MSCI counts the cost of bank M&A, looks ahead to custom indexes, AI

Index and analytics provider MSCI took a $7 million hit in its first quarter revenues as a result of the cancellation of overlapping license agreements following the merger of two large global banks last year.

Announcing the vendor’s results on Tuesday, April 23, MSCI chairman and CEO Henry Fernandez said higher than usual cancellations reflected “a concentration of unusual client events,” and that “We do not expect these high levels of cancellations to continue.”

“The vast majority of our Q1 cancellations stemmed from industry events, like mergers, fund closures and reorganizations,” said president and COO Baer Pettit, adding that excluding the $7 million single cancellation, client retention was 94%.

The real benefit of AI is that we’re in a very data-rich environment, and our clients are always trying to get better insights. So, we can deliver better insights and faster calculations using AI

Baer Pettit, MSCI

MSCI did not name the merged bank responsible for the $7 million cancellation, but it is thought the vendor was referring to the merger of UBS and Credit Suisse, which closed last year. UBS had stated it was seeking to deliver $8 billion in savings following the merger. As the third-largest expense for most financial firms, reducing data costs by eliminating overlap across the two firms would have been high on the bank’s list of priorities for savings.

The broader impact of those cost-saving measures across other data vendors in the industry is yet to be fully revealed. Doug Taylor, managing partner at data consultancy DouglasBTaylor International Consulting, predicts a ripple across the industry as other vendors receive similar cancellation notices from the banks. “We’ll definitely see a wider ripple, but probably not a tsunami,” he says.

CFO Andy Wiechmann said that while MSCI expects client events to continue, it doesn’t expect to see similar cancellation levels in the coming quarters—though there may still be some smaller cancellations yet to come as the bank integration continues—and expects retention rates to rebound.

While the vendor has some visibility into firms’ predicted spend, and had been expecting some level of cancellations, it didn’t know exactly when those would take effect, and wasn’t expecting such a large level of cancellations in one go.

However, the cancellation was a blip in an overall positive quarter, with revenue for the three months ending March 31 up almost 15% to almost $680 million, and net income of almost $256 million.

The vendor is also continuing to pursue new opportunities, and cited its recent acquisition of Foxberry, a London-based provider of custom indexes, as giving it the ability to respond to greater demand for custom indexes and to target a very broad range of use cases at asset owners and managers requiring institutional benchmarks for valuing their portfolios.

In addition, when asked about the vendor’s efforts to leverage artificial intelligence in its products, Pettit said MSCI is looking to apply AI to a variety of product areas, and this quarter will launch Analytic Insights, a new tool in its Insights range of products—which already includes Risk Insights and Market Insights—that will use AI to deliver insights to clients based on vast amounts of data that the clients would otherwise need to parse themselves.

“The real benefit of AI is that we’re in a very data-rich environment, and our clients are always trying to get better insights. So, we can deliver better insights and faster calculations using AI,” Pettit said.