of this year.



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