EIB to outsource derivatives collateral management

The European Investment Bank (EIB), the financing institution of the European Union, is set to outsource its derivatives collateral management activities to Dutch bank ABN Amro.

ABN Amro said it would act as collateral agent to the EIB and assume responsibility for marking derivatives collateral to market, margin calls and settlement. The EIB will still value its own derivatives transactions to preserve confidentiality with counterparties.

“ABN Amro has been chosen by the EIB as a supplier that can combine collateral management services with global custody, allowing full outsourcing of the activities related to the maintenance of a large collateral portfolio necessary for derivatives trading,” said ABN Amro.

“Outsourcing the collateral management is important for improving the management of the counterparty risk of the bank’s substantial derivatives portfolio, by moving to daily mark-to-market and margin calls of the collateral," added Anneli Peshkoff, director of EIB’s treasury department. "The decision to outsource is based on an analysis of the incremental resources required internally versus the cost and flexibility of outsourcing.”

Investment banks are increasingly becoming involved in supplying outsourcing services – paying an outside company to perform certain functions, generally back office, which were traditionally completed in-house. Last year, State Street acquired New York-based International Fund Services (IFS) to expand its outsourcing business. Also last year, French bank BNP Paribas purchased London-based Cogent, another specialist outsourcing company. The acquisition gave BNP Paribas a foothold in the growing business area while expanding the suite of products it could offer fund managers.