Another major bank is walking away from the corporate and municipal bond administration business.
When Wells Fargo & Co. last week said it had agreed to sell its unit to Bank of New York Co. for an undisclosed sum, the move was yet another example of the rapid consolidation of the securities processing industry.
A number of large banks have exited the business or related areas in recent years, including NationsBank Corp., Barnett Banks Inc., Wachovia Corp., and BankAmerica Corp.
The acquisition, which is subject to regulatory approval, involves the transfer of approximately 5,000 bond trustee and agency appointments representing more than $85 billion in outstanding securities.
"This rounds out our nationwide franchise," said Joseph M. Velli, executive vice president and head of Bank of New York's worldwide securities processing business. "This was a sizable business with a very good client base on the West Coast - which was attractive to us strategically."
Assuming the deal closes, clients would be served by Bank of New York's trust company affiliate based in Los Angeles. The $52 billion-asset bank also has securities processing offices there as well as in Seattle and San Francisco, Mr. Velli said.
Bank of New York has been one of the major beneficiaries of the large bank exodus from the securities processing business. It has made more than a dozen acquisitions in the past two years alone.
"Because of the need for humongous economies of scale in this business, there is only room for a few," said Paul Mackey, analyst with Dean Witter Reynolds. "As a result, this industry is being concentrated in fewer and fewer hands."
Some of Bank of New York's chief rivals in the business are First Bank Systems Inc., Chase Manhattan Corp., and Bankers Trust New York Corp.
Wells Fargo, which has total assets of $109 billion, inherited the operation when it acquired First Interstate Bancorp last spring.
"We've concluded that the scale of this business, though large, is not large enough to effectively compete in the future," said Daphne Larkin, a Wells Fargo spokeswoman.
Wells did not solicit bids for the business but sought out only Bank of New York, Ms. Larkin said.
The business is clearly an important source of fee income for Bank of New York. The company's securities processing service, of which the corporate and municipal bond business is a part, consisted of about a third of the company's noninterest income for the first nine months of 1996. During the same period, revenue in securities processing at Bank of New York increased by 60% to $638 million from the equivalent year-earlier period.
"We'll see a lot more deals just like this one," said David Berry, analyst with Keefe, Bruyette & Woods, adding that the buyer in many cases will likely be Bank of New York.
