SYDNEY -- A showdown looms in the Australian global custody market as world leader Chase Manhattan Corp. takes on domestic leader State Street Australia Ltd., a unit of State Street Boston Corp.
Analysts said Chase would find it hard to compete with State Street, which is estimated to handle at least 80% of the $25 billion of Australian funds invested overseas.
Custodians for trustees perform safekeeping and administrative services such as settlement, cash management, accounting and tax reports, income collection, and fund-performance analysis.
"It's not an easy market," said John Sudholz, general manager of ANZ Nominees Ltd., a unit of Australia and New Zealand Banking Group Ltd. "It needs a big investment in terms of systems and people."
State Street pioneered custody services in Australia, setting up an operation in 1985 for Australian investments offshore.
Chase Manhattan Bank Australia Ltd. recently set up a custody operation to capture a slice of the expected growth in super-annuation, or pension, assets.
Australian banks dominate the $65 billion domestic custody market, which consists of Australian and offshore funds invested in Australia.
State Street, Chase, and other banks are also expanding their master custody services, which handle the domestic and international portfolios of fund managers.
Lured by Growth Possibilities
Tony Gates, Chase Manhattan Bank Australia's global security services director, said Chase was lured by the Australian market's growth potential.
"It's attractive," he said. "You need to be committed to the local market to get that business."
He said while Chase hoped to win some market share from State Street, it aimed mainly to gain from expected growth in superannuation funds above $350 billion by the turn of the century.
"We believe our reputation in the marketplace will lead people to us," Mr. Gates said. He said Chase, which has about $2 billion of Australian funds under global custody, hoped to boost this to $7 billion by December 1992.
State Street Australia managing director Robert Williams said the domestic custody market is already competitive. "We've had a bit of a fight on our hands all along," he said.
Mr. Williams said State Street intended to expand its domestic operations ahead of the growth in superannuation funds. "You always need good people. You always need to invest substantial amounts of money on systems and technology," he said.
National Australia Bank's investment and trust services general manager, John Gall, said the Australian custody market is less developed than other countries', with many domestic institutions performing their own custody services.
But it is maturing quickly as a result of the Australian government's plan for employers to put at least 9% of employee earnings into superannuation plans by the year 2000, he said. The current figure is 3%.
Spreading the Risk
"The money that's going to fill superannuation funds is going to require a greater spread of investment risk and higher levels of control and supervision," Mr. Gall said.
John Lawson, custodian services general manager at Westpac Banking Corp., said Westpac kept out of global custody because Australian is in the wrong time zone for international operations and it required too large an investment in systems.
Westpac, National Australia Bank, and Australia and New Zealand Banking Group dominate the domestic custody market.
"You have to have a critical mass of funds [under custody] to start to make the thing pay," Mr. Lawson said.
He said he had a high regard for Chase but added that it faces a huge challenge in taking on State Street. He called the latter "well established and entrenched."