BankAmerica to Sell Stock-Transfer Unit
Bank of America plans to sell off a sizable securities-processing business, further evidence of a shakeout among providers of wholesale banking services.
Citing poor profitability and tough competition, the bank unit of BankAmerica Corp., San Francisco, signed a letter of intent to sell its stock-transfer business to Manufacturers Hanover Corp., New York, strengthening Hanover's position among the top five bank providers of this service.
The sale, which should be completed within 30 days, represents the biggest sale of a stock-transfer business in the past two years. The purchase price was not disclosed.
"We are committed to the stock-transfer business," said D'Arcy LeClaire, a managing director with Manufacturer's Geo-Serve unit, which handles the bank's wholesale services. "There is tremendous value in this business."
Bowing Out from Top 10
Bank of America was among the top 10 biggest bank providers of this service. Bank of America officials said excess capacity in the industry and insufficient volume of new customers made the business unattractive.
Even for banks still in the business, stock transfer yields low profits that requires continuous investment in technology. As a result, no banking business has experienced a faster or more extensive contraction than securities transfer.
In this business, banks perform the complex record-keeping and funds disbursement of a corporation's stock shares and municipal bonds.
A key reason for the low margins is the shrinking number of shareholders, resulting from mergers and big holdings by institutional investors. Fewer shareholders mean a smaller pie to divide among service providers.
Volume Makes the Difference
The shakeout in the field has left the 10 biggest providers of this service with about 40% of the market. Half of those big players are banks: First Chicago Corp., Mellon Bank Corp., Manufacturers Hanover Corp., the Bank of New York Co., and Harris Trust & Savings Bank.
Perhaps only the top 10 or 12 service providers make money from the high volumes of transactions needed to offset the investments in big computer systems.
Bankers at the biggest providers predict that only four or five major players in the industry will remain by 1995.
More Buyouts Likely to Follow
"There is no doubt this is a volume-sensitive business," Mr. LeClaire said. "The reason for consolidation is that many banks don't feel they will achieve the proper profitability as a result of their volumes."
To build volume over the past decade, Manufacturers has purchased three other major stock-transfer businesses from banks: Wells Fargo & Co., Connecticut Bank & Trust, and California Federal Bank.
Mr. LeClaire anticipates buying other big stock-transfer business in the near future, but declined to name the prospects.