The deal, when consummated, 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 terms of the deal have not been disclosed – like all deals whose success depends in no small part on client retention, the final value will be a function of how customers react to their new provider. But sources close to the deal indicate a price tag of between $1.2 billion and $1.8 billion.
For State Street, this marks a signal strategy shift – other than its deal to buy Wachovia Bank’s institutional trust and custody business in 1999, the Boston securities services specialist has tended to prefer to grow organically. Its purchase of the Deutsche Bank business will further consolidate its lead in a number of key businesses, including securities lending – where it is already the largest player – and US custody (even before this transaction, State Street claimed that it was the custodian for 40% of US public fund assets). In addition, the purchase gives State Street control of Depotbank, Deutsche Bank’s massive German fund administration and custody business, as well as Deutsche Bank’s substantial European fund administration business.
For Deutsche Bank, this marks an end to its once-grand ambitions in global custody. However, the deal “will not in any way affect Deutsche Bank’s commitment to the cash management and corporate trust businesses, as they are run as separate areas,” says Curt Kohlberg, president of Newton-based Chatham Partners, which acted as the strategic advisor on the sale.
Kohlberg declined to comment on the terms of the deal, but he said that the reason that Deutsche Bank chose State Street was that the “quality of their senior management, systems technology and ability to handle a project with such global scope were obviously very important, as was their financial offer. This much being said, what really distinguished them was their approach to transitioning Deutsche Bank’s clients.”
The fate of Deutsche Bank’s substantial index management business remains to be seen – as of now, it is not part of the deal with State Street, officials say. Deutsche Bank will also retain its local subcustody capabilities across Europe and Asia.
State Street officials were reluctant to comment before the deal was inked, but a spokesman noted that“this potential acquisition would add significant scope and capabilities that would enhance our strengths in meeting the full spectrum of our clients’ ever-changing needs. The transaction would solidify State Street’s leadership in global investment services and uniquely establish us as the clear market leader in the fast-growing European investment services arena with an unrivalled array of services.”
Runners-up for the business, according to sources, were Bank of New York and Mellon Financial/ABN Amro.