JPMorgan Chase plans to outsource local custody business in Hong Kong and Taiwan

JPMorgan Chase, the world’s third-largest global custodian, is set to outsource the operations of its local custody business in Hong Kong and Taiwan. Citigroup, HSBC, and Standard Chartered are currently competing for the mandate.

The Wall Street giant, with approximately $520 billion in client assets under custody (AUC) as a local custodian in Hong Kong and Taiwan, is in the process of selecting another bank to take over these operations. While the financial details of the deal remain undisclosed, the bank is committed to continuing its global custody services in these markets.

The local custody business, responsible for transaction management and client bookkeeping in specific markets, is becoming less lucrative for JPMorgan. This move follows the bank’s recent exits from lower-margin local custodian businesses in other Asia Pacific markets, including Australia and South Korea.

The transition to another bank is expected to be completed by the end of 2024. This decision marks JPMorgan’s exit from the local custodian business in the Asia Pacific region, aligning with the bank’s strategy to streamline its operations.

JPMorgan’s shift away from local custody services in Hong Kong and Taiwan reflects broader changes in the industry. Macroeconomic uncertainties and geopolitical tensions, particularly Sino-U.S. relations, have reshaped asset and investment flows. A weaker Chinese economy and ongoing tensions have accelerated the investment outflow from China, impacting equities in China and Hong Kong.

The move also highlights the evolving landscape of custodial services. Asset custodians, responsible for safeguarding investors’ securities, are crucial in managing transactions and settlements to ensure compliance with tax and regulatory requirements. Local custodian services, while vital, are generally considered lower margins compared to global custody operations.

JPMorgan’s decision to withdraw from local custody service at the regional level comes as the cost-income ratio rises amid declining assets. The bank ceased offering local custody services for external clients in Australia in 2020, leaving Hong Kong and Taiwan as the remaining markets where it provides such services.

With $29.7 trillion worth of client custody assets worldwide, JPMorgan reported a 9% year-on-year revenue increase in securities services, including its custody operations, in the third quarter of 2023. The bank’s strategic realignment underscores its commitment to optimizing its portfolio in response to changing market dynamics.