While some banking companies continue to hoard capital, Bank of
New York Mellon Corp.'s top executive said expansion remains its
top priority. But some analysts said its latest deal is clearly a
defensive move to box out Northern Trust Corp. from becoming a top
competitor in asset servicing.
BNY Mellon [BK] announced Tuesday a definitive agreement to buy
PNC Financial Services Group Inc.'s [PNC] Global Investment
Servicing Inc. business unit for $2.31 billion. The unit provides
custody, fund accounting, transfer agency and outsourcing services
for asset managers and financial advisors.
During a conference call Tuesday, Robert P. Kelly, BNY Mellon's
chairman and chief executive officer, described Global Investment
Servicing as "the last scale franchise in the United States for
custody servicing." He said that the business is "highly
complimentary" to BNY Mellon's asset servicing, alternative
investment management, and its Pershing custody services
Over the past five years, Kelly said Bank of New York Mellon has
been wary about making large acquisitions. Though it will need to
raise approximately $800 million in capital to finance part of the
transaction and will force the company to forego dividends, he said
the deal equips the company for future growth.
"We are clearly hearing from shareholders that their first love
is to continue to build the business and we'd love to do that,"
Nancy Bush of NAB Research LLC said that the deal is "clearly a
defensive move." She said other custody banks, specifically
Northern Trust [NTRS], "would like to have scale in fund accounting
and" Global Investment Servicing "was the only vehicle of any size
let to them."
Kelly admitted that fund servicing has been a "bit of a
weakness" for Bank of New York Mellon. The acquisition, which is
expected to close in the third quarter, will solidify BNY Mellon's
position as the second largest provider of fund accounting,
administration and transfer agency services to fund managers
globally. Bush said that it continues to trail State Street Corp.
[STT] by "many multiples."
She said BNY Mellon paid an "overwhelming" price because "there
clearly has been situations where BNY Mellon didn't have the
product set and lost business because of it."
BNY Mellon said the all-cash acquisition will be accretive in
the first year. The deal would add $855 billion in assets under
administration, including $460 billion in assets under custody, and
doubling the number of funds serviced for accounting and
Gerard Cassidy an analyst at Royal Bank of Canada's RBC Capital
Markets said that BNY Mellon "didn't pay a Filene's Basement Price,
but they didn't pay a Nieman Marcus price either."
He said BNY Mellon got a better deal than State Street did when
it bought the securities servicing business from Intesa Sanpaolo, a
Milan banking company, for $1.87 billion in cash in December.
Considering the fact that PNC has been eager to sell this
business to repay a portion of the $7.6 billion it received from
the Treasury Department's Troubled Asset Relief Program, Cassidy
said he thinks BNY Mellon is being opportunistic.
"To me, this was not a defensive move by BNY Mellon," he said.
"They have proven to be an opportunistic buyer of asset management
and asset servicing businesses, similar to State Street and
Northern Trust. These three companies are in the asset servicing
business. They have proven that they like to compliment organic
growth with acquisitions. All three will continue to compete for
Kelly said the acquisition of Global Investment Servicing would
not preclude BNY Mellon from considering other deals. The company
is interested in international expansion, he said, specifically in
"This is the largest deal we have done since 2005 so a deal like
this is a relative rarity," he said. "We are being careful to make
sure we maintain strong capital ratios and maintain our
Based in Wilmington, Del. with offices nationally and across
Europe, Global Investment Servicing has approximately 4,500
employees. Its current chief executive officer, Stephen M. Wynne,
would remain in that role when the deal is completed.
Cassidy said he expects more deals will follow in the next two
years. "Custody banks are back in their groove," he said.