NeMa Presentation SlidesDominic Hobson, Co-lead, McLagan InvestmentServicesNeMaDubrovnik, 14-16 June 2016Prepared by McLaganMcLagan is part of Aon Hewitt, a business unit of Aon plc.

Blythe MastersMcLaganProprietary & Confidential2

Are Custodian Banks Destroying Equity Capital?RoR vs.Book ValueRoR vs. MktValueRoR vs.Book ValueRoR vs.Book ValueBank ofNew -8.09%-3.34%J.P. Morgan0.00%-1.23%-1.78%-3.01%NorthernTrust 2.12%-3.51%-0.43%-5.20%State 3.31%-4.48%McLaganProprietary & Confidential3

Investment Services ProfitsOperating profits 2006-2016BNY MellonNorthern TrustState Street4,5004,0003,500US 20092010201120122013Source: BloombergMcLaganProprietary & Confidential420142015

Investment Services RevenuesNet Revenues 2006-2016BNY MellonNorthern TrustState Street12,00010,000US 20112012Source: BloombergMcLaganProprietary & Confidential520132014

Investment Services CostsNon-interest expense 2006-2016BNY MellonNorthern TrustState Street9,0008,0007,000US 0820092010201120122013Source: BloombergMcLaganProprietary & Confidential620142015

Compensation, Benefits and Office SpaceStaff costs (compensation, benefits, office space)BNY MellonNorthern TrustState Street7,0006,000US 0201120122013Source: Annual reportsMcLaganProprietary & Confidential720142015

Technology ExpenditureTechnology costsBNY MellonNorthern TrustState Street1,2001,000US Source: Annual reportsMcLaganProprietary & Confidential820142015

Expenditure on Professional AdviceCosts of professional adviceBNY MellonNorthern TrustState Street1,6001,400US 1120122013Source: Annual reportsMcLaganProprietary & Confidential920142015

Balance Sheet LeverageEquity-assets ratio 2007-2015BNY MellonNorthern TrustState Street1614US rce: Annual reportsMcLaganProprietary & Confidential1020142015

Capital Allocations to Operational RiskOperating risk capital allocationsOperating risk capital as a percentage oftotal risk weighted assets (RWA)BNYMState Street70Northern TrustBank of New YorkState StreetNorthern Trust50%6045%40%50US (millions)US (millions)35%30%25%403020%2015%10%105%00%Jun-14 Sep-14 Dec-14 Jan-15 Jun-15 Sep-15 Dec-15 Mar-16Jun-14 Sep-14 Dec-14 Jan-15 Jun-15 Sep-15 Dec-15 Mar-16Source: Basel III disclosuresMcLaganProprietary & Confidential11

50 Varieties of Operational RiskA:Account structure risk (e.g. omnibus vs. segregated); Anti-Money Laundering (AML) risk; Asset safety risk; Assetsegregation risk; Audit risk (e.g. controls)B:C:Bankruptcy regime risk; Business continuity riskD:F:I:K:L:M:N:O:P:R:S:Data breach risk; Default risk; Depositary risk (AIFMD and UCITS V); Disaster recovery riskT:Tax reclaims; Technology risk (e.g. inadequate capacity); Third party risk(e.g. outsourcing provider failure); Title transferCash risk (on- and off-balance sheet); CCP risk; Collateral risk (e.g. loss, illiquidity and reinvestment); Contingencyplanning risk (e.g. changing sub-custodian); Contractual risk; Corporate actions risk (e.g. missed instructions);Counterparty risk; Country risk; Credit risk; CSD (and ICSD) risk; Cyber-attacksForeign exchange risk; Fraud risk (e.g. by employees or third parties); Fund accounting riskIncome collection risk; Indemnity risk; Insolvency risk; Insurance riskKnow your customer (KYC) riskLegal risk (e.g. establishing ownership); Liquidity riskMargin call risk; Market riskNet asset value (NAV) calculation riskOn-boarding risk; Operational error risk (e.g. incorrect data processing)Political risk; Principal risk; Proxy voting riskReconciliation risk (e.g. of assets); Regulatory risk (e.g. non-compliance); Reporting risk (e.g. late delivery of information)Sanctions risk (e.g. holding assets of sanctioned state); Securities lending;Settlement risk (e.g. free-of-payment deliveries, buy-ins); Sub-custodian riskMcLaganProprietary & Confidential12

The Share Price Performance of five custodian banks 2003-12180%S&P 500NASDAQ -07McLaganProprietary & n-14Jan-1513Jan-16

