Council Agenda Report From: Mike Compton, City Treasurer Subject: Contract for Bank Custody Services Date: June 18, 2019 Facts 1. Union Bank has provided custody services for the City’s long- and short-term investments since 1987. 2. Union Bank has provided said services in an exemplory matter and consistent with the City’s Investment Policy (Attachment 2). 3. In late 2017, Union Bank raised the City’s annual maintenance fee from $600 to $10,000 annually. 4. Given the size of the increase, RFPs were distributed to six banks known to provide the custody services required by the City. 5. Two banks declined to respond, including Union Bank. 6. The Request for Proposals (RFP) called for an initial contract length of five years with two, three-year extensions at the sole discretion of the City. Options 1. Take no action; 2. Amend the foregoing option; 3. Refer back to staff for further analysis. Analysis and Conclusions Custody services are necessary to protect the City’s investments from loss. Securities purchased from broker/dealers should not, under any circumstances, by held by the broker/dealer from whom the City purchased the securities. The custodial bank acts much like an escrow agent. The custodial bank holds the securities until maturity or sale at which time it provides assurances to both parties that the transaction(s) is settled appropriately. The custodial bank also collects and remits all interest coupons to the City in a timely fashion. Lastly, the custodial bank provides monthly reports identifying all trading activity, balances held, and market value of each security held in custody. As noted above, the City received four RFP responses, from Wells Fargo Bank, Zion Bank, BNY Mellon Bank, and US Bank. Upon review of the responses and discussions with all four respondees, it was concluded that all the banks provided adquate reporting services and that said reporting could be customized to meet the City’s reporting needs. Thus, focus was narrowed to cost. The pricing ranged from $8,960 to $5,100. It is projected that the City’s current annual cost is $18,200. Individual responses are summarized as follows: Wells Fargo Bank – Currently provides custody services to 304 California clients. Their cost was at the high range; $8,960. It has been reported that Wells Fargo Bank is about to sell the entire custodial/safekeeping servicing unit as well as trust services to Principal Financial. Wells Fargo Bank is agreeable to the desired length of the proposed contract and will hold the fees unchanged throughout the first (5) years. If the City desires to extend the contract, the fees shall be subject to negotiation. Fees are also subject to negotion after Page 371 the first five (5) years should there be a dramatic shift in asset allocation. The City currently utilizes Wells Fargo Bank for custody services for its’ Section 115 Trust account (unfunded retirement account). US Bank – Currently provides custody services to 760 California clients. Their cost was in the middle range at $7,500. They were agreeable to the contract terms as proposed by the City. They did not guarantee their proposed fees and noted that they review fees annually and any change in fees would be discussed at least thirty (30) days prior to implemenation. BNY Mellon – Currently provides custody services to a variety of 435 California clients, not necessarily all of which are government agencies. Their cost was also in the middle range at $7,600. They were non- committal as to the length of the desired contract. They simply stated that they looked forward to developing a lasting relationship with the City. With respect to fees, they would also evaluate their fee structure on an annual basis based upon their cost and market conditions and trends. Zion Bank – Their custody services are more limited as they serve only ten western states with 100 government clients. Their cost was at the low end at $5,100, except that in the first year there would be a one-time $500 charge to cover their cost to move the City’s securities from our current custody bank to Zion Bank. The bank is agreeable to the contract terms proposed by City. All fees will be fixed throughout the contract term, including extensions, except the annual maintenance fee may be adjusted should the market value exceed $75 million. Should the City’s market value reach this level the fee would be increased by $1,200. In sum, Zion Bank offers the desired level of services at the lowest cost. Fiscal Impact Moving custody services from Union Bank to Zion Bank would result in an estimated annual cost savings of approximately $13,140. Recommendation That the City Council authorize the City Treasurer to negotiate a final contract with Zion Bank for custody services subject to City Manager and City Attorney approval. Attachments 1. Zion Bank RFP Response 2. Investment Policy Page 372 Mark D. Petrasso Senior Vice President May 9, 2019 Mike Compton, City Treasurer City of Paso Robles 821 Pine Street, Suite A Paso