Commissioners approved the deal first announced in November (See State Street to Acquire Deutsche Custody Business ) after deciding that it won’t bring significant competitive changes in the securities services markets around the world, Dow Jones reported.
The cash and stock deal, worth up to $1.5 billion, makes State Street the world’s largest global custodian, vaulting it past J.P. Morgan Chase & Co. and Bank of New York Co., with $8 trillion in assets under custody. Last September, Deutsche Bank agreed to sell another component of its institutional business – its passive asset managment operations – to Northern Trust for $260 million (see Deutsche Bank Takes Passive “Action” ).
Under the terms of the agreement, State Street will pay Deutsche Bank an initial payment of approximately $1.2 billion at closing. The amount may be reduced depending on the acquired business’s run rate revenues at closing and certain other factors.
State Street has also agreed to make subsequent payments to Deutsche of up to an estimated $300 million, based upon the performance of the acquired business post-closing, including adjustments related to revenues generated from the acquired business.
As part of the deal, State Street is acquiring Deutsche Bank’s:
- global custody business with assets under custody of approximately $2.2 trillion
- fund administration services
- Depotbank services
- securities lending
- performance measurement (including WM Company)
- benefit payments businesses
- UK and US-based domestic custody and securities clearing.
Deutsche Bank will retain its sub-custody network in Europe, Latin America, and Asia. Deutsche Bank will be State Street’s preferred sub-custodian in selected markets.
When the deal closes, State Street will also assume approximately 3,200 employees worldwide, and operations in New York, Nashville, London, Frankfurt, Dublin, Edinburgh and Singapore. In a November conference call with reporters, David Spina, State Street chairman and chief executive officer, said officials are anticipating chopping a total of about 1,000 jobs in both companies in the first 12 months after closing with the majority of the downsizing in the US.
For 2002, the acquired business is expected to have revenues of approximately EURO 700 million. State Street officials said they expect an approximately 16% revenue boost from the new businesses.
There has also been some speculation about whether former Deutsche custody or securities lending clients will
shop their business to other providers before the State Street deal closes. (See Vultures Hover Over State Street-Deutsche Transition).