Custodians parade for Nippon Life Insurance

In a business where volume matters, Nippon Life Insurance's $40 billion book of offshore assets will be a big win for the global custodians that have been short-listed for the account which has been up for grabs for more than six months now.

Those known to be in the running are Bank of New York, Citibank, JPMorgan, State Street and the incumbent Deutsche Bank. It is not known whether Brown Brothers Harriman is also in the race even though it has developed some good relationships with a few of Japan's large asset management houses. Market practitioners predict that Nippon Life will probably share the mandate around, breaking the assets up into smaller bundles and giving them to a number of different banks. Even so, bite size pieces of $10 billion each will give the banks enough fees to justify the exhaustive beauty parade.

The banks likely to win will be those that have the technology and the balance sheet to meet Nippon Life's fail trade management demands, which require the custodian to provide full contractual settlement on cash and securities. And those that can stomach the unstable credit environment in Japan where credit risk is systemic.

"We managed to get the go ahead from our credit department to pitch for the business, but we had to put up a fight," says one custodian from a US bank. "Nippon Life can write single tickets of between $20 million and $30 million. You would only need a few of these to go wrong over a long weekend to put the custodian in a tight position."

Nippon Life's requirement that its custodian has the global reach and electronic systems infrastructure to manage its assets effectively means that the two local banks that currently share the account with Deutsche Bank are not likely to make the grade.

If Deutsche Bank loses the account it will be another blow to the European bank, having already lost the business from one of Taiwan's largest insurers to Bank of New York a month or so ago. In April, Deutsche also lost $60 billion in custody assets belonging to the New York Teachers' Retirement System. That account went to State Street.

The custodians are hoping that Nippon Life will be announcing the winners soon. "We have been told to expect some news in July or August," says the US custodian. But another custodian from a rival firm says he doesn't expect a decision until later in the year. "Even if they award the mandate in the next couple of months, I don't see any monies moving until the end of the year."