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London’s Safe Haven Status benefits Metropolitan Safe Deposits

25 October 2012

CEO Christopher Barrow reveals why Metropolitan Safe Custody Group benefits from London’s status as Safe Haven

There is a great deal of press coverage about London enjoying its safe haven status among global investors. Much of the benefit flows through in the form of wealthy individuals from less stable countries investing in prime central London residential property. Joining the Asian, Russian and Middle Eastern buyers, the political and economic upheaval in the Eurozone has seen a rising tide of Italian, Greek and French purchases of London homes. In addition to real estate investment, nervous overseas investors are also typically seeking shelter in foreign currencies and gold, held away from their own shores.

What is less visible to the public has been the impact of this capital flight on the demand for safe custody services in London. When the overseas individual buys an apartment, a gold bar or foreign exchange, there is potential demand for safe custody (with a second home resulting in the need to safeguard original deeds, jewellery etc). Whilst most of the demand for safe deposit boxes in London is domestic, overseas clients are firmly on the increase.

Another emerging (and connected) trend has been the rising number of overseas banks that require independent safe deposit box services. Generally reluctant to use competing banks’ safe custody facilities, which are in any case in decline, we have witnessed a material increase in demand from international private banks. These banks are particularly demanding (quite rightly) in terms of their requirement for both high security and regulatory adherence. Location is also important, though less so than the need for a high-security environment and good business practice.

A rather more bizarre example of overseas demand is US investors seeking to transfer their gold and silver from domestic (US) banks to offshore independent vaults. The rationale is steeped in history; indeed it goes back to Franklin Roosevelt’s seizure of individual investors' physical gold during the Great Depression. Some investors believe that the current economic climate resembles that of 1933 (with a sinking currency and a ballooning national deficit) and that US politicians may seek again to justify the confiscation of gold as a means to stabilise the country's monetary system. Highly unlikely, but who are we to argue with these investors?!

Demand is, of course, just one side of the equation. In a market with rising “demand” for safe custody, there is increasing pressure on the need for additional “supply”. To the frustration of banking customers across the country, retail banks have been getting out of the safe custody business. Our 15th August 2012 editorial “Why Are Banks Exiting Safe Custody?” explains the reasons and the extent to which UK banks are closing their secure storage operations. Combined with investors’ concerns about the financial state of the banking sector, it has increasingly fallen upon the independent safe custody industry to provide a greater share of the service in the UK.

However, the UK independent sector is very small and has also been under considerable pressure to invest heavily in systems required to maintain high standards of regulatory compliance. Whilst this has constrained the growth of the independent sector, we still believe that this is a positive requirement. Our 16th July 2012 editorial “Why are Regulations so Important to Metropolitan?” explains why regulatory measures actually contribute to the success of our business.

The greatest constraint, as already indicated, is the scale of our industry and the inability of the independent sector to take up the slack from the shrinking banking sector. In order to accommodate the rising demand, we have been looking at different ways to increase our capacity both within our existing vaults (in Knightsbridge and St John’s Wood) and seeking to expand our footprint in London and elsewhere. We have also been on the acquisition path, notably Metropolitan’s recent acquisition of London Safe Deposit Company’s safe deposit business.

The definition of “safe haven” in one dictionary is “a place where you are protected from harm or danger”. In a sense, this is an apt description for London, which offers good protection to investment assets through its robust legal system and stable economic & political environment. “Safe haven” can also refer to specific investments, such as gold or US Treasury Bills or the Swiss franc, which are expected to retain or increase their value in times of market turbulence.

Whatever the definition, London’s safe haven status naturally does not provide total protection from harm or danger. Whatever the statistics, burglaries are widespread and often targeted towards the wealthy areas and specific communities. What a safe deposit vault in London offers is a “safe haven within a safe haven”. One of the reasons why Metropolitan has seen increasing demand from overseas clients is that they are all too aware that London’s safe haven status does have its limitations.