BNY Mellon Confirms Takeover of PNC’s Asset Servicing Biz
February 2, 2010
Bank of New York Mellon Corp. today confirmed it will buy the asset servicing unit of PNC Financial Services Group for $2.31 billion in cash to add to its hedge fund and mutual fund client base.
The deal, expected to close in the third quarter, includes the purchase of $1.57 billion of stock and repayment of intercompany debt from PNC. BNY Mellon plans to sell about $800 million in stock as part of the transaction which was announced before the start of U.S. trading today.
PNC, which has said it intends to repay $7.6 billion in government bailout money over time, is one of the largest lenders still to have funds from the Treasury’s Troubled Asset Relief Program (TARP).
The PNC unit, based in Wilmington, Delaware, provides custody, fund accounting, transfer agency and outsourcing solutions for asset managers and financial advisers. Stephen Wynne, GIS’ CEO will remain in that spot and will report to Tim Keaney and Jim Palermo, co-heads of BNY Mellon’s asset servicing business. The acquisition will add $855 billion in assets to BNY Mellon’s $22.3 trillion book of business and make it the number two bank in fund accounting and administration.
Custodian banks are quickly buying up asset servicing businesses as they reassess their holdings after the financial crisis triggered $1.7 trillion in writedowns worldwide. Boston-based State Street Corp. the third biggest custody bank, agreed in December to acquire the securities- servicing unit of Italy’s Intesa Sanpaolo SpA for $1.79 billion in cash to expand outside the U.S.
“BNY Mellon’s purchase builds scale in the mutual-fund administration space, which is really a much more labor- intensive margin business,” says Thomas McCrohan, an analyst with Janney Montgomery Scott LLC in Philadelphia.
“This acquisition significantly strengthens our service offering and market share with asset managers and financial advisors, while delivering attractive returns to our shareholders,” said Robert Kelly, BNY Mellon’s chairman and chief executive in a statement.
Large custodian banks usually have an advantage over smaller ones in securities processing businesses because of the significant technology spend involved. “It further adds a high proportion of fee-based revenues to our business which is an important part of our strategy,” said Palermo. That means BNY Mellon will be less reliant on revenues from trading and other capital market initiatives which can be volatile. Palermo said that PNC approached BNY Mellon at the end of last year to discuss selling the business.
BNY Mellon has been eager to use acquisitions to grow its custody business, doubling the assets it processes over the past five years. Bank of New York acquired Mellon Financial Corp. in 2007 to surpass JP Morgan Chase as the world’s largest custodian bank. Kelly, a former Mellon executive who became the combined company’s chief, last year added to the asset-management unit by buying Insight Investments Ltd. from London-based Lloyds Banking Group Plc.