Our TeamDominic Hobson is Co-Lead of AonMcLagan Investment Services. He was one ofthe founders of Asset International, apublishing and events business whose titlesinclude Global Custodian, where he was formany years editor-in-chief. After AssetInternational was sold in 2009, Mr Hobsonfounded COO Connect, a peer group networkfor fund managers, now also sold. As anindependent consultant, he has delivered avariety of projects on behalf of custodianbanks and financial market infrastructures,and consulted to Instant Actions, a corporateactions verification service. Dominic haswritten for Financial News, contributedoccasionally to the BBC on financial marketsissues, and has three works of non-fiction tohis name. He was amanuensis to NigelLawson, former Chancellor of the Exchequer,in the preparation of his memoirs. Mr Hobsonwas born in Southern Rhodesia in 1958, andeducated there and at Magdalene College,Cambridge. He spent four years in investmentbanking before electing in 1988 to work forhimself. Mr Hobson is also co-founder of theFuture of Finance conference held at the SaïdBusiness School in Oxford, a member of theInnovate Finance Policy Advisory Board, andserved on the Government Office of Sciencegroup of experts on distributed ledgertechnology.McLaganProprietary & ConfidentialKeith Amos is an Associate Partner inMcLagan’s London office and Co-Lead ofMcLagan Investment Services. Mr Amos hasworked at McLagan since 2004 and heads upthe financial benchmarking capabilities forInvestment Services. In his time at McLaganhe has worked within the Performancebusiness (and part of TRP), having previouslyworked on the financial benchmarking productfor Investment Banks covering the capitalmarkets business. He relocated to New Yorkwhere he spent four years in a number ofdifferent client-facing and relationshipmanagement roles. Prior to joining McLaganMr Amos worked for a number of investmentbanks in mainly operational roles includingtime with Standard Chartered Bank, DeutscheBank, Lehman Brothers and SalomonBrothers (at Lehman and Salomon he workedon the trading desk with a specific focus onEmerging Markets). After leaving Salomon in1999 he joined MIB Partners, a financialbenchmarking Start-Up which wassubsequently purchased by McLaganPartners, an Aon Company, in 2004.Allison Cayse is a Manager within AonMcLagan Investment Services, which shejoined this year. Ms Cayse has more than 12years’ experience of the investment servicesindustry, having joined Global Custodian, atrade magazine dedicated to the industry, asits surveys editor in 2004. In that role, shewas responsible for the day-to-daymanagement of more than a dozen surveysof various aspects of the investment servicesindustry, including global custody, directcustody and clearing in major and emergingmarkets, central securities depositories(CSDs), hedge, mutual and private equityfund administration, securities lending andfinancing, and prime brokerage. In addition,Ms Cayse headed up relationshipmanagement and client services for thesurveys group, and managed the technicalteam which scripted surveys, analysed theresults and prepared research reports forclients. Ms Cayse also contributed regularlyto the editorial content of the magazine, andhelped to conceive, develop and manage itsannual survey awards events in Hong Kong,London and New York. She is a graduate ofthe Scripps School of Journalism at OhioUniversity, where she majored in journalism,and minored in Economics and German. Shealso earned a master’s degree in EuropeanCultures at Birkbeck College, University ofLondon.Sophie Chapman Dawsis a Manager in McLagan’s London officeand works with Mr Amos as part of thePerformance business and the McLaganInvestment Services team. In her rolewithin the McLagan Investment ServicesMs Chapman-Daws supports all ourbenchmarking efforts and capabilities froman execution perspective with additionalresponsibility for managing and developingthe reporting and analyses we deliver toour clients. Additionally she is currentlyworking with our partners within theCompensation team on a new initiative todevelop an analyses that is able to jointogether the financial performancebenchmarks with the detailed pay data tocreate a performance and reward solutionto our clients. She joined McLagan inDecember 2013 having previously workedfor Benchmarkers where she wasresponsible for the running of theInsurance benchmarks. Sophie graduatedfrom LSE with a background inMathematics and Economics.14

Contact UsKeith AmosAssociate Partner, Co-leadMcLagan Investment ServicesAon Hewitt10 Devonshire SquareLondon, EC2M 4YPt 44 (0)20.7086.5056 m 44 (0)7714 [email protected] Chapman-DawsManager,McLagan Investment ServicesAon Hewitt10 Devonshire SquareLondon, EC2M 4YPt 44 (0)20.7086.5110 m 44 (0)7715 [email protected] HobsonCo-leadMcLagan Investment ServicesAon Hewitt10 Devonshire SquareLondon, EC2M 4YPt 44 (0)20.7086.5145 m 44 (0)7714 [email protected] CayseManager,McLagan Investment ServicesAon Hewitt1600 Summer Street, Suite 601, Stamford,CT 06905t 1 etary & Confidential15

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About McLaganMcLagan provides tailored talent, rewards, andperformance expertise to financial services firms across theglobe. Since 1966, we have partnered with the largest andsmallest financial services firms to help them make datadriven decisions to hire, retain, and engage the top talentfor keeping the global economy running. Our compensationsurveys are the most comprehensive, in-depth source ofrewards data covering over 150 countries from more than2,500 clients. Our consultants work with hundreds of firmsannually to design total rewards programs and benchmarkfinancial performance for boards of directors, executives,employees, and sales professionals.McLagan is a part of Aon plc (NYSE: AON). For moreinformation, please visit & Confidential17

Bank, Lehman Brothers and Salomon Brothers (at Lehman and Salomon he worked on the trading desk with a specific focus on Emerging Markets). After leaving Salomon in 1999 he joined MIB Partners, a financial benchmarking Start-Up which was subsequently purchased by McLagan Partners, an Aon Company, in 2004. Allison Cayse . is a Manager within Aon