Bank of New York Co. said Tuesday that it has agreed to acquire J.P. Morgan & Co.'s $800 billion-asset global custody business for an undisclosed sum. Analysts estimated the deal could be worth as much as $400 million.
The transaction covers Morgan's securities lending and custody business in the United States and the United Kingdom, and will further boost Bank of New York's position as one of the leading players in securities custody, with some $2.8 trillion in securities under administration.
Bank of New York said it would retain fewer than half of Morgan's 1,000 custody services employees after the sale is completed in six to nine months.
Bank of New York has been steadily acquiring the securities processing, custody, and administrative operations of other banks. In April, the bank agreed to purchase the $462 billion-asset custody and securities processing businesses of BankAmerica Corp.
Thomas J. Perna, an executive vice president at Bank of New York, said his bank was able to beat out other bidders for the Morgan operations because Bank of New York does not compete with Morgan in capital markets activities.
The securities custody and administration business has been rapidly consolidating, mainly because of the high cost of investing in technology. Although some observers have speculated that Bank of New York will purchase still more operations, including NationsBank's custody business, Mr. Perna suggested that his bank was now putting major new acquisitions on hold.
"This doesn't preclude us from looking at other opportunities, but we are entering into a period of integration," Mr. Perna said.
Analysts said Morgan's decision to sell its custody business will help the bank invest in other areas, such as capital markets, where it has a bigger advantage.
"This helps Morgan avoid the privilege of having to make major investments into this business over the next few years," said Raphael Soifer, a banking analyst with Brown Brothers Harriman & Co.
Mr. Soifer predicted that the sale will add a one-time gain of $1 to $2 to Morgan's earnings per share in the quarter it is completed.
"It's a strategic move on Morgan's part," said Frank DeSantis, an analyst with Donaldson, Lufkin & Jenrette. "It wasn't a hugely profitable business for them, so the amount of earnings they will be giving up will be relatively minor."
Others estimated Bank of New York will be getting good value for its money. "They've been very successful at negotiating similar transactions in the past, and chances are they have been at this one as well," said Diane Glossman, an analyst with Salomon Brothers Inc. "This adds a tremendous amount of throw weight to their efforts."
