by Greg Bright
NAB Asset Servicing has prepared a statement to be released to the ASX covering a new arrangement for the global component of its asset servicing arm, having received no offers for the business following a tender process.
Northern Trust has pulled out of negotiations with NAB over the partial sale a couple of weeks after State Street, the initial favourite, did the same. NAB is now left in discussions with the existing global partner, BNY Mellon, about a possibly closer relationship going forward. But BNY Mellon had still not put an offer on the table to pay for a more permanent ownership position as of last week.
The statement, as currently drafted by Carl Spurling, the general manager of strategy at NAB Asset Servicing who has been seconded to the bank’s M&A department, assumes that no sale will take place and that NAB will look to reinvest in the business by enhancing its service offering. Steps have already been taken recently to improve overall profitability through adjustments in some smaller client contracts. The NAB division has also reduced overall staffing levels in the past 12 months.
For its global component, NAB is looking to improve its offering with the possible inclusion of Brown Brothers Harriman (BBH), as a regional provider, alongside a new agreement with long-standing global provider BNY Mellon.
It was Spurling and former head of NAB Asset Servicing, Leigh Watson, who drove earlier negotiations with BNY Mellon, in 2010, which would have involved at least the partial sale of the custody arm. The discussions dragged on for months and finally faltered.
State Street and Northern Trust are the only parties to have done due diligence on the NAB business, with local competitors such as Citi, JP Morgan, BNP Paribas and HSBC electing to maintain their distance. The Northern withdrawal, after experts were sent from Chicago head office to assist the local team in Melbourne, was a blow to NAB.
While the possible BBH involvement going forward is just speculation, the two organisations have had cordial relations for many years. BBH is the only major custodian which is privately owned in a partnership structure. It has a relatively strong presence in Asia, where it delivers high value-added service, but does not have the thorough global reach that BNY Mellon, the world’s largest custodian, and other global custodian banks have. On the other hand, BNY Mellon has had management difficulties and suffered client losses in the region, including Australia and Singapore regional headquarters, in the past couple of years.
One of the sticking points in discussions so far has been that NAB has wanted to maintain control over the cash management and foreign exchange revenue which flows from its custodian relationships in any new deal struck with an acquiring party. According to one custodian, it would be possible for NAB to continue to participate in cash and FX for clients while ceding ‘control’ over these mandates to an acquirer, through a contractual arrangement.
Interested parties also thought the bank’s valuations on the business remained too rich, as per previous negotiations with BNY Mellon and separate discussions with State Street.
Christine Bartlett, the head of NAB Asset Servicing who was on leave, referred to the bank’s corporate affairs department for comment last Friday (September 12). The spokesperson there said that discussions on the matter remained confidential, as per the July 1 statement to the ASX.