BlackRock has agreed to purchase an $87 billion money-market fund business from Bank of America as it builds scale in an industry grappling with new regulations.
The deal will involve merging Bank of America money funds and separate accounts into BlackRock's offerings, the New York- based asset manager said Tuesday in a statement. This will bring BlackRock's cash-management business to about $372 billion in assets.
BlackRock is expanding the business as it contends with interest rates that have remained near historic lows in the wake of the 2008 financial crisis. Managers are restructuring money- market funds to comply with U.S. Securities and Exchange Commission rules that force institutional prime funds to adopt a floating share price. Banks are also dealing with Basel III requirements, which make it more expensive to hold big cash deposits.
"The large compliance cost across the whole industry makes the cost of business substantially higher," Tom Callahan, co-head of global cash management at BlackRock, said in an interview. "It favors scale players."
For Bank of America, being a smaller player in money market funds made little sense when its clients could be given access to third-party products. The Charlotte, North Carolina-based firm sold most of its stock and bond mutual fund business in 2010 to Ameriprise Financial Inc. for about $1 billion. Ameriprise gained $189 billion in assets in the deal.
"The transaction is consistent with Bank of America's ongoing efforts to simplify our business, in this instance by outsourcing certain product manufacturing functions to an industry leader," Susan McCabe, a Bank of America spokeswoman, said in a statement. "Rather than manufacture liquidity solutions in-house, the bank will focus on delivering best-in- class liquidity products solely from third-party providers."
Terms of the deal, which is expected to be completed in the first half of next year, weren't disclosed. BlackRock's ties with Bank of America date to 2006 when the asset manager bought Merrill Lynch's investment-management business. BlackRock managed $4.5 trillion in assets at the end of September.