J.P. Morgan to Become Custodian for $1 Trillion in BlackRock Assets -- 2nd Update
January 25 2017 - 9:40AM
Dow Jones News
By Emily Glazer
J.P. Morgan Chase & Co. struck a deal to be the custodian
for more than $1 trillion of BlackRock Inc.'s assets, poaching the
business from State Street Corp., the companies confirmed
Wednesday.
J.P. Morgan will spend around two years bringing the assets into
its existing $20.5 trillion platform, the bank said. That may
elevate the New York bank to the No. 2 player in the business,
second to Bank of New York Mellon Corp., which has about $28
trillion assets under custody, according to recent company
filings.
State Street's assets under custody were $21.7 trillion as of
Wednesday when it reported fourth-quarter earnings, though it is
unclear if the change was reflected in the most recent quarterly
numbers. State Street noted in an earnings slide presentation
Wednesday that BlackRock had moved some of its assets "as a result
of a decision to diversify service providers," but remains a client
of the bank.
J.P. Morgan is likely to garner roughly tens of millions of
dollars in annual fees in one of the largest-ever custody deals.
The sticky business is becoming rare in banking where firms have
been cutting costs to boost revenues in a low-interest-rate
environment. These types of contracts usually don't come up for bid
for years.
BlackRock manages $5.1 trillion in assets as of Dec. 31, all of
which are serviced by third-party custodians, according to the
firm.
"Many of BlackRock's clients will experience cost savings
through decreased operating expenses at the fund level," said Derek
Stein, head of BlackRock's business operations and technology. "The
expansion of our custodial relationship with J.P. Morgan reflects
its attractive value proposition for these services while still
allowing BlackRock to maintain a diverse roster of fund service
providers."
The custodian business, where banks hold, administer and provide
evaluations of money for money managers and other clients, is one
J.P. Morgan has been growing.
The deal "expands our relationship with BlackRock and is a
validation of the investments we've made and the resources we've
added to the custody and fund services business," said Daniel
Pinto, head of J.P. Morgan's corporate and investment bank.
In the bank's annual Investor Day presentation, corporate and
investment Mr. Pinto said the custody and fund services business is
among the most important -- and one he has personally spent a lot
of time on.
And it helps the bank with its client relationships. There is a
95% overlap its investment banking and market businesses, Mr. Pinto
said during the February presentation. The bank's assets under
custody have grown 18% in the past five years, he said.
"It's a very good, very stable earning business," Mr. Pinto said
at that time.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
January 25, 2017 09:25 ET (14:25 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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