Market sources say Chase Manhattan Corp. will announce a nearly $1 billion takeover of U.S. Trust Corp. today in a complex, two-step deal that involves selling, a large portion of the assets back to U.S. Trust's management.
Sources close to the deal said Chase will retain U.S. Trust's securities processing and custody business while spinning off private banking, corporate trust, and asset management
Neither Chase nor U.S. Trust spokesmen would comment.
The sources said Chase will buy the entire company so that it can do the deal in a tax-free exchange of stock. When stock is swapped in mergers and neither party stands to make a profit, the transaction is tax exempt.
U.S. Trust first announced that it was negotiating to sell its institutional custody, mutual funds servicing, and unit trust businesses late last month.
Analysts predicted U.S. Trust would have total revenues this year of slightly more than $400 million. About half of its revenues come from asset management $50 million from corporate trust, and some $100 million from securities processing and custody operations.
Observers put the worth of U.S. Trust's securities processing business at about $320 million. They say the entire transaction is worth between $900 million and $1 billion.
Although Chase, with $117 billion in assets, could easily assimilate New York-based U.S. Trust's nearly $4 billion in assets, analysts said it would not make sense for the money-center bank to do so.
If Chase did not do the spinoff, it "could wind up paying a big multiple to earnings in something that sounds to me like a very dilutive transaction," said one analyst who declined to be identified.
The acquisition will help solidify Chase's own position in securities' processing against competitors such as State Street Bank and Trust Co., Northern Trust Corp., and Bank of New York, analysts said. The deal will also help expand Chase's mutual fund operations. Chase is already one of the world's largest global securities custodians, with some $452.4 billion in assets under custody.