Citigroup Wins Custody Contract From Biggest Sovereign Fund

May 05, 2014 8:19 am ET

(Updates with comment from Citigroup in last paragraph.)

May 5 (Bloomberg) -- Citigroup Inc. won a contract to deliver custody and securities-lending services to Norway’s $866 billion sovereign wealth fund, the world’s biggest, displacing previous provider JPMorgan Chase & Co.

The mandate from the fund “is believed to be one of the largest of its kind in the industry,” Citi said in a statement. The third-largest bank in the U.S. and Norges Bank Investment Management, which manages Norway’s fund, didn’t provide a value or duration for the contract. Thomas Sevang, a spokesman for NBIM, said the deal was “long term,” declining to comment further.

For Citigroup, the custodian for about $12.8 trillion in assets, the win comes just months after it created a new unit that combines custody with financing and fund services. In January, Citigroup named Nick Roe to run the business in Europe, Middle East and Africa after Okan Pekin became global head of the group in November.

“Citi has demonstrated a commitment to the custody business through their proprietary sub-custodian network and investment in technology, enabling them to deliver custody services in an integrated, efficient and transparent manner,” Age Bakker, chief operating officer at NBIM, said in a statement released by Citigroup.

The Financial Times earlier reported that Citi had won the custodian contract from competitor JPMorgan for a period of seven years.

JPMorgan Departures

Citi was previously the fund’s backup custodian, a position the fund now “expects” JPMorgan will take over, Sevang said. JPMorgan had been global custodian since the beginning of 2012, after previously sharing the mandate with Citi, he said.

JPMorgan’s mandate loss coincides with management changes at the bank. After former co-head of investment banking Mike Cavanagh left the firm, JPMorgan, which has about $19 trillion in custody assets, overhauled the division’s reporting lines last month, naming John Horner as head of investor services.

Nick Rudenstine remained global head of custody and fund services.

A spokeswoman for JPMorgan in London declined to comment.

Norway’s sovereign wealth fund, which invests the country’s oil wealth and held 1.3 percent of the world’s listed stocks at the end of last year, purchases several services from external providers, such as investment managers. The fund is currently invested in 82 countries and 44 currencies and is expanding into emerging markets.

Strategic Goal

“The selection of a new global custodian supports our strategic goal to achieve the highest possible operational automation and efficiency in each market that we invest in to realize increased efficiencies and robustness in the Norges Bank Investment Management organization at a competitive cost,” the fund said in a statement today.

NBIM in September 2010 sued Citigroup over $835 million in losses in the bank’s stock and bonds, claiming it misrepresented its financial condition and failed to disclose information as the fund bought securities at inflated prices between January 2007 and January 2009. The case was dismissed in May 2013 along with similar complaints.

Norway’s fund held 7.3 billion kroner ($1.2 billion) in Citigroup shares at the end of last year, representing 0.76 percent of the company. It also held 2.6 billion kroner in bonds issued by Citigroup.

“By having a global presence combined with in-depth, local expertise, our offering is well positioned to support Norges Bank Investment Management’s mission and growth objectives,” said Pekin.