Deutsche Bank Takes Passive "Action"

September 27, 2002 ( - Deutsche Bank continued to dispense with its institutional businesses, announcing that it has agreed to sell its passive asset management operations to Northern Trust for $260 million.

“This sale is a further important step in our strategy of focusing on our core business areas,” the bank said in a statement, adding that assets managed under the passive asset management operations totalled some $120 billion at mid-year.   Deutsche Bank said it expects the deal to be completed in the next three to six months, according to a press release.

As for Northern Trust, the move emphasizes their continued expansion of their investment management capabilities.    Perhaps just as significantly, the addition of the passive and enhanced indexing services should dramatically expand the Chicago-based trust company’s transition management capabilities.

Indexing Enhanced

Northern Trust managed assets worth $327 billion at mid-year.   The addition lifts the master trust powerhouse into the top ten institutional investment managers in the country, and the third largest passive manager in the nation, behind State Street Global Advisors (SSgA) and Barclays Global Investors (BGI).  

The purchase price is based on the total value of managed assets transferred to Northern Trust. Based on assets under management as of June 30, 2002 , the purchase price would be approximately $260 million, subject to adjustments.  All in all, the deal represents a purchase price of about 22 basis points on assets acquired, compared with acquisitions of active management businesses than can command 100 to 200 basis points on assets under management.  

While the bulk of the assets are comprised of global passive investments, the deal also includes DB’s enhanced equity and passive fixed businesses.  

Reportedly bidding on the business were Mellon, SSgA, the Bank of New York and UK-based insurer Legal & General.   Curt Kohlberg, president of Newton, Massachusetts-based Chatham Partners, acted as the strategic advisor on the sale.

Custody Negotiations

Just a week ago, State Street confirmed that it was in “exclusive discussions” regarding the acquisition of Deutsche Bank’s global securities services business (see  State Street Confirms “Exclusive” Talks on DB Biz ).  The deal, also advised by Chatham Partners, will be the largest securities services transaction in history.  A large portion of the assets come from US tax-exempt clients, formerly customers of Bankers Trust, which came to Deutsche Bank when it acquired Bankers Trust in June 1999.

The shift has not been sudden – ever since the German bank starkly announced in its 2001 annual report that it was reviewing its strategic options with regard to these businesses, and focusing on “core” businesses, it was presumed that the bank’s American institutional customers – primarily legacy clients of Bankers Trust – would have to deal with a change of custodian bank (see  DB Search For Master Trust Buyer Nearing End? ).