The Bank of New York said Wednesday that it has reached a definitive agreement to acquire the American depositary receipt business of BankAmerica Corp. for an undisclosed sum.
The $50 billion-asset Bank of New York, which dominates the ADR business, expects the purchase to close this week. The deal will be accretive to earnings immediately, the bank said.
Analysts said BankAmerica owned less than 1% of the ADR business in the U.S., which totals $278 billion.
"It sounds like BankAmerica had no economies of scale in it, and wanted to get out," surmised Mark Alpert, an analyst at Alex. Brown & Co. "Bank of New York probably paid next to nothing for it."
Officials at the San Franciscobased bank, which has $192 billion of assets, could not be reached for comment.
ADRs are certificates representing shares of stock in a foreign company that trade on U.S. stock exchanges the same way ordinary U.S. shares do. They provide domestic investors a cost-effective way to diversify their portfolios.
Most ADRs are sponsored by a U.S. bank or brokerage, but in this case, Bank of New York purchased 86 unsponsored ADRs. An ADR sponsor handles dividend payouts, notifications, and processing, and acts as a custodian for the company issuing stock. The issuer generally approaches the bank.
In the case of unsponsored ADRs, multiple banks act as the depositaries in response to demand driven by brokers.
Bank of New York leads the ADR business, with 54% of the U.S. market. J.P. Morgan & Co. has 23%, and Citicorp has 22%, said Mr. Alpert.
"Our ability to make such purchases immediately accretive to earnings speaks to our outstanding capabilities in such processing areas," said Thomas Renyi, Bank of New York's president and chief operating officer.
BankAmerica's ADR business represents securities of companies based in Germany, Hong Kong, Italy, Japan, Mexico, Singapore, and the United Kingdom.
Bank of New York, the nation's 15th-largest bank, currently issues more than 800 depositary receipts for securities of companies in 44 countries.