Robles, CA 93446 Delivered via email: [email protected] Re: City of Paso Robles - Request for Proposal – Custody/Safekeeping Services Dear Mr. Compton: On behalf of Zions Bank, we thank you for the opportunity to provide a proposal for Custody/Safekeeping Services for City of Paso Robles (the “City”). Zions Bank is a division of Zions Bancorporation, National Association, a bank holding company that currently operates banking divisions in eleven states, including California. We are a consistent recipient of numerous Greenwich Excellence Awards in recognition of exemplary customer service delivered to our clientele and were honored among the “Best Banks to Work For” in 2018 by American Banker magazine. Zions Bank also received the Secretary of Defense Employer Support Freedom Award recognizing our support of Guard and Reserve employees. In addition, Thomson Reuters has consistently ranked Zions Bank as one of the “Top 5” providers of bond trustee and paying agent services in the country. We believe that the proposed fees will provide overall value to the City based on the experience of our staff, our processing systems and our commitment to provide the California marketplace with exceptional customer service. Thank you again for the opportunity to submit our Custody/Safekeeping Services proposal. Should you have any questions concerning our response or any related matters, please contact me at (213) 593- 3153. Sincerely, Mark D. Petrasso Senior Vice President and Business Development Officer Page 373 REQUEST FOR PROPOSAL CUSTODY/SAFEKEEPING SERVICES CITY OF PASO ROBLES 1. Describe your bank’s experience in providing similar custodial services for local government clients. Founded in 1873, Zions Bank is a division of Zions Bancorporation, National Association, a financial holding company headquartered in Salt Lake City, Utah. Zions Bancorporation provides a full range of banking and related services through its locally-managed divisions operating in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. Zions Bank’s Corporate Trust Division has provided Corporate Trust services to issuers for over 100 years based on our strong commitment to our clients. We are recognized in the industry as having reliably and consistently provided exceptional and stable customer service without name changes, mergers or acquisition of other Corporate Trust providers. Zions Bank’s Corporate Trust Division is staffed by over 90 professionals (including our own in-house counsel) in twelve locally managed offices located in Boise, Chicago, Cleveland, Dallas, Denver, Houston, Los Angeles, Phoenix, Pittsburgh, Portland, Salt Lake City, and Seattle. In addition, we have a team of risk management and compliance officers fully dedicated to monitoring the trust activities we provide to our customers. Zions Bank has been providing Third-Party Safekeeping and Custody services working in unison with municipalities since 1965. As our Corporate Trust Division has grown so has on our custody business line so that we may better support our public/municipal clients. Our staff has grown our business from the ground up and organically and now administer over $4.7 billion in assets held for close to 100 local government clients. As evidence of our growth, Zions Bank has recently completed the successful transition of numerous custody portfolios for several municipal entities across our national footprint from other custodians. Zions Bank is regulated by the OCC, EY (SOC type II) and Internal Audit to ensure that custody service is in line with current and ongoing regulations. This encompasses all aspects of settlement, reconciliation, income processing and applicable corporate action processing. This also tests the effectiveness of segregation of duties to ensure that there are proper dual controls in place. Many of our custody clients utilize an investment manager. We ensure investment managers have current and up to date delivery instructions and settlement information. We verify trades and inform our clients and their investment managers of any unresolved issues. We have a standard authorization template which is completed by our clients which allows us to take instructions from their investment managers. We also provide investment managers electronic access to the custodial account(s) for purposes of monitoring and trading securities. Zions Bank also interfaces with ELECTRA, ADVENT, CLEARWATER, FISERV in transmitting holdings and transaction information to investment managers. Related to trade processing, once trade execution has taken place, the City or PFM can provide those instructions to the Zions Bank to complete trade verification and input. Zions Bank can also accommodate participating entities’ requirements related to purchases via industry standard methods. PFM can also provide an “Adhoc” agreement whereas they will provide affirmed confirms to Zions Bank and the trades will be processed with the affirmed confirm with no notification from the participating entities.