Chase Manhattan Corp. announced an agreement Thursday to acquire the global custody business of Morgan Stanley Dean Witter & Co., which would widen Chase's lead in the increasingly consolidated securities processing business.
For Morgan Stanley, the deal signals a sharper definition of its core businesses.
Chase, meanwhile, will be adding $400 billion of trust and custody assets, bringing its total to $4.7 trillion.
Terms were not disclosed, but a source close to the negotiations put the price at $600 million.
The purchase would expand Chase's growing custody business overseas-its total non-U.S. portfolio would be $1.8 trillion-as well as solidify and increase the New York bank's relationships with large mutual funds that make investments abroad, said James W. Zeigon, senior managing director and head of Chase's global services unit.
"More and more mutual funds are allocating their investments abroad," Mr. Zeigon said. "We needed to have a broader platform" to grow with them.
With the deal, Chase would take over Morgan Stanley Trust Co. of Brooklyn, N.Y., Morgan Stanley Bank Luxembourg SA, and 500 employees.
Chase's closest competitors in global custody, Bank of New York Co. and State Street Corp., have also been pushing to build their non-U.S. businesses. Privatization of pension funds, changes in capital markets, and the coming of the common European currency are creating hot growth prospects abroad, analysts said.
Bank of New York has $4.2 trillion of custody assets, including $815 billion non-U.S. assets. State Street has $4.4 trillion total and $301 billion foreign.
Banks that are smaller in custody assets have been divesting in the face of shrinking profit margins and the need to make hefty technology expenditures to stay current. Custody is viewed as a scale business that must be big to keep growing and yielding reasonable margins.
"It is difficult to be half in the business," said Sally Pope Davis, an analyst at Goldman Sachs & Co.
Morgan Stanley said its decision to sell reflected its desire to focus on investment banking, brokerage, asset management, and credit cards.
The company also recently sold a credit card and transaction processing subsidiary, SPS Transaction Services Inc. It went to Dallas-based Associates First Capital Corp. for $896 million.
Morgan Stanley & Co. began building its global custody business from scratch in 1988, said spokesman Jon Diat. But with the purchase of Dean Witter, "we became a different company with different strategies," he said.
Bank of New York, which along with Bankers Trust Corp. was said to be one of the other bidders for the Morgan Stanley business, has also been expanding abroad through acquisition. In 1995, Bank of New York struck a deal for J.P. Morgan & Co.'s global custody business, with $850 billion of assets.
Analysts said an expanded presence in Europe would bring Chase, Bank of New York, and State Street additional benefits with the arrival of the unified European currency, the euro, next year.
Many of Europe's biggest banks provide custody services in their home markets, but analysts predicted the euro would prompt a consolidation in the European banking business similar to what has happened in the United States over the last three years.
"Scale is going to move up dramatically," said Lawrence Cohn, an analyst at Ryan Beck & Co. "Those banks that already have scale now will be in the best position to gain in market share."
Mr. Zeigon said his unit plans additional acquisitions in the near future. He said Chase was bidding on a few deals that he declined to specify.
"We are much more focused on economies of scale," he said. "Our strategy is to make acquisitions where we can and where they are available."
