Bank of New York Co.’s clearing unit, Pershing LLC, is targeting banks to help it develop more assets as competition intensifies among a few major players for market share in the clearing business.
Randy Reynolds, a director for Pershing’s bank market segment, said the company is aiming at banks with $5 billion to $50 billion of assets. “We know that we can add an enormous amount of value and make [a $50 billion bank] a $75 billion bank,” he said.
Mr. Reynolds, who has worked four years for Pershing and in the bank market segment for three, said banks are crucial to the company’s continued expansion.
“There are a lot of opportunities in the bank broker-dealer business,” he said. “There are a lot of bank broker-dealers who are not satisfied with their clearing partner. We want to expand the mix and complexity of our offering so that, when banks are evaluating who they want to clear with, they will choose us.”
Pershing has grown significantly since being bought by Bank of New York in May 2003 for $2 billion from Credit Suisse First Boston. The deal increased the banking company’s assets under custody by half a trillion dollars. Pershing’s assets under custody were $474 billion before the deal was announced, and the combination with Bank of New York has helped that total grow to $635 billion as of this March 31.
Since the deal closed in July 2003, analysts and executives have said the initial increase in assets was just the tip of the iceberg because the opportunity to cross-sell to customers was enormous for both entities.
Mr. Reynolds said Pershing wants to seize opportunities with its existing customers, including banks, brokerage companies, and insurers, to get additional business.
“We want to figure out how to get greater wallet share,” he said. “We are seeing a lot of growth in new prospects coming on board and existing customers expanding their business plan with us.”
Donna Morris, an executive vice president at Fidelity Investments’ clearing subsidiary, National Financial, who is responsible for product management, said the competition for assets is fierce among the remaining handful of clearing services companies.
National Financial has increased its assets under custody this year by 9.6%, to $351 billion, through June 30.
In the past 10 years, Ms. Morris said, the roster of clearing firms has dwindled, leaving only a few large companies. In order to compete for market share, she said, companies are developing tools and capabilities. National Financial, for example, is expanding its suite of equity research tools available to clients. It also is planning to start a Windows-based platform for broker-dealers in the fourth quarter.
“We have heard from our bank clients in the past that the reason they are using clearing services is that it is operationally efficient and helps them lower costs,” she said. “A lot of firms are looking at clearing partners to help them handle expenses and help them grow. They rely on firms like National Financial.”
“Whether it is offering more research, more fee-based offerings, or expanding capabilities into mutual funds or fixed-income products,” she added, “we have to offer more. Clients are looking to clearing firms not only to clear but to offer other things we can do.”
National Financial is seeing significant momentum in developing new business, Ms. Morris said.
“What we have seen is more and more clients and prospects that we talk to are interested in our platform and are moving to our platform,” she said. “We probably have had our single strongest year in bringing customers to our platform.”
Mr. Reynolds said Pershing is developing business with bank broker-dealers at a steady pace. Pershing’s affiliation with Bank of New York has been a “blessing, not a hurdle” in terms of developing business with other banking companies.
“The Bank of New York is a known firm that has such a relatively small retail presence in relation to the size of the bank,” he said. “They are not viewed as a competitor the way other banks are viewed as a competitor. They are viewed nationally as a service provider.”
“If the Bank of New York was asking clients of other banks to open accounts with them,” he added, “then they’d be a competitor, but they aren’t doing that. Their retail presence is on the East Coast, and we are looking nationally.” “Banks have the opportunity to expand their noninterest fee income,” he said. “A lot of banks are evaluating providers and looking for firms with a broad enough approach so that they can grow at the right rate.”
