BOSTON/MILAN (Reuters) - State Street Corp (STT.N), one of the world’s largest money managers for institutions, is buying the securities services arm of Italy’s biggest retail bank to help expand its footprint abroad.
Boston-based State Street said it would pay $1.87 billion cash for the securities services business of Turin-based Intesa Sanpaolo (ISP.MI). It will also inject $800 million in capital into the unit at the deal’s closing. In total State Street will pay $2.5 billion or 1.75 billion euros.
State Street shares climbed 3.8 percent to $43.88 on the New York Stock Exchange early Tuesday afternoon.
The deal, rumored for days and announced on Tuesday, is expected to close in the 2010 second quarter and brings the company a step closer to realizing its long-held goal of bulking up as a record keeper in Europe and Asia.
The Intesa unit, which employs 555, will deliver roughly $16 billion in cash deposits to State Street and help boost earnings in fiscal 2010, the company said.
The acquisition will also narrow the gap between State Street, which boasts $17.9 trillion in assets under custody and administration, and industry leader Bank of New York Mellon, which has $22.1 trillion.
For State Street, which has raised new capital this year, slashed its dividend and cut jobs, this is the second acquisition announced this month.
In early December State Street announced plans to buy Mourant International Finance Administration to become the biggest service provider for alternative assets, including hedge funds.
Most importantly this deal will help move State Street closer to its goal of earning half of its revenue abroad. After the Intesa deal closes, State Street will make 38 percent of its revenue abroad, company executives told analysts on a conference call.
With $1.7 trillion in assets under management, State Street already ranks as one of the world’s three largest asset managers. Its recordkeeping business — with $17.9 trillion in assets under custody and administration — is significantly larger and earmarked to grow even more though.
Recordkeeping is not a glamorous business, but it is lucrative and is essential for anyone who has ever bought or sold a stock or bond. State Street earned $833 million in servicing fee revenue in the third quarter.
State Street executives said they hope to retain 90 percent or more of the Intesa unit’s customers and sell them other State Street services.
The deal comes less than six months after State Street CEO Ron Logue told Reuters that one of his top priorities was to acquire foreign servicing business, noting that there were six to eight businesses in Europe that might be attractive.
“It matches right up with what our strategic intentions are,” Logue said on the Tuesday conference call.
It may also be Logue’s last big deal before his planned retirement on March 1, ending six years at the helm of the 217-year-old company. State Street President and Chief Operating Officer Joseph “Jay” Hooley will become CEO.
For State Street, this is not the first blockbuster deal in servicing. Seven years ago, it paid $1.5 billion to buy the securities services business of German rival Deutsche Bank. In 2007 it bought Boston-based neighbor Investors Financial.
For Intesa, the deal will boost the bank’s capital ratios, giving it a gross capital gain of about 740 million euros and a positive impact of 0.37 percentage point in its Core Tier 1 capital ratio, which was 7.2 percent at the end of September.
Intesa’s management and supervisory boards cleared the sale last week, leaving it to CEO Corrado Passera to finalize the deal.
The activities being sold generate about 130 million euros in net profit and revenue of 350 million euros a year, Intesa said.
Intesa shares were up 1.56 percent to 3.09 euros.
($1 = 0.6978 euro)
Reporting by Milan newsroom and Svea Herbst-Bayliss in Boston; Editing by Rupert Winchester, Robert MacMillan, John Wallace and Richard Chang