According to two people with knowledge of the situation, JPMorgan Chase plans to outsource the management of its local custody business in Taiwan and Hong Kong, with Citigroup, HSBC, and Standard Chartered vying for the contract.
According to the sources, the Wall Street bank, which is now ranked as the third largest global custodian, is currently choosing a different bank to assume responsibility for the local custodian operations in Taiwan and Hong Kong.
The deal’s exact financials were not immediately revealed.
When customers access particular markets, local custody businesses handle the bookkeeping and transactions. On the other hand, global custody maintains connections with clients and uses a wide network to manage cross-border investments.
According to a third source with intimate knowledge of the situation, JPMorgan serves as a local custodian for client assets under custody (AUC) totaling over $520 billion in those two North Asian regions.
In those two markets, the bank will keep offering worldwide custody services.
According to the third source, the bank plans to finish switching over to a different bank in Taiwan and Hong Kong by the end of the next year.
According to the first two sources, this move would signal the company’s departure from the local custodian business in the Asia Pacific area.
JPMorgan has recently withdrawn from lower-margin local custodian operations in Australia and South Korea, among other Asia Pacific markets. The two sources claimed that it was less profitable due to declining custodial assets.
Since none of the sources had permission to communicate with the media, they all declined to be identified.
JPMorgan, HSBC, Citi, and Standard Chartered spokespeople all declined to comment.
The decision by JPMorgan to withdraw from local custody services in Taiwan and Hong Kong highlights the company’s change in emphasis as asset and investment flows are altered by geopolitical tensions and macroeconomic uncertainty.
Tensions between the US and China as well as a contracting Chinese economy kept driving up the country’s investment flight.
According to a Morgan Stanley research that cited data from fund flow tracker EPFR, active long-only funds withdrew a total of $3.1 billion from China and Hong Kong equities in October, marking the third consecutive month that sales of this magnitude exceeded $3 billion.
Comparing local custodian services to global custody operations, the former is thought to have lower profit margins.
According to the two sources, JPMorgan presently offers clients in Taiwan and Hong Kong both local and global custodian services; nevertheless, the company has chosen to leave the local market as the cost-income ratio has increased in tandem with a drop in assets.
While continuing to run one of the biggest worldwide custodian operations in the industry, the bank stopped providing local custody services for external clients in Australia in 2020. Following that change, the only markets where it provided local custodial services were Taiwan and Hong Kong.
In the third quarter of this year, JPMorgan reported a 9% year-over-year revenue gain in securities services, which includes its custody operations, with $29.7 trillion worth of customer custody assets worldwide.
