A JP Morgan logo is seen on January 10, 2017 in New York City, USA. Portal/Stephanie Keith/File Photo Acquire License Rights
HONG KONG, Dec 12 (Portal) – JPMorgan Chase (JPM.N) will outsource operations of its local depository business in Hong Kong and Taiwan to Citigroup (CN), HSBC (HSBA.L) and Standard Chartered (STAN). L) in the race for the mandate, two sources familiar with the matter said.
The Wall Street bank, the world's third-largest global depository bank, is in the process of selecting another bank to take over local depository operations in Hong Kong and Taiwan, the sources said.
Financial details of the deal were not initially disclosed.
Local custodians handle transactions and maintain accounting for customers when they access certain markets. In contrast, Global Custody manages cross-border investments with a vast network and maintains relationships with clients.
JPMorgan holds about $520 billion (AUC) worth of client assets as a local custodian in these two North Asian markets, a third source with direct knowledge of the matter said.
The bank will continue to provide global custody services in these two markets.
The bank aims to complete the transition in Hong Kong and Taiwan to another bank by the end of next year, the third source said.
This move would mean exiting the local custodian banking business in Asia Pacific, the first two sources said.
JPMorgan has in recent years exited the lower-margin local depository banking business from other Asia-Pacific markets, including Australia and South Korea. Falling custodian assets have made it less lucrative, the two sources said.
All sources declined to be named as they were not authorized to speak to the media.
Spokespeople for JPMorgan, HSBC, Citi and Standard Chartered declined to comment.
JPMorgan's move to withdraw from local custody services in Hong Kong and Taiwan underscores the shift in focus of this business as macroeconomic uncertainties and geopolitical tensions alter wealth and investment flows.
China-US tensions and a weaker Chinese economy continued to accelerate investment outflows from China.
Chinese and Hong Kong stocks saw a combined outflow of $3.1 billion from active long-only funds in October, the third straight month of more, according to a Morgan Stanley report citing data from fund flow tracker EPFR when $3 billion was sold.
Asset custodians keep investors' securities safe to protect them from loss. They also manage transactions and settlements to ensure that customer accounts comply with tax and other regulations.
Local custodian services are considered a lower margin business compared to global custodian services.
According to the two sources, JPMorgan currently offers both global and local custodian services to clients in Hong Kong and Taiwan, but has decided to withdraw from the local level as its cost-to-income ratio has increased due to a decline in assets.
In 2020, the bank stopped offering local custody services to external clients in Australia, while maintaining one of the largest global custody operations in the market. This move left Hong Kong and Taiwan as two markets where local custody services were offered.
With $29.7 trillion in customer assets in custody around the world, JPMorgan reported a 9% year-over-year increase in revenue from its securities services division, which includes its custody business, in the third quarter of this year.
Reporting by Selena Li; Editing by Sumeet Chatterjee and Stephen Coates
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