Custody deal makes RBS world-beater

Royal Bank of Scotland yesterday became the fifth-biggest custodian of shares and bonds in the world after a deal with Mercury Asset Management to set up a new pounds 200m bank that will specialise in handling the assets of fund managers.

Mercury will inject pounds 30m of convertible loan stock into the new operation, called RBS Trust Bank, which could give it a 15 per cent stake, if eventually exercised. The equity is 100 per cent owned by Royal.

At the same time Royal is to pay Mercury up to pounds 20m to acquire custodian businesses to merge into the operation. The additional pounds 80bn of assets to be acquired by Royal includes many of the funds managed by Mercury, Britain's largest fund management company.

These assets will be added to the Royal group's existing pounds 170bn under custody, taking the total it looks after for pension funds, insurance companies and other clients to pounds 250bn.

Royal said this made it number two in the UK custody business after Midland Bank, which has about pounds 270bn. The only bigger custodians are State Street, Bank of New York and Bankers Trust of the US.

The combined custody operation will employ about 1,200 people in Edinburgh, London, Jersey and Luxembourg.

Although Royal Bank is paying Mercury "between pounds 5m and pounds 20m" for the custody operation, the business it is acquiring is now owned by the Custody and Investor Services Division of SBC Warburg.

Mercury was controlled by Warburg until it was taken over by Swiss Bank Corporation, and the fact that the payment is to Mercury rather than SBC arises from agreements made at the time. The acquisition is the biggest so far in the UK custody business