State Street Bank to Acquire Investors Financial Services
State Street Bank is about to become the world’s second largest global custodian with assets under custody exceeding $14.1 trillion dollars. The bank’s new ranking would be gained after closing their latest deal to acquire the Investors Financial Services Corporation by the end of the third quarter of this year. The bank would bypass JP Morgan Chase & Co. in ranking to become the largest hedge fund administrator.
This deal represents the largest major acquisition since they acquired Deutschi Bank AG’s global custody business to internationally expand their existing network. Today, their international business is generating about 41% of total revenues largely due to their ongoing strategy to grow faster than the others.
Whilst on the subject, State Street are also operative in the Middle East through the HSBC Bank Middle East. They have a Sub-custody agreement with the Asia Pacific Securities, an HSBC fully owned subsidiary. They service their clients’ assets in Jordan, Kuwait, UAE, Bahrain, Palestine, Lebanon and Saudi Arabia.For Investors Financial Services Corp., this expensive deal is worth $4.5 million. State Street will pay $65 a share or a 38% premium over the closing stock price of the Investors Financial. Following the announcement, Investor’s Financial’s stock recorded a good increase of 27.4% on 30May07 whilst StateStreet shares fell 6.5%.
State Street shares were upgraded from “market perform” to “out perform” by Jacqueline Reeves, an analyst at BankAtlantic Bancorp Inc’s Ryan Beck & Co.
State Street expects the deal to generate financial returns in 2009, and to reduce this year’s earnings 3.5% or 14% a share. It expects merger expenses of around $650 million.
The acquisition will result in recording a staggering $14.1 trillion of custodial assets and jumps ahead of JP Morgan Chase whose assets under custody recorded a $12.9 Trillion on 30Jun06. The number one rank is occupied by BONY with about $ 16.3 Trillion of custodial assets. The current position was occupied upon the recent announcement of Bank of New York that they concluded a deal to merge with Mellon Financial Corporation in December.State Street declared that the deal would make it the largest administrator of hedge fund assets, with $341 billion under administration. It is currently the second-largest, with $185 billion behind CitcoGroup Ltd., which has $310 Billion.
JPMorgan announced that they increased their custodial assets 30% last year to $13.9 trillion at year end.
After the acquisition, State Street expects cost savings of about $360 million. Investor Financial’s expenses recorded $579 million last year. The total number of employees for the two companies are 25,500 employees.
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