Citibank and Bank of Montreal (BoM) formed a new company that, pending regulatory approval, will provide global custody services in Canada. The new venture means that BoM, which already has a close relationship with Citibank, will chip in its customers, while Citi does the processing. The banks will split the proceeds equally.
There's upside for both companies. "For Citi, it gives us a reasonable position in the sixth-largest economy in the world," says Citibank managing director Neeraj Sahai. For BoM, it allows the bank to retain a part of its hold on its customer base, to be in a core business that's important to the bank and saves the bank a lot of money, he says.
The deal was a natural from BoM's perspective, says BoM svp Charles Bartliff, who will be CEO of the new company, which has yet to be named and is pending regulatory approval. "Keep in mind that our global custodian is Citibank anyway, and what's new is the BoM component," he says. "We've got a very deep relationship on a broad base with a lot of clients that use our custodial service, and we wanted to retain and expand that relationship."
The Canadian custody business has been undergoing a consolidation, much as the U.S. business has.
The new company's global custody system will eventually be an all- Citibank system operating out of Citi's Tampa, FL-based regional operation center, says Sahai. That transition is scheduled for the third quarter of this year.
Appearances aside, the venture is not based on an outsourcing arrangement. "In a pure outsourcing deal, the partner that does the processing doesn't jointly own the end customer, while here we do," says Sahai.
So why didn't Citi just buy BoM's book? "Citibank hasn't had long-term relationships with most of these customers, which are very important in Canada," says Citibank's Sahai. "If we'd bought, we'd have lost the advantages of those strong relationships, and then, I think buying is a much more expensive proposition. Also, BoM wants to stay with their customers and didn't necessarily want to sell."
Citibank's worldwide custody assets under management are US$1.7 trillion; Bank of Montreal's are C$160 billion.