Under the terms of the agreement, State Street will pay Deutsche Bank an initial payment of approximately $1.2 billion at closing. This 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 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.
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, according to the announcement.
Assuming 3,200 Employees
At the time of closing, State Street will also assume approximately 3,200 employees worldwide, and operations in New York, Nashville, London, Frankfurt, Dublin, Edinburgh and Singapore. In a Tuesday conference call with reporters, David Spina, State Street chairman and chief executive officer, said officials are anticipating chopping about a total of 1,000 jobs in both companies in the first 12 months after closing with the majority of the downsizing in the US.
Already this year State Street has trimmed its payrolls as a cost-saving move and to boost performance at a time many financial services firms were hard hit by the bear market. State Street now has 19,400 employees worldwide.
According to the announcement, Deutsche’s global securities services business serves investment managers, private and public pension funds and insurance companies in 92 markets. 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.
State Street officials said that, as a result of the deal, the company will go from the third largest custodian in the world to the largest.
Still, Spina told reporters in the conference call, he didn’t anticipate being able to change the company’s basic pricing structure because of continued tough competition – particularly in the pension arena. “The pension market in particular has always been one of our most competitive around the world and we don’t see that changing anytime soon,” Spina said.
As part of the agreement, State Street will provide global investment services to Deutsche Asset Management (DeAM), the announcement said.
Under the long-term agreement, State Street will provide, subject to regulatory approval and DeAM’s fiduciary requirements, custody, fund administration and global securities lending with the potential to expand the mandate to DeAM’s investment management affiliates.