Securities services revenues dropped in 2020 amid 'unprecedented' margin fall

A steep decline in fee and interest margins caused global securities services revenues to decline in 2020 despite record levels of assets under custody and administration, according to new data released by research company Coalition Greenwich.

Margins at the 12 largest securities services banks took a "nosedive" in 2020, Eric Li, research director at Coalition Greenwich, said in an interview. The company's so-called revenue productivity index, which reflects developments in industry margins, has been falling over the past five years and dropped 22% between the first and last quarter of 2020, an "unprecedented" decline, Li said. He expects margins to fall further in 2021.

The margin decline in 2020 was driven primarily by two factors, according to Li. One is acute fee compression as banks, due to competitive pressure, have been renegotiating contracts and giving fee waivers to clients. The other is declining net interest income amid low interest rates.

These trends caused total securities services revenues to "lag significantly" in 2020, offsetting positive volume drivers, Li said. Despite heightened market volatility prompting significant growth in transaction volumes, and assets under custody and administration reaching historically high levels at the end of the year, total revenues fell to $35.7 billion in 2020 from $36.2 billion in 2019, according to Coalition Greenwich.

Most significantly, custody services, which drove about half of total revenues in 2020, dropped 3% year over year to $18.0 billion. Other securities — a category that includes corporate trust, depository receipt, agency securities lending, broker-dealer clearing and settlement, and collateral management services — decreased by 2% on a yearly basis to $7.4 billion.

Only fund services saw revenue growth in 2020, rising 3% year over year to $10.3 billion, offsetting some of the overall revenue decline. This line of business was bolstered by the recovery of assets under administration in the latter half of the year, according to Coalition Greenwich.

On a regional basis, securities services revenues fell 4% in Asia-Pacific in 2020 from a year ago and 3% in the Americas while growing 1% in Europe, the Middle East and Africa, primarily due to currency translation gains, the research company said.

For its securities services index, Coalition tracks Bank of New York Mellon Corp., Citigroup Inc., JPMorgan Chase & Co., Northern Trust Corp., State Street Corp., Brown Brothers Harriman & Co., Royal Bank of Canada, HSBC Holdings PLC, BNP Paribas SA, Société Générale SA, CACEIS Bank SA and Deutsche Bank AG.

Coalition Greenwich is owned by CRISIL. CRISIL and S&P Global Market Intelligence are owned by S&P Global Inc